ALICE IN WONDERLAND: ARE PATENT TROLLS MORTALLY WOUNDED BY SECTION 101 UNCERTAINTY?

• Author: Toyos, Stephanie E.

1. Introduction II. Down the Rabbit Hole: The Road to Alice A. Software and Business Method Patents Background B. Understanding Section 101 Patent-Eligible Subject Matter C. The History of Patenting Software: The Road to Alice 1. The Supreme Court's First Glance at Software Patents 2. The Explosion of Software and Business Method Patents 3. The Rising Concern with Non-Practicing Entities 4. The Response: The Supreme Court Strikes Back III. Post Alice World: A Mad Tea Party A. Alice Ruling Impacting Software and Business Method Patents 1. A Blow to the "Trolls": Non-Practicing Entities 2. The Practical and Problematic Impact of Alice on Section 101 Issues B. What is Patent-Eligible under Section 101 in Post Alice World 1. Defining the Abstract Idea 2. The Search for the Inventive Concept IV. Proposal: Alice Through the Looking Glass A. How to Clarify the Uncertainty Among the Lower Court's Differing Approaches 1. The Fundamental Concept Analysis for Step 1 of the Alice Test 2. Additional Factors for Step 2 of the Alice Test B. The Second Solution: The Revival of the Technological Arts Test V. Conclusion I. INTRODUCTION

   Can you imagine being sued for normal, everyday activities like using your cell phone, operating a scanner, or even creating a podcast? American businesses have recently faced frivolous lawsuits for these very activities. One example of this can be found in the story of Kate Doerksen, the founder of the eyewear startup company Ditto. (2) Ditto allows customers to virtually try on glasses, "using a 3D modeling system that replicates the buyers [sic] face." (3) The startup had just received funding to expand when Lennon Imaging Technology sued Ditto for patent infringement. (4) Lennon claimed that Ditto infringed on its software patent, U.S. Patent No. 6,624,843 B2, (5) covering "customer image capture and use thereof in a retailing system." (6) The lawsuit was eventually dismissed but not before forcing Ditto to lay off four of its employees to pay legal fees. (7) Lennon, however, is but one example of how non-practicing entities ("NPE") use vague software patents to restrict the use of ordinary technologies and harm economic growth and innovation. Using vague software patents as weapons, NPEs threaten businesses into paying them unjustified royalty fees in exchange for dropping the lawsuit.

   These abusive tactics cost the American economy billions of dollars and have destroyed numerous small companies. (8) On June 19, 2014, the Supreme Court fought back and attempted to end this crisis by issuing its ruling in Alice Corp. v. CLS Bank International. (8) The Court found that simple ideas are not patentable simply because they are done on a computer. (10) A patent on such a basic idea would hinder innovation rather than to promote it, thus frustrating the primary purpose of patent law. (11) Therefore, Alice can be seen as an effort to return the patent system to a balance by limiting NPEs' ability to own basic, everyday ideas.

   This Comment will examine the impact Alice has had on non-practicing entities and whether further measures are necessary to combat this problem. Ultimately, it is this author's argument that more clarification is essential to remedy concerns on how to properly apply the framework given in Alice. In making this argument, this Comment first defines software and business method patents, and explains why non-practicing entities prefer these types of patents. A discussion on the historical development of patent eligibility for software before the Supreme Court decision in Alice v. CLS Bank will follow. Next, this Comment discusses the rising criticisms of software patents and how Alice can be understood as a response to these criticisms. Finally, this Comment will explore the impact that Alice has had on both software and business method patents, along with non-practicing entities. In particular, it explores how patent eligibility has become more confusing in the post-Alice world. Finally, the Comment will provide a solution to the uncertainty that has arisen among the lower courts on how to apply the new Alice framework.

