Suppose I create a new computer program that gathers all the data on the personal computer of every student at Penn and uses a highly accurate matchmaking algorithm to pair students with their ideal Penn mate. I call it “PENNty of Fish.” For PENNty of Fish to work, students install the program on their personal computer, run the program, and discover their perfect match. Privacy and creepiness issues aside - is PENNty of Fish patentable? The recent Supreme Court decision in Alice Corp. v. CLS Bank Int’l provided some guidance, but left many questions unanswered.
What Was Alice Up Against? 35 U.S.C. § 101
Alice Corporation owned a patent claiming a computer-implemented method of holding funds in escrow to prevent parties in a contract from reneging on a deal. When CLS Bank challenged Alice’s patent, the Supreme Court stepped in to determine whether Alice’s patent was actually patent-eligible subject matter under 35 U.S.C. § 101. 134 S. Ct. 2347 (2014). § 101 describes four categories of patentable inventions: process, machine, manufacture or composition of matter. Laws of nature, natural phenomena, and abstract ideas have long been excluded from patent protection. While the law of gravity and electricity are straightforward examples of non-patentable laws of nature and natural phenomena, what exactly is an abstract idea? Was Alice’s patent an abstract idea? Or was it a patent-eligible process?
To answer this question, the Court compared Alice’s patent to the patent in Bilski v. Kappos—a recent case where the patent claimed a method of hedging financial risk associated with price fluctuations. 130 S.Ct. 3218, 3223 (2010). The Bilski patent failed to meet the § 101 criteria because its claims “reduce [hedging risk] to a mathematical formula. This is an unpatentable abstract idea.” Id at 3222. Because Alice’s patent was sufficiently similar to Bilski’s patent, the nine justices agreed that Alice’s patent was also an abstract idea. But did the court take this opportunity to further clarify what an abstract idea actually is? Not really. In true Supreme Court fashion, Justice Thomas wrote, “in any event, we need not labor to delimit the precise contours of the ‘abstract ideas’ category in this case.” Alice, 134 S. Ct. at 2357.
Inventive Concept to the Rescue?
Even though Alice’s patent was an abstract idea, it would still be patentable if it contained an “ ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” Id. The method of holding funds in escrow claimed in the Alice patent required a computer. Could the use of a computer suffice to transform Alice’s abstract idea into a patent-eligible application? Not quite. The Supreme Court found that the computer simply acted as a means to recite the method, not improving or adding value to the inventiveness of the claimed method. Therefore, the inventive concept test fell short in saving Alice’s patent from a § 101 rejection.
Shall We Do the Alice Two-Step?
Alice left us with a two-step process to determine patentability:
- Is the patent claiming an abstract idea?
- If yes, does the claim contain an inventive concept that transforms the abstract idea into a patent-eligible claim?
If the claim passes the inventive concept test, then the claim is patent eligible. Once this barrier is surpassed, however, the claims must still meet other statutory requirements before a patent can issue.
What’s All the Fuss About?
On the surface, Alice dealt with the category of business method patents. So why was the ruling such a big deal? Why did over 45 companies including Google, Amazon, Facebook, and Verizon - in addition to 26 professors - care enough about Alice to file amicus briefs?
Two words: software patents. While the opinion did not mention software even once, technology companies knew that the ruling would affect the validity of many software patents that were the basis of current and future lawsuits against them, particularly those held by non-practicing entities (often referred to as patent trolls) notorious for asserting weak patents against large and small companies in the hope of a big payoff. And these technology giants would much rather spend time and resources creating new products than defending lawsuits.
To see the impact, let’s first revisit my “PENNty of Fish” invention, which in a very broad sense could be comparable to many currently issued method or software patents. PENNty of Fish meets the other statutory criteria of novel, non-obvious and useful, but let’s see what happens when we do the Alice two-step:
- Is it an abstract idea? We can certainly conceive that it is an abstract idea because like the Alice and Bilski patents, PENNty of Fish can be reduced to a mathematical algorithm.
