However, Many Computer Implemented Inventions Remain Patentable Subject Matter

by:  John R. Harris,  Morris, Manