On June 19, 2014, the Supreme Court issued a decision in Alice Corp. v. CLS Bank Int’l, reiterating “a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” The framework, as originally set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 10 (2012), requires a two-step analysis:
Step 1: Determine whether a claim is directed to an abstract idea. If so, proceed to Step 2; otherwise, the inquiry ends.
Step 2: Consider the elements of the claim both individually and “as an ordered combination” to determine whether the additional elements are sufficient to “transform the nature of the claim” into a patent-eligible application.
Declining to “delimit the precise contours of the ‘abstract ideas’ category,” or even to provide a working definition of what is meant by “abstract idea,” the Court offered practical guidance on Step 1 only by referring to some examples of inventions which were deemed patent-eligible or patent-ineligible in prior cases. On Step 2, the Court held that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” Instead, the claim must contain an “inventive concept” or “a ‘new and useful’ application of the idea in order to be patent eligible,” such as technical improvements to another technology or to the functioning of a computer itself in the case of computer-implemented inventions.
In the past six months, while patent practitioners and litigators continue to grapple with the Alice decision, its impact on software inventions is palpable on all fronts — patent-eligibility of software claims has come under an unprecedented level of scrutiny from patent examiners, the Patent Trial and Appeal Board (PTAB), and federal courts alike.
Prosecution of Software-Based Patent Applications
The past few months saw patent examiners issue, as a matter of course, non-statutory subject matter rejections against patent applications claiming software-based inventions. Few software-based patent claims, especially those facially related to data processing in e-commerce, financial services or gaming, have escaped rejection under the Alice decision; the PTO even withdrew many allowed applications from issuance and rejected them anew under § 101.
In recent interviews with patent examiners, we have gleaned some insight into the PTO’s application of Alice to software-based claims in patent applications. The current mindset among examiners, which seems to be an unwritten policy, is that all claims reciting financial or business methods are presumed to be directed to “abstract ideas.” Any subject matter relating to banking, investments, or payment transactions would be categorized as either a matter of “fundamental economic practices” or “methods of organizing human activities” — leading examples of the several categories of “abstract ideas” listed in a June 25, 2014 PTO memorandum to the Patent Examining Corps. As a result, those claims proceed to analysis under Step 2 and then more often than not are rejected for failing to contain sufficiently meaningful technical improvements beyond the abstract idea.
According to a knowledgeable supervisory examiner, it would be “very hard” for applications related to financial subject matter to escape the designation of “abstract ideas.” The best hope of overcoming 101 rejections appears to lie in demonstrating the invention is “significantly more” than the abstract idea itself. Accordingly, at present the PTO will likely only allow those software claims having limitations that meet one of the following categories (examples that may pass Step 2 of the Mayo test, as identified in the PTO memorandum):
a) Improvements to another technology or technical field;
b) Improvements to the functioning of the computer itself;
c) Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment
Of these three categories, our PTO insider has only seen Category a) among recently allowed software applications, which he refers to as “command-and-control” limitations — software inventions that generate an output to control a physical object, such as the opening and closing of a subway entrance or the switching of an electrical socket under software control. As to Category b), the PTO is looking for inventions that claim improvements to hardware components. For example, instead of improving a GUI displayed on a monitor, a patent-eligible software invention has to improve the functioning of the monitor itself. As to Category c), which may be the most promising for applicants to rely on in overcoming 101 rejections, it is still unclear what constitutes “meaningful limitations” and more clarification is needed from the Federal Circuit. One thing is clear, however, mere recitation of generic computing components in a patent claim would be insufficient for patent-eligibility.
The PTO has been aggressive in its implementation of the Alice decision in the past few months, choosing to be over-inclusive with “abstract idea” rejections and quite cautious about allowing software claims.
Covered Business Method Patent Reviews
At the PTAB, the Alice decision appeared to provide a substantial boost to covered business method patent (CBM) reviews, in terms of both the number of petitions filed relying upon non-statutory subject matter grounds for review and the rate of institution of § 101-based CBM reviews.
