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Bar watching, waiting for software patentability ruling

NEIH 042114_p01_TechentinPatent lawyers in New England are hoping the U.S. Supreme Court provides some useful guidance this term on whether computer-implemented software programs that draw on non-computerized principles — a category that could encompass countless types of programs used by millions of people — are eligible for patents.

During arguments this month in Alice Corp. v. CLS Bank International, the court seemed to struggle with the issue of whether such programs fall under the “abstract idea” exception of the Patent Act.

A 2010 ruling on patent eligibility standards that invalidated a business method patent claim as too abstract, Bilski v. Kappos, has similarly vexed lower courts, which have followed varying approaches that have confounded inventors and patent attorneys alike.

“They certainly need to give some guidance,” said Linda J. Thayer, a lawyer in the Boston office of Finnegan, Henderson, Farabow, Garrett & Dunner. “It’s a very fact-specific thing. It is very hard to describe how something is abstract.”

The stakes are high for the court, with businesses from small startups to major companies such as Google, Amazon and Facebook chiming in on amicus briefs.

“It’s potentially huge for anyone in the software industry,” observed Jeffrey K. Techentin, chairman of the intellectual property practice group at Adler, Pollock & Sheehan in Providence, R.I.

Techentin said the ruling could affect anything that involves “this abstract idea concept and where there appears to be non-physical renderings of ideas.”

Given that the ruling in Bilski failed to shed meaningful light on when a patent is or is not abstract, courts have engaged in “the very messy task of trying to differentiate applications from ideas,” said John L. Cuddihy, a partner at Ballard, Spahr, Stillman & Friedman in Washington, D.C. “I think you are going to see the court lay down some rule. It has to lay down some clear guidelines [for] the Federal Circuit, trial courts, the software community and the patent bar.”

Threshold requirement of patentability

The case centers on four patents obtained in the 1990s by Australian company Alice Corp. The patents involve the methods and systems associated with a computer-assisted software system used in a foreign currency international marketplace operated by CLS Bank International.

In 2007, CLS filed an action in federal court seeking a declaratory judgment that the patents were invalid and that CLS had not infringed them. The patents, CLS argued, were ineligible for protection under §101 of the Patent Act, the provision that determines eligible-patent subject matter, because they were “abstract ideas.”

Alice Corp. filed a countersuit alleging infringement, and both parties sought summary judgment. A federal District Court judge ruled that the patents were invalid because they involved a general computer implementation of a “basic business financial concept.”

A panel of the Federal Circuit reversed, holding that the patents were valid. Acknowledging the confusion in the case law over what makes an idea abstract, the panel nonetheless found that the patents at issue “cover the practical application of a business concept in a specific way” and therefore passed muster under §101’s threshold requirement.

But on en banc rehearing, a fractured court affirmed the District Court judge’s ruling in a short per curiam decision annexed to six separate opinions. In one concurrence, a judge accused Alice Corp. of using “extravagant language to recite a basic function” of financial markets.

The Supreme Court granted Alice Corp.’s petition for certiorari to answer the question of whether computer software such as the program at issue is patent-eligible subject matter under §101.

Clear rule coming?

While hoping the court will provide a clear rule on what is abstract, members of the patent bar say that is far from guaranteed.

Philip C. Swain, a patent attorney at Foley Hoag in Boston, wrote an amicus brief in the case on behalf of the International Association for the Protection of Intellectual Property in support of neither party. He also attended the oral arguments.

“I think the best [the justices] can do is issue a narrow decision on computer-implemented inventions and say that, in this case, the Alice Corp. inventions on settling mutual fund transactions are not patentable,” he said. “But we’re not going to get much more guidance than that.”

Swain added that he could sense the justices’ frustration — “not with the advocates, but with the challenge of coming up with a clear rule.”

But the justices also expressed a concern that they “didn’t want to issue a decision that would wipe out certain industries,” such as software and other technology-based industries, or the telecommunications field, Swain said.

