Patent Protection for Software and Business
Methods: Is Alice Killing the Trolls?
June 2, 2015
Charlie Moore
Senior Attorney
AHMRT, LLP
Bob Wasson
VP and Assoc. General Counsel
Hewlett-Packard Company
Roadmap
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The Alice Decision
Patent Office Response – Uncertainty Rules
Post-Alice Prosecution and Drafting
U.S. Companies’ Response
Covered Business Methods
Litigation Effects
Legislative Fixes
Q&A
2
A reminder:
The opinions expressed are those of the presenters
and do not necessarily reflect the views of AHMRT,
LLP, its clients, Hewlett-Packard Company or any of
its affiliates.
3
What can you patent after Alice?
“The idea was, when the Court took the case, that we
would finally have an answer to the question whether
software can be patented under U.S. law. To say we did
not get an answer is to miss the depth of the nonanswer we did get.”
- Prof. Robert Merges, Berkeley Center for Law & Technology
“A majority of the software patents being litigated right now,
I think, are invalid under Alice.”
- Prof. Mark Lemley, Stanford University, Sept. 2014
4
Judicial decisions
Gottschalk v.
Benson (1972)
(BCD number
to binary –
preempt
formula)
Parker v.
Flook
(1978) (alarm
limits – insig.
post solution
activity)
Alice v. CLS
Bank (2014)
(Intermediated
settlement)
Diamond
v. Diehr
(1981)
(curing
rubber)
Ultramercial
(Fed. Cir.
2014)
(view ads for
content)
Bilski v.
Kappos
(2010)
(risk
hedging)
Mayo v.
Prometheus
(2012)
(drug amount
effectiveness)
DDR
Holdings
(Fed. Cir.
2014)
5
Alice v. CLS Bank (2014)
-
-
-
Alice Corporation
- Australian company established by former McKinsey manager
- 11 U.S. patents
Alice patents broadly cover ways in which parties can contract electronically and
anonymously with one another in real time and secure environment to:
- Hedge known risks;
- Invest in known risks for profit;
- Lend/borrow from one another; and
- Exchange value between one another
Approached CLS Bank in 2002
CLS filed DJ in 2007
6
Alice v. CLS Bank (2014)
Method of Performing Electronic Escrow
Create
Electronic
Records
Track Multiple
Transactions
Issue
Simultaneous
Instructions
Claim 33 of U.S. Patent No. 5,970,479:
33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with
an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method
comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held
independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and
shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each
respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the
value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment
taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange
credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the
said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange
institutions.
7
Alice v. CLS Bank (2014)
Issue: Are computer-implemented inventions
patent-eligible under 35 U.S.C. § 101?
•
Parties stipulated claims are “computerimplemented”
•
•
•
Computer-Implemented Escrow
Several claims do not recite a computer or any form
of computer implementation
District Court: All claims are patent-ineligible
Federal Circuit: No majority opinion
•
Method and CRM claims are patent-ineligible; split
on system claims, so lower court ruling maintained
Judge(s)
Test
Lourie (Dyk, Prost, Reyna,
Wallach)
Significantly more (consider
“inventive concept”)
Rader (Moore)
Meaningful limitations to a
specific application of an
abstract idea
Meaningful limitations (joined
Rader on test)
Back to Basics
Linn (O’Malley)
Newman
Rise and Fall
Together?
Yes
Method Claims
CRM Claims
System Claims
Ineligible
Ineligible
Ineligible
No
Ineligible
Ineligible
Eligible
Yes
Eligible
Eligible
Eligible
Yes
Eligible
Eligible
Eligible
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Are computer-implemented inventions patenteligible?