In 2014, prior to issuance of the Alice decision, only 34 CBM petitions relied upon non-statutory subject matter as a ground for review. In contrast, in the weeks since the Alice decision (as of December 12, 2014), 65 CBM petitions were filed alleging unpatentable subject matter under § 101 and the Alice decision, almost doubling the number of filings in the preceding period. See Table 1. In fact, the 2014 post-Alice filings of § 101-based CBM petitions are more than all filings of this type for 2013.
Table 1. CBM Petitions Filed Citing Section 101
|
|
Calendar 2013 |
2014 Pre-Alice |
2014 Post-Alice |
|
Number of Petitions |
~50 |
34 |
65 |
|
Petitions per Week |
~1 |
1.36 |
2.6 |
The institution rate of § 101-based CBM reviews also rose significantly since the Alice decision. As of December 12, 2014, the PTAB has issued substantive decisions on a total of 85 CBM petitions (all filed before the Alice decision) which raised non-statutory subject matter as an invalidity ground. As shown in Table 2, prior to the Alice decision, only 68% of the CBM petitions were fully granted based on § 101 grounds while almost a third of those petitions were either partially denied (19%) or completely denied (13%).
Table 2. PTAB Decisions on CBM Petitions Citing Section 101
|
Total |
Denial |
Denial (%) |
Partial Denial |
Partial Denial (%) |
Grant |
Grant (%) |
|
|
Pre-Alice |
53 |
7 |
13% |
10 |
19% |
36 |
68% |
|
Post-Alice |
32 |
3 |
9% |
0 |
0% |
29 |
91% |
|
Overall |
85 |
10 |
12% |
10 |
12% |
65 |
76% |
As soon as the Alice decision was announced, the PTAB judges started applying that decision to CBM petitions. Post-Alice, the institution rate of § 101-based CBM petitions jumped to 91% (from the pre-Alice 68%). Indeed, the PTAB has denied this type of petition in only three cases.
Recently, in TD Ameritrade v. Trading Technologies Int’l (CBM2014-00136), the petitioner sought a CBM review of U.S. Pat. No. 7,676,411 entitled “Click Based Trading with Intuitive Grid Display of Market Depth.” The PTAB panel denied the petition without any substantive discussion of the claims because “Petitioner provides insufficient analysis as to why each of the 40 challenged claims merely recites the alleged abstract idea …” Therefore, for parties seeking to file CBM petitions challenging patents under Section 101, the party must provide more than a conclusory assertion that the patent claims are directed to abstract concepts; instead, a claim-by-claim analysis under the Mayo framework should be presented.
In PNC Bank v. Secure Axcess LLC (CBM2014-00100), a PTAB panel found a webpage authentication patent (U.S. Pat. No. 7,631,191) was not directed to an abstract idea. The panel characterized the invention as “a computer-implemented method to transform data in a particular manner” that involves multiple “physical steps.” The panel also found the claims distinguishable from the patent-ineligible abstract concepts in Alice or Bilski and may even meet the machine-or-transformation test. See Ce Li, Understanding Alice: Step 1 Of Mayo Analysis At PTAB, Law360 (October 17, 2014).
In U.S. Bancorp v. Solutran, Inc. (CBM2014-00076), another PTAB panel refused to institute a CBM review of a check-processing patent (U.S. Pat. No. 8,311,945) under § 101. The PTAB panel recognized that, even though the challenged claim recites some fundamental economic practices (such as “crediting an account for a merchant”), “the basic, core concept of independent claim 1 is a method of processing paper checks, which is more akin to a physical process than an abstract idea.”
Thus, if a patent owner can establish a claimed invention operates to transform data or the claims are tied to a “physical process” or “physical steps,” then such claims may be found patentable under § 101 and Alice.
District Court and Federal Circuit Decisions
Less than half a year since its issuance, the Alice decision has been positively cited in 32 district court decisions and 4 Federal Circuit opinions to invalidate patents under Section 101.
Recently, in Ultramercial, Inc. v. Hulu, LLC, 2014 WL 5904902 (Fed. Cir. Nov. 14, 2014), the Federal Circuit found that “the concept embodied by the majority of the [claim] limitations describes only the abstract idea of showing an advertisement before delivering free content.” It further concluded that the additional claim limitations (such as “consulting an activity log, add a degree of particularity”) “do not transform the abstract idea … into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea with routine, conventional activity.”