- Is there an inventive concept? The program only needs to be installed on a personal computer. So according to Alice, implementing the method on a computer is not inventive or transformative. Therefore, it seems unlikely that PENNty of Fish could be patented. Sorry for getting your hopes up.
Since the Alice ruling, the Federal Circuit has invalidated a number of patents under § 101 using similar reasoning to my hypothetical PENNty of Fish scenario:
- In buySAFE, Inc. v. Google, Inc., the patent related to binding transactions over a computer network. 765 F.3d 1350, 1355 (2014).
- In Loyalty Conversion Systems Corp. v. Am. Airlines, Inc., the patent claimed a method of currency exchange for loyalty award credits. 2:13-CV-655, 2014 WL 4364848, at *9 (E.D. Tex. Sept. 3, 2014).
- In Tuxis Technology v. Amazon, the patent was a method to upsell customers through data gathering. CV 13-1771-RGA, 2014 WL 4382446, at *5 (D. Del. Sept. 3, 2014).
- In Walker Digital, LLC v. Google, Inc., the patent related to a method of releasing confidential information for employment searches. CV 11-318-LPS, 2014 WL 4365245 (D. Del. Sept. 3, 2014)
In all of these cases, the patents in dispute failed to meet § 101 requirements for the same basic reason—the role of the computer added no inventive concept to a method that was essentially a mathematical algorithm.
Does Alice Spell Doomsday for All Software Patents?
Should companies like IBM, Google and Apple be worried that all of their valuable software patents will fall under 35 U.S.C. § 101? If they are, they sure aren’t acting like it. Most actually supported the striking down of Alice’s patent. But didn’t they think a rejection of the Alice patent would lead to similar rejections of patents in their own portfolio? In actuality, big technology companies hoped the invalidation of Alice’s patent would set a precedent to prevent “patent trolls” from obtaining patents on similarly vague concepts. A more rigorous interpretation of § 101 would sift out patent trolls’ weak patents which existed primarily as the basis of infringement lawsuits against companies with deep pockets. To take this position, the technology giants must have been confident that their own patents would pass muster in a more rigorous § 101 interpretation – let’s hope their decision was made on sound legal advice.
Where Does Alice Leave Us?
Although Alice did not clarify much about the contours of an abstract idea, recent Federal Circuit decisions applying Alice have been consistently striking down certain method patents as abstract and non-inventive ideas (see Additional Materials below). Alice came down only a few months ago, so we can only wonder how long this consistency will continue. Only time will tell.
Courts post-Alice rejected issued patents under 35 USC § 101 in the following cases:
- Digitech Image Technologies, LLC v. Electronics for Imaging, Inc., 758 F.3d 1344 (Fed. Cir. 2014)
- Planet Bingo, LLC v. VKGS LLC, 576 F. App'x 1005 (Fed. Cir. 2014)
- Genetic Technologies Ltd. v. Lab. Corp. of America Holdings, CV 12-1736-LPS-CJB, 2014 WL 4379587 (D. Del. Sept. 3, 2014)
- Comcast IP Holdings I, LLC v. Sprint Commc'ns Co. L.P., CV 12-205-RGA, 2014 WL 3542055 (D. Del. July 16, 2014)
- Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., 8:11-CV-2826-T-23TBM, 2014 WL 4540319 (M.D. Fla. Sept. 11, 2014)
- Eclipse IP LLC v. McKinley Equip. Corp., CV 14-154-GW AJWX, 2014 WL 4407592 (C.D. Cal. Sept. 4, 2014)
- CMG Fin. Servs., Inc. v. Pac. Trust Bank, F.S.B., CV 11-10344 PSG MRWX, 2014 WL 4922349 (C.D. Cal. Aug. 29, 2014)
To preempt any confusion, the United States Patent and Trademark Office issued preliminary instructions for examiners on dealing with method patents in the wake of Alice.