Meaningful Limits:
Additional Limitations:
Computer implementation must limit
scope ofImplementation:
claim and
Claim needs additional limitations that
Specific
Always
patent eligible:
contribute to achieving intended result
claim to specific practical
Claim must be limited to direct
a
Computer-implemented
application
specific way of implementing
an
inventions always fall outside
Test:
ideaabstract
with
a computer
idea
(1) whether computer implementation
claimed
withexception
Test: whether use of computer is integral
sufficient particularity & specificity to ensure meaningful
to claimed invention or, alternatively,
Test:No
Claim
must have
inventive
principled
reason
to draw
limits on claim scope; and
whether recited use of computer is
concept
(elements)
to
ensure
distinctions
hardware
(2) computer implementation must be
significant between“insignificant
post-solution activity”
patent in practice amounts
to
contributor to achieve intended result and software
tackedcarried
on to steps of business method
significantly
more than
patent
• Technological
functions
on
the
abstract
idea
out by software could be
Claims eligible:
rise & fall together Additional Limitations:
Meaningful
Limits: Computer
Always patent
Specific Implementation:
Consider
claim as a whole
• Conventional
or obvious
steps
implemented
through
computer
Consider
all
combined
claim
elements
as
inventive
Claim
needs
additional
implementation
must
be
claims
Computer-implemented
Claim must be limited to a
Claims rise & fall together
limitationsinsufficient
thathardware
direct claim to
inventions concept
always fall outside
specific way of implementing an
Raderwith sufficient particularity and
Generalapplication
non-specific steps specificity
that
specific• practical
to ensure meaningful
abstract idea exception
idea with a computer
doComputer
not significantly
limit claims
implementation,
limits on scope of claim and
Claim must have inventive
scope
insufficient
Computer implementation,
however
the effort,
Use of computer
mustminimal
be
significantly contribute to
concept (elements) to ensure
to
particular
however minimal the effort,
definitively
separates achieving intended result
integral• toLimiting
claimed
invention
patent in practice amounts to
technological
environment
definitively separates
technological
implementation from
significantly more than patent
insufficient
technological implementation
idea itself
on the abstract idea
Newman
from idea itself
Limited eligibility
Always
eligible
Lourie+
Newman
Rader
Rader
Rader
Lourie+
Alice v. CLS Bank (2014)
Holding: Two-part test:
1. Are the claims directed to a patent-ineligible concept?
2. Is there an inventive concept in the claim? i.e., an element or
combination of elements that in practice amounts to significantly
more than a patent upon the ineligible concept itself.
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Alice v. CLS Bank (2014)
Part 1:
Test for Abstract Ideas
• Examples of abstract ideas – fundamental economic
practices (Bilski), certain methods of organizing human
activities, “an idea of itself”, mathematical relationships and
formulas (Benson, Flook)
• No clear standard provided – “we need not labor to delimit the
precise contours of the ‘abstract ideas’ category”
Application of the Test
• Claims recite an abstract idea – no meaningful distinction
between risk hedging in Bilski and intermediated settlement in
this case.
Alice v. CLS Bank (2014)
Part 2:
2: Significantly More
•
•
•
•
Insufficient
Appending conventional steps at a high
level of generality (Mayo)
Stating the idea + “apply it” (Mayo)
Mere recitation of a generic computer
(Benson)
Merely limiting to a “particular
technological environment” (Flook)
May Be Sufficient
•
•
Improvements to an existing technology
or technical field (Diehr)
Improvements to the functioning of the
computer itself
Application of the Test
• Alice’s claims are unpatentable, as they simply recite the
concept of intermediated settlement as performed by a generic
computer
DDR Holdings v. Hotels.com (Fed. Cir. 2014)
Post Alice: Software and even E-Commerce patents are viable
-
-
-
Patent addressed problem of retaining website visitors
Held – Patent eligible subject matter
The 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.
Instead, the claimed solution is necessarily rooted in computer technology in order to
overcome a problem specifically arising in the realm of computer networks.”
“The claims “do not broadly and generically claim ‘use of the Internet’ to perform an
abstract business practice (with insignificant added activity…the claims at issue here
specify how interactions with the Internet are manipulated to yield a desired result—a
result that overrides the routine and conventional sequence of events ordinarily
triggered by the click of a hyperlink.”
“It is also clear that he claims at issue do not attempt to preempt every application of
the idea of increasing sales by making two web pages look the same, or of any other
variant suggested by NLG. Rather, they recite a specific way to automate the creation
of a composite web page by an “outsource provider” that incorporates elements from
multiple sources in order to solve a problem faced by websites on the Internet.”
13
DDR Holdings v. Hotels.com (Fed. Cir. 2014)
Claim 19 of U.S. Patent No. 7,818,399:
19. A system useful in an outsource provider serving web pages offering commercial opportunities, the system
comprising:
(a) a computer store containing data, for each of a plurality of first web pages, defining a plurality of visually perceptible
elements, which visually perceptible elements correspond to the plurality of first web pages;
(i) wherein each of the first web pages belongs to one of a plurality of web page owners;
(ii) wherein each of the first web pages displays at least one active link associated with a commerce
object associated with a buying opportunity of a selected one of a plurality of merchants; and
(iii) wherein the selected merchant, the outsource provider, and the owner of the first web page displaying
the associated link are each third parties with respect to one other;
(b) a computer server at the outsource provider, which computer server is coupled to the com- puter store and
programmed to:
(i) receive from the web browser of a computer user a signal indicating activation of one of the links
displayed by one of the first web pages;
(ii) automatically identify as the source page the one of the first web pages on which the link has been
activated;
(iii) in response to identification of the source page, automatically retrieve the stored data corresponding
to the source page; and
(iv) using the data retrieved, automatically generate and transmit to the web browser a second web page
that displays:
(A) information associated with the commerce object associated with the link that has been activated, and
(B) the plurality of visually perceptible elements visually corresponding to the source page.