2. DOWN THE RABBIT HOLE

   1. Software and Business Method Patents Background

      To begin, it is important to understand what software and business method patents are. Specifically, software patents are patents on technology that include a software/encryption or a computer aspect. (12) In layman's terms, software is complex because programs can often contain thousands of lines of codes. (13) Moreover, this combined with the fact that software patents tend to be broad with uncertain boundaries, evidently lead to a great deal of accidental infringement and disagreements about when infringement occurs. (14) Many software programmers and companies detest the restriction upon the free use of software and believe that software is an abstract idea and not concrete enough to merit patent protection. (15) Others argue that the constitutional provision allows Congress to award patents to discoveries in the useful arts (i.e., technical fields). (16)

      John V. Biernacki, a partner at Jones Day in Ohio, has laid out a spectrum of the different types of business method patents, which helps in understanding their complexity. On one side of the spectrum are pure technical innovations with examples of these including: new automotive engine designs, new software encryption algorithms used within a mobile communications device, or a new chemical manufacturing process. (17) In the middle of the spectrum are hybrid innovations (i.e., software-implemented business method patents). (18) These include e-commerce patents such as Priceline's computer system for performing a reverse auction. (19) Another example of an e-commerce patent is Amazon's one-click process for Internet purchases. (20) Finally, at the other end of the spectrum are pure business method innovations, which is where the business method of Bilski and Alice would reside. (21) Washington Mutual Inc.'s patent for its customer friendly layout of its retail banking branches is one example of a pure business method patent. (22) Another example of this type of business method patent is Alice's patent, which relates to a computerized trading platform utilized for conducting financial transactions where a third party settles obligations between a first and second party for the purpose of eliminating settlement risk. (23) As a result of the recent Supreme Court decision in Alice, the patents that are mainly affected are pure business method innovations.

   2. Understanding Section 101 Patent-Eligible Subject Matter

      Obtaining a patent provides the inventor an exclusive right to exclude others from making, using, selling, or importing claimed inventions for a limited time span of twenty years. (24) To be valid, claims must consist of patent-eligible subject matter that is defined in the Patent Act. (25) Section 101 of the Patent Act defines patent-eligible subject matter: "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." (26) On its face, section 101 appears simple; however, its application to computer-implemented inventions has proven quite difficult in courts throughout the country. (27) Section 101 is vital to the Patent Act because it is charged with ensuring that our nation's patent laws encourage, rather than impede, scientific progress and technological innovation. (28) Therefore, Section 101 acts as a threshold to patentability by distinguishing between discoveries of an existing fundamental principle versus the creation of an original invention. (29)

      However, Section 101 is by no means perfect. In an effort to avoid the preemption of natural laws and fundamental concepts, judges have created exceptions to [section]101 for the patentability of laws of nature, natural phenomena and abstract ideas. (30) These judicially-created exceptions are excluded from patent-eligibility because such fundamental discoveries represent the basic tools of scientific and technological work. (31) The main concern is that patents covering such fundamental concepts would reach too far and claim too much and obstruct, rather than promote, innovation. (32) Danger also lies in applying the judicial exceptions too aggressively because "all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas." (33) In fact, as many courts have warned, "the exceptions could swallow patent law entirely" if taken too far. (34)

      Over the years, courts have further distinguished these exceptions because of technologies that "blur the lines between awareness of an abstract idea, law of nature or natural phenomena" with the application of them. (35) In fact, courts have had difficulty in identifying the distinction between an abstract idea and the application of that idea with respect to the implementation of methods through computers. (36) The abstract idea exception is fundamentally different from other judicially created exceptions to patent-eligibility. (37) One reason for this is that abstract ideas have no "core of clearly verboten subject matter," while laws of nature have boundaries capable of clear definition. (38) However, abstract ideas lack these clear boundaries and thus force line drawing that re-writes the claim into unpredictable ways that were unforeseen by the inventor. (39) The end result is that any application of the abstract idea exception involves an unruly parsing and rewriting of the claims, and the court's analysis of the invention turns on the evaluation of something that bears little resemblance to what was originally claimed. (40)

   3. The History of Patenting Software and Business Methods: The Road to Alice

      Over the years the Supreme Court and the Federal Circuit Court of Appeals have had...