In the highest-profile patent opinion of an unusually IP-heavy term, the Supreme Court held that merely claiming an abstract idea is insufficient to establish patent eligibility. But, despite the fears of some, it did not declare software unpatentable.
In a 9-0 opinion written by Justice Clarence Thomas, the Supreme Court affirmed the Federal Circuit’s judgment. “Because the claims are drawn to a patent-ineligible abstract idea, they are not patent eligible under §101,” wrote Thomas.
The patents at issue in the case disclose a computer-implemented scheme for mitigating settlement risk in financial transactions by using a third-party intermediary. The question the Supreme Court was asked to answer was whether the claims presented are patent eligible under Section 101 of the Patent Act or instead are drawn to a patent-ineligible idea.
A limited ruling
The Court came far short of creating new law in its narrow opinion. It also refused to define what an abstract idea is, to the frustration of some observers.
The Court continued the practice it began with its 2010 decision in Bilski v Kappos, in which it strikes down patents on the grounds that they cover unpatentable subject matter like an abstract idea or law of nature.
“In any event, we need not labour to delimit the precise contours of the ‘abstract ideas’ category in this case,” Justice Thomas wrote. “It is enough to recognise that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of ‘abstract ideas’ as we have used that term.”
Perhaps as a result of the narrowness of its scope, the opinion was not as long as some were expecting. Adam Mossoff, law professor at George Mason University School of Law, called it a “surprisingly short opinion”. He said it leaves much unclear.
“But the Court provides little to no legal guidance to the courts as to how to apply this decision in the future such that inventors and commercial firms working in the innovation industries can know with certainty if their discoveries or inventions are patentable or not,” said Mossoff. “The one ray of hope in this decision is that, similar to its affirmation of the patentability of business methods in Bilski, the Court in Alice Corp expressly holds that ‘many computer-implemented claims are formally addressed to patent-eligible subject matter’. Thus, innovative software inventions in the high-tech industry are now definitively deemed patentable, contrary to the claims of many patent sceptics today.”
An indication that the Supreme Court recognised it was not creating new law was that it analysed the claims in issue and held them invalid rather than remanding the case for further consideration, as the Supreme Court may do in a case where a new standard has been articulated.
“Alice isn’t a dramatic shift,” said Baldassare Vinti, a partner at Proskauer. “It’s more a reaffirmation of the Supreme Court’s holding in Mayo v Prometheus.”
“Eviscerating” the Federal Circuit
This is not to say Alice is not important. It will have far-reaching consequences that will take a long time to work through. Robert Merges, professor of law at UC Berkley, summed up the opinion succinctly. “To say we did not get an answer is to miss the depth of the non-answer we did get,” he said in an article on SCOTUSblog.
The Supreme Court did not once use the word “software” in its opinion. But its importance for the software industry is obvious. The opinion puts a question mark over many vague patents that have been granted.
Robin Feldman, professor of law at the University of California Hastings College of Law, said the Supreme Court has destroyed the Federal Circuit’s logic on how to handle patent claims related to computer programs.
“For 20 years, the Federal Circuit has been approving software patents in a way that creates enormous problems for the patent system. Today, the Supreme Court unanimously eviscerated that approach,” Feldman said.
She added: “This will cast doubt on a wide swath of patents that have been granted, particularly many of the software patents that have been plaguing society. The question is whether the bar and bench will pay any attention.”
Others agreed that the decision paves the way for cutting back on many patents. Ed Black, president and CEO of the Computer & Communications Industry Association (CCIA) described it as a “sound decision”.
“The Justices interpreted the law in a way that will cut back on some flimsy patents without impacting more deserving ones,” said Black. “Better quality patents will help curb the patent troll problem. The US Patent & Trademark Office will now need to issue new guidelines on software patents, and we look forward to reviewing them. Major further reform of the patent system remains a high priority because until fixed, it will to often be an obstacle to innovation rather than a tool for advancing it.”
Matt Levy, CCIA patent counsel, said the Federal Circuit had been “greatly expanding” what could be patented. “The Court has put the brakes on that expansion and brought some common sense back to the world of software,” he said.
Horacio Gutierrez, deputy general counsel at Microsoft, was also positive about the opinion. He said the court had “correctly distinguished” Alice’s invalid business method patents from valid patents that advance technology. He said the ruling followed closely amicus briefs submitted by Microsoft with HP and Adobe.
“Software patents are no different than other technological or industrial inventions that are patent-eligible under Section 101. Software now powers nearly every inventive device, service and other product in our world today,” Gutierrez said in a blog post. “Virtually every industry and sector of the economy has been transformed by software. The Alice decision is an affirmation that these innovations are patent-eligible.
“This ruling will preserve patent protection for software-enabled technologies that is critical to incentivising innovation in every industry and sector of the economy.”
The Coalition for Patent Fairness - whose members include Adobe, Blackberry, Cisco, Dell, Google and Samsung - called it a “positive decision”, but said patent litigation reform was still needed to make the business model of patent trolls unattractive.
Leaving much unclear
Technology companies may have applauded the opinion, no doubt relieved the Supreme Court clarified the right of software to be patented just like any other class of patents. But others were less satisfied.
