No one expected the U.S. Supreme Court to hold that claims directed to "financial matters and risk management" were patent-eligible in Alice Corp. v. CLS Bank Int'l., No. 13-298 (June 19, 2014). Indeed, the Court did not so hold. Now that we have the Court's decision, if you scroll down you will see that I have provided some specific thoughts on future software and business methods patent practice.
But before getting to specific practice tips, one might consider some background. The justices were unanimous that Alice Corp.'s asserted patent claims recited unpatentable subject matter under 35 U.S.C. § 101. The real question of Alice, which we can now answer, was how the justices would go about striking down Alice Corp.'s patent claims directed to computerized systems and methods "applied to financial matters and risk management." Would a new standard be articulated, or a new direction in the law charted?
The answer to these questions is a resounding "no." The Court here simply applied the "abstract idea" test, such as was stated in Mayo v. Prometheus: (1) are the patent claims drawn to an abstract idea and, (2) if so, is there anything else in the claims as an inventive concept that is "significantly more" than the ineligible abstract idea? The Court quite easily answered the first question in the affirmative, and the second in the negative, sealing the fate of the patents at issue. Clearly, the Court found Alice Corp. to be an easy case, not one requiring any new or difficult analysis. Moreover, as if to prove the incremental nature of its decision, a majority of the Court declined to join Justice Sotomayer's concurring opinion expressing the view that business methods claims are per se not eligible for patent protection under 35 U.S.C. § 101.
And in that vein, it appears that a number of bloggers and journalists may have led themselves astray in suggesting that Alice Corp. sets out a new, or tougher, standard, or in bemoaning that Alice Corp. will result in thousands upon thousands of business methods and/or software patents being invalid. The reality is that, applying the abstract idea test, many district courts, and sometimes even the Federal Circuit, have recently been holding a wide array of patents ineligible for patent protection under Section 101. Alice Corp. simply confirms, and, to be fair, will accelerate, what was already an established trend.
However, the Court's "modest" opinion, while perhaps leaving unanswered the question of how to clearly distinguish patent-ineligible ideas from patentable subject matter, does provide clear and useful lessons. True, the "abstract idea" test is vague and subjective, and its application in Alice Corp. leaves many questions relating to patent-eligibility frustratingly unanswered. However, the Court's failure to break new ground in Alice Corp. is perhaps even more instructive, and provides even more guidance, for both patent prosecutors and litigators, than one might have obtained from an opinion providing a new test or analysis that would then have to be threshed out in the lower courts, including the oft-divided Federal Circuit. Others have provided detailed analyses of the Court's opinion. In this post, I want to provide some non-abstract, i.e., concrete, ideas about the implications of Alice Corp. with respect to patent application and prosecution practice, as well as to patent litigation. Thus, here are some lessons from Alice Corp.:
A common reaction to judicial pronouncements altering a standard for evaluating the validity of patent claims is to provide advice concerning claim drafting techniques by which claims can be drafted or amended to meet the new standard. You will probably hear that kind of advice in reaction to Alice Corp. For example, as noted below, the Court stated clearly and repeatedly that simply reciting a "generic" computer in a claim will not confer patentability. Therefore, a claim drafter may be advised to include more in a claim, say details of a computer, details relating to software interaction with hardware, e.g., actuation, control, etc., or other limitations relating to hardware. This is good advice. But at the end of the day, to borrow an expression, you can only put so much lipstick on a pig. Some claims that ten years ago unquestionably would have been patent-eligible simply are not today. The claims at issue in Bilski v. Kappos, Mayo v. Prometheus, and Alice Corp. are probably all good examples of these.
Alice Corp. makes clear that some subject matter -- certainly subject matter that can be understood and practiced without a computer, even if a computer is used -- is probably, even if not definitely, ineligible for patent protection under current U.S. law. In such clear cases, clients will be well-advised to redirect their intellectual property protection efforts to copyright and trade secret protection, because time and money spent on patent protection, at least under the current Section 101 regime -- simply will not provide a return on investment. Formal trade secret programs are now more important than ever to document and maintain valuable trade secrets. And because some (formerly) patentable concepts cannot be maintained as trade secrets, clients will have to accept that aggressive use of copyright, trademarks, and license terms may be the best they can do.
As noted above, this is an obvious take-away from the Court's opinion, which explained that claims simply instructing the application of an an abstract idea "using some unspecified, generic computer" were not patent-eligible. The Court's emphasis on this point bears repeating. To be sure, there remains a vast swath of software patents that could, and another bucket of software patents that probably do, claim aspects of a computer program with enough specificity and/or interaction with hardware so as to pass the "abstract idea" test. That said, there is now no question that, if an invention is a process that happens to be implemented in a computer, the mere recitation that the method is "computer-implemented" will not save a claim. That is, if a claim requires only a "generic" computer, what that really means is that the subject matter claimed to be novel and non-obvious does not include the computer. Put another way, if a patent claim could, at least in theory, be practiced without a computer, it is now very clear that one must question the worth of filing a patent application to obtain a patent for such claim.
Currently, many examiners will withdraw Section 101 rejections based on an alleged lack of patent-eligible subject matter if the applicant amends the rejected claim to explicitly include a computer. Suppose that the USPTO issued a Section 101 rejection for a claim such as: "A method, comprising totaling individual sale prices of items in a transaction to determine a total transaction price." Even after the Court's 2010 decision in Bilski v. Kappos, the odds were pretty good that the rejection could be overcome by amending the claim to recite: "A method, comprising, in a computer that includes a processor and a memory, totaling individual sale prices of items in a transaction to determine a total transaction price." The USPTO has had good reason for this practice; having examiners apply the admittedly subjective "abstract idea" test begs a morass of inconsistency, confusion and appeals. But after Alice Corp., surely the USPTO will have to actually look at the subject matter being practiced in the computer, and will more often, and more consistently, reject claims for lack of patent-eligibility.
Perhaps only three sitting justices are willing to say so, but Alice Corp. represents at least a near-final nail in the coffin of patent claims directed solely to a business method. Admittedly, such a broad pronouncement depends on a narrow definition of "business method." I use that term here to refer to processes relating to finance and management that do not require a computer, or at least have an analog that could be practiced without a computer. But for at least this narrow category of claims, surely it is difficult to argue that any court would find them patent-eligible. Put another way, this is the category of claims that, no matter how they are dressed up with clever claim drafting, will not pass muster.
Recently, the district courts have generally not been shy about invalidating patent claims for ineligible subject matter. And courts don't wait until later stages of litigation, sometimes invalidating patents on summary judgment or at trial, but also often ruling on motions to dismiss under FRCP 12. Alice Corp. can only accelerate what is already a strong trend. Defendants today are more and more considering whether they can trigger a post-grant "covered business method" review, or an inter partes review; proceedings before the Patent Trial and Appeals Board (PTAB), if available, have successful precedent, particularly in cases where the district court is unlikely to order an early dismissal. But in many cases, a Rule 12 motion to dismiss may be the most efficient and cost effective mechanism for disposing of some patent infringement claims. And, for some, Alice Corp. will dovetail nicely with the recent Octane Fitness case, making it more likely that defendants will obtain fees and sanctions against plaintiffs who assert patent claims found invalid under Section 101.