In buySAFE, Inc. v. Google, Inc., 765 F.3d 1350 (Fed. Cir. Sep. 3, 2014), the Federal Circuit found that “[t]he claims are squarely about creating a contractual relationship — a ‘transaction performance guaranty’ — that is beyond question of ancient lineage.” The court commented that the claims “do not push or even test the boundaries of the Supreme Court precedents under section 101,” and held the claims invalid as directed to an abstract idea.
In Planet Bingo, LLC v. VKGS LLC, 576 Fed.Appx. 1005 (Fed. Cir. Aug. 26, 2014), the Federal Circuit characterized the claimed invention as “managing a bingo game while allowing a player to repeatedly play the same sets of numbers in multiple sessions.” Since “managing the game of bingo ‘consists solely of mental steps which can be carried out by a human using pen and paper’” and “the claims recite a generic computer implementation of the covered abstract idea,” the challenged claims were found invalid under Alice.
In Digitech Image Technologies, LLC v. Electronics for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. Jul. 11, 2014), the method claims at issue recite “a process of taking two data sets and combining them into a single data set, the device profile.” Since the two data sets are “generated by taking existing information … and organizing this information into a new form,” the court determined the claims were directed to “an ineligible abstract process of gathering and combining data that does not require input from a physical device.”
To date, the Federal Circuit has only issued one opinion that upheld patent-eligibility of a software invention under Alice. In that case, DDR Holdings, LLC v. Hotels.com, L.P., 2014 WL 6845152 (Fed. Cir. Dec. 5, 2014), the majority found an e-commerce patent (U.S. Pat. No. 7,818,399) patent-eligible under § 101 notwithstanding a strong dissenting opinion filed by Judge Mayer. The ’399 patent at issue covers “systems and methods of generating a composite web page that combines certain visual elements of a ‘host’ website with content of a third-party merchant.” The majority recognized that the ’399 patent claims “do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet” but are “necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” To reach its conclusion of patentable subject matter, the majority also contrasted the challenged claims with those found to be patent-ineligible in Alice, Ultramercial, buySAFE, Accenture (728 F.3d 1336 (Fed. Cir. 2013)), and Bancorp (687 F.3d 1266 (Fed. Cir. 2012)).
In district courts, only three decisions held, after applying Alice, that the challenged patents were valid under § 101.
PTO’s Interim Guidance
On December 15, 2015, the PTO published “2014 Interim Guidance on Patent Subject Matter Eligibility” (FR Doc. 2014-29414) for public comments. This Interim Guidance builds upon, and supersedes, the June 25, 2014 PTO memorandum and lists more specific examples of “abstract ideas” (for Step 1 of the Mayo analysis) and additional exemplary types of claim limitations “that may be enough to qualify as ‘significantly more’” (for Step 2). All these examples came from Supreme Court opinions and recent Federal Circuit decisions, which provide a few more clues on the elusive boundary between patentable and unpatentable subject matters.
Apart from the additional examples, applicants for software patents may also be heartened to find a few patentee-favorable instructions in the Interim Guidance. For example, the PTO now acknowledges that a claim limitation may qualify as “significantly more” if it meets either prong of the machine-or-transformation test. Patent examiners are also instructed to apply “streamlined eligibility analysis” to a claim — finding it patent-eligible without proceeding through the full Mayo analysis — if that claim, “when viewed as a whole, clearly does not seek to tie up any judicial exception such that others cannot practice it.” In other words, if the claim is crafted such that it plainly does not entirely preempt the use of an underlying abstract idea, it may pass muster under Section 101.
Conclusion
Six months since its issuance, the Alice decision has been applied by the courts, PTAB, and PTO alike to invalidate or reject software-based patent claims. With few decisions upholding patent-eligibility, the post-Alice trend has been overwhelmingly against software-based patent claims. On the other hand, the DDR Holdings opinion and the small number of other patentee-favorable decisions, as well as the most recent PTO examination guidelines, offer a glimpse of hope for those interested in defending software claims against 101 attacks.