“While affirming the CAFC broadly, it is disappointing that the Supreme Court did not take the hoped-for opportunity to provide greater clarity on how to distinguish patent-eligible process claims from ineligible abstract ideas,” said Todd Dickinson, executive director of the American Intellectual Property Law Association. “It also appears they are still confusing subject matter eligibility with the patent statute’s separate and more definite requirements that an invention be novel and non-obvious.”
The opinion addressed some of the confusion in courts since the Supreme Court’s Mayo Collaborative Services v Prometheus Laboratories decision in 2012. In Mayo Justice Stephen Breyer laid out a two-part test for determining whether a claim is directed to a patent-ineligible abstract idea and, if so, whether the claim contains enough substance to amount to “significantly more” than the ineligible concept itself. This test caused confusion in the lower courts because it appeared to combine the patent-eligibility standard of Section 101 with the novelty and non-obviousness analysis of Sections 102 and 103 in a way that contradicted Diamond v Diehr’s prohibition against doing so.
In Alice, the Supreme Court explained that it had long held that Section 101 contains an implicit exception for laws of nature, natural phenomena and abstract ideas, such as in its Association for Molecular Pathology v Myriad Genetics decision. The Court noted that in applying the Section 101 exception, it must distinguish patents that claim the “building blocks” of human ingenuity, which are ineligible for patent protection, from those that integrate the building blocks into something more, thereby “transforming” them into a patent-eligible invention.
Using the Mayo framework, the Supreme Court said the patents in Alice relate to an abstract idea. “Turning to the second step of Mayo’s framework: The method claims, which merely require generic computer implementation, fail to transform that abstract idea in to a patent-eligible invention,” wrote Justice Thomas.
It said simply adding conventional steps to a method “well known in the art” is not enough and that the “introduction of a computer into the claims does not alter the analysis”.
“Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer,” said the Court.
Alice does serve to address some of the post-Mayo §101 confusion, said McDonnell Boehnen Hulbert & Bergdoff (MBHB) lawyers in a note. Justice Thomas used several references to establish that Alice’s claimed mitigation of settlement risk was known in the art. He also considered generic computer hardware and functionality to be routine and conventional, and applied both of these observations to strike down Alice’s claims. “Thus, the separation of the § § 101, 102, and 103 analyses mandated by Diehr appears to be a thing of the past,” said the MBHB lawyers.
“On the other hand, it is still unclear to what extent a method claim needs to be tied to a physical device in order to be patent eligible. Justice Thomas did hint that some abstract ideas intended to ‘improve the functioning of [a] computer itself’ or other technologies may pass the §101 bar, but he did not provide any further guidance regarding this notion.”
The ball’s now in the lower courts
It is now up to the lower courts and the USPTO to interpret and respond to Alice. The opinion continues the Supreme Court’s trend this year - also seen in Limelight Networks v Akamai Technologies and Nautilus v Biosig - of further limiting the scope of patent protection. “Consequently, we are likely to see new attacks on the validity of patents during litigation, and more emphasis on focused claim drafting during prosecution,” the MBHB lawyers said.
The opinion may reach beyond affecting only software patents. George Beck, partner at Foley & Lardner, said the Supreme Court’s holding may apply to other patents that arguably are drawn to abstract ideas, natural phenomena or laws of nature. Courts and the USPTO are going to have to respond because most inventions involve some application of these concepts.
“Lower courts will likely need to address what other areas beyond those addressed in the case may be directed to patent-ineligible abstract ideas, natural phenomena and laws of nature. Further the US Patent & Trademark Office will likely consider guidelines that may make it more difficult to obtain patents for inventions that appear to be broadly drawn to these concepts,” said Beck.
Michael Sandonato, partner and chair of the electronic and computer technologies practice group at Fitzpatrick Cella Harper and Scinto, noted that district courts had been very interested in what the Supreme Court was going to say in Alice. Several district courts had even stayed cases where motions on the issue were pending. “These cases will reopen now, and we may well see those pending motions decided in favour of defendants,’ he said.
This may have an effect on patent trolls, believes Cindy Kernick, partner at Reed Smith. The decision clarifies some of the perceived ambiguity of Bilski and Mayo, making it clear subject matter is not patentable if the claim is drawn to an abstract idea as performed by a generic computer. Claims will need to improve the function of the computer itself or make some other improvement in a technical field.
“The expected result is that many patents suits now pending will be resolved on summary disposition under Section 101 and, hopefully this will make some of the trolls stop and rethink the merits of their demands,’ said Kernick.
The opinion brings the US and Europe closer on software patents. UK law firm Marks & Clerk said the opinion concurs with earlier decisions of European and UK tribunals that the substance, not the form of claims, must be determinative of patentability.
“While much software will remain patentable, it will likely become more difficult to obtain patents for some computer-implemented business schemes,” said Mark Kenrick, a partner at the firm. “The US has, for some time now, been hardening its approach to software patentability, thereby bringing its practice more in line with European practice.”
He added: “The Court’s reference to a requirement for improvement in ‘an existing technological process’ brings the US closer to Europe on this difficult issue, than it has been for some time. It seems that both jurisdictions will now look for some technical ‘inventive concept’ if an invention is to be patentable.”
He said European companies may need to reconsider their patent filing strategies as a result of the opinion because strategies based on the availability of US patents directed to relatively abstract business concepts may no longer be appropriate.
For a decision that was met with the sense of anti-climax, it is clear Alice still will have important ramifications for patents.