Brian Carroll, general counsel at LevelUp in Boston, a mobile payments company, read the transcript of the argument and agreed.

“I don’t think the impact is going to be far-reaching,” said Carroll, who co-wrote an article with Swain on the Federal Circuit’s decision below in the Alice Corp. case.

The question, according to Swain, is “how narrow and how confusing will the ruling be?”

Still, he said he hopes the court will issue a simple, flexible test to assess the patentability of computer-implemented inventions, as explained in his brief.

“So long as they meet the other statutory criteria of patentability under 35 U.S.C. §102 (novelty), §103 (non-obviousness), and §112 (adequate disclosure), … all  computer-implemented inventions that produce a useful result should be considered eligible for patent protection, in the same manner given to other advances in technology,” Swain wrote.

When advising clients on presenting claims for software patents between now and when the Supreme Court is expected to rule in June, the key is to focus on clearly “non-abstract” elements of inventions, practitioners said.

“There are certainly ways to repackage ideas when presenting them to the Patent Office to enhance the non-abstract aspects of the invention,” Techentin said.

In drafting a patent claim, Carroll advised including enough detail “that you get out of the abstract idea category. Include enough examples of the specific implementation of the method or algorithm in hardware to show that you’re not patenting an abstract method but rather concrete implementations of the method.”

The oral arguments

During oral arguments, Alice Corp.’s attorney, Carter G. Phillips of Sidley Austin in Washington, urged the Supreme Court to rule that computer software programs are not too abstract to be patented. But explaining why was a challenge.

“I’ll be the first one to confess that trying to use language to describe these things is not all that easy,” Phillips said. “But the way you can meaningfully look at it is to say that this is not simply something that was a fundamental truth, this is not something that simply says, ‘Use a computer.’”

Justice Stephen G. Breyer said many computer software programs take ordinary tasks and do them in a fast or complex way. By allowing those programs to be patent-eligible, “there is a risk that you will take business in the United States or large segments, and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer.”

On the other hand, Breyer said, “if you go the other way and say never, you rule out real inventions with computers.”

Justice Antonin Scalia identified a possible path to victory for Alice Corp.

“We have said that you can’t take an abstract idea and then … use a computer to implement it,” Scalia said. “But we haven’t said that you can’t take an abstract idea and then say here is how you use a computer to implement it — which is basically what you are doing.”

“That’s the line we are asking the court to draw here,” Phillips agreed.

Precedent controls?

Mark A. Perry, a partner in the Washington office of Gibson, Dunn & Crutcher arguing on behalf of CLS Bank, argued that the court’s rulings in Bilski and other cases end the inquiry.

“Bilski holds that a fundamental economic principle is an abstract idea, and Mayo [v. Prometheus Labs] holds that running such a principle on a computer is ‘not a patentable application of that principle,’” Perry said. “Those two propositions are sufficient to dispose of this case.”

But the justices continued to struggle with what kinds of programs could get past §101.

“How about email and word processing programs?” Justice Sonia Sotomayor asked. “They certainly have functionality.”

“At a point in time in the past I think both of those would have been technological advances that were patentable,” Perry replied, noting that such inventions can lose their functionality over time, as has been the case with typewriters.

“It is only where the method will not work without a computer, which is not [Alice Corp.’s] claims, and where the computer itself is doing something that the patent law is willing to protect” that a program should pass under §101, he said.

U.S. Solicitor General Donald B. Verrilli Jr., arguing as amicus in support of CLS Bank, offered the court a slightly different test.

“A computer [program] makes a difference under §101 when it imposes a meaningful limit on the patent claim,” Verrilli said. “That occurs when the claim is directed at improvement in computing technology or an innovation that uses computing technology to improve other technological functions.”

Justice Ruth Bader Ginsburg asked whether such a test would “extinguish business method patents and make all software ineligible for patent protection?”

Verrilli said it would not.

“Any software patent that improves the functioning of the computer technology is eligible,” he said.

Reni Gernter contributed to this story

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