14
Patent Office Response
• In Fall 2014 up to 75% rejection rate based on Alice in
ecommerce-related Art Units
• Other art units (e.g., automobiles) see 5-7% rejection
rates
• Examiner’s afraid to allow applications, as they face high
scrutiny
• Applicants and Examiners are both searching to figure
out (1) what is abstract under Alice, and (2) how much
“something more” it takes to render subject matter
eligible under 101
• Both sides are confused, have higher work burden
15
Post-Alice Prosecution
• Use Alice 2 part frame work
– Part 1 - Argue claim as whole (all elements) not
abstract
– Part 2 - Argue claim has “something more”
• Rely upon Diamond v. Diehr
–
–
–
–
Real world input
Transformative processing
Real world output
That achieves an advantage over the prior art
• Rely upon Gottshalk
– Doesn’t remove a generic technology from the public domain
• Add harmless detail, such as available hardware sensors receiving input, input/output ports, etc.
16
Post-Alice Drafting
• Avoid claims to:
–
–
–
–
Fundamental economic activity (Bilski, etc.)
Mathematical formulas (Benson)
Signals (In re Nuitjen)
Device Profiles (Digitech (with respect to the claims
directed to the “device profile”)
– Pure Data Structures
• In re Warmerdam - data structure not patent eligible
• In re Lowry - functional data structure on a memory is patent
eligible
– Games (Planet Bingo)
17
Post-Alice Drafting
• Direct claims and description to specific, practical applications
• Avoid e-commerce words like game, order, commerce, auction, etc.
• Avoid overly broad or abstract characterizations of the invention in
the description and arguments
• Avoid buzzwords like “formula”, “equation”, and “algorithm” in
the description
• Use caution when reciting mathematical equations in the claims
• Explain how the invention solves a technical problem in the
description
• Use language from the cases in your description or arguments –
e.g., “embodiments improve the functioning of a computer by …”
• Draft for an uncertain future: Recognize that patents have 20-year
term and patent-eligibility law may well change during this time
18
U.S. Companies’ Response
• On legal/policy question US companies see this differently:
– High tech companies that get sued a lot on software patents
– Pharma companies
– Companies who assert software patents (e.g., operating companies,
NPEs, Universities, defunct businesses with valuable patent portfolios)
• In portfolio development:
– Improve technical character of patents, particularly software patents
– Perhaps file fewer patent applications on items that could be regarded
as mental steps, financial algorithms, or methods of organizing human
activity
– Recognize that patents have a 20 year term from priority and that legal
standards concerning patentable subject matter will likely change during
this time
19
U.S. Companies’ Response
• In Litigation:
– As a defendant
• Increasing use of 101 invalidity arguments early in litigation.
• CBM (Covered Business Method Review)
– As a plaintiff
• Consider alternative forums
• ITC and Germany gaining in popularity
20
Covered Business Method (CBM)
Review
- Potentially powerful
- CBM patent claims “a method, apparatus, or operation used in the
practice, administration, or management of a financial product or
service”
- Only party charged with infringement of a CBM patent can initiate CBM
challenge (receiving cease and desist letter likely to be considered
charge of infringement)
- May assert any grounds for invalidity
- May be filed only when post-grant review unavailable (e.g., nine months
after issuance).
- Estoppel provisions less extensive than post-grant review (extends only
to grounds actually asserted, not to grounds that reasonably could have
been asserted)
21
Litigation Effects – Curbing Trolls?
• PwC study reports number of patent lawsuits in 2014 decreased by
13%1
• But data collected Oct. 31, 2013 – Sept. 30, 2014; Alice decision
issued June 2014.
• Also, new patent lawsuits decreased 8% Jan – May 2014 (before
Alice) as compared to same period in 20132
• Number of patents invalidated by District Courts under § 101 July –
Dec. 2014 was more than double in all of 2013.
• Other newly available procedures (IPR, CBM) to attack patents
• Impact on NPE business model? Many believe Yes
– More difficult to obtain venture funding of NPE suits
– Vague/overly-broad patents have been critical to ensnare many defendants
– “Nuisance value” model less viable
1
“2015 Patent Litigation Study”, May 2015, PricewaterhouseCoopers LLP
Case Trends and the Business of Litigation”, February 5, 2015, Lex Machina
2“Patent
22
Legislative Fixes
- Unlikely to improve at Supreme Court
- PTO probably lacks authority
- Professional organizations, including Intellectual Property
Owners and AIPLA, are working on a proposed amendment to
section 101 to address these issues.
- One proposal amends 101 to exclude considerations found in
102, 103, and 112.
- Another proposal seeks to amend 101 in line with European
standards such as:
- Susceptible of industrial application and
- Invention must be of a “technical character” (i.e, “a technical
solution to a technical problem”)
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THANK YOU
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