Mcle Self-study Article

• Publication year: 2015
• Author: JAIDEEP VENKATESAN Bergeson, LLP

MCLE Self-Study Article

JAIDEEP VENKATESAN Bergeson, LLP

SOFTWARE PATENTS AFTER ALICE V. CLS BANK INTERNATIONAL

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The U.S. Supreme Court's heightened scrutiny of what constitutes patentable subject matter under 35 U.S.C. § 101 took a dramatic turn with its recent decision in Alice Corporation Pty. Ltd v. CLS Bank International.¹ The Court has long interpreted Section 101 as precluding patents on laws of nature, physical phenomena, and abstract ideas. How those exceptions apply to software patents—patents on processes and systems that use software to perform certain functions in computers and computer networks—had been an open question until Alice. Would patents on financial innovations (or "business method patents") survive if they expressly require computers and networks? What about innovations that use software but do not claim an actual algorithm or any technological improvements in hardware? The Federal Circuit was split on software patent cases, applying several analytic approaches creating much uncertainty.

Alice resolved some of these questions in a manner that significantly affects software patents. Alice reviewed a patent on a computerized scheme for mitigating settlement risk in financial transactions.² To mitigate the risk of default by a party to a financial exchange contract, the patentee claimed a computer system that used a third-party intermediary to create "shadow" credit and debit records and instruct financial institutions in carrying out transactions.³ All of the claims required a computer, either expressly or under a stipulated construction.⁴

The Court found that the patentee attempted to patent an abstract idea, settlement risk mitigation, and that such a patent would preempt all applications of that idea. The Court followed the framework for analyzing patents under section 101 set forth in Mayo v. Prometheus.⁵ First, the Court determined whether the claims were directed to patent-ineligible subject matter. Then, it examined whether there was an "inventive concept" "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept."⁶ The Court first found that the claims were directed to the abstract idea of intermediated settlement.⁷ The Court compared the claims to business method patents previously invalidated by the Court, and declared that the use of a third party intermediary or clearing house was a "building block of the modern economy"⁸ The Court noted that it did not matter whether the claims involved a mathematical formula, but suggested that commercial practices or "method[s] of organizing human activity" were abstract ideas, regardless of whether physical phenomenon (such as "intermediaries") were involved.⁹

Proceeding to step 2, the Court held that simply requiring a computer did not supply a sufficient "inventive concept" to save the claim.¹⁰ "[T]he mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention."¹¹ A claim cannot become eligible by simply requiring a generic computer to perform generic computer functions. The patent must claim an improvement in a technology or technical field.¹²

Following Alice, the Federal Circuit and lower courts have invalidated several software patents that previously would not likely have been challenged under section 101.

Innovations in Commercial Transactions Using Computers or the Internet Are No Longer Patentable

Alice eliminated any doubt as to whether "business method" patents could be saved by including such seemingly physical limitations as "computer media" or a network. Following Alice, the Federal Circuit invalidated a claimed innovation in using third party guarantees in online sales transactions that specifically required a computer application.¹³ The Federal Circuit in buySAFE, Inc. v. Google, Inc., found that "[t]he Court in Alice made clear that a claim directed to an abstract idea does not move into section 101 eligibility territory by 'merely requir[ing] generic computer implementation.'"¹⁴ The buySafe court

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found that the plaintiff attempted to patent a contractual relationship, and that "the claims' invocation of computers adds no inventive concept" but was simply generic computer technology.¹⁵ Similarly, the Federal Circuit otherwise held, in a non-precedential opinion, that a patent claiming an invention in managing an online application for playing the game bingo was invalid for attempting to claim a "method of organizing human activity"¹⁶ Several district courts followed suit and invalidated similar patents.¹⁷

The Federal Circuit has only held back when the claimed invention is one that could be fairly characterized as existing only within the Internet or computer environment, and has no "real world" analogue.¹⁸ In DDR Holdings, the Federal Circuit reviewed a claimed invention in generating web pages that combined certain visual elements of a host page and a third party website (such as an advertiser).¹⁹ The court found that the patentee was not merely taking something well known and applying it to the Internet; the claimed functionality could not exist outside of an internet environment where users could easily leave a website to visit an advertiser's website.²⁰ DDR Holdings thus provides an exception that patentees will likely strive to fit within, if their inventions could be fairly described as being an invention that could only exist within the Internet (or similar technological environment).²¹

Abstract Ideas and Uses of Technology

The cases mentioned above involved the most vulnerable patents. Courts will likely invalidate patents whose claimed innovations are in commercial transactions but involve no improvements in the computer or network technology used to effect those transactions, and which map analogous practices in the real world. However, Alice also affects technology patents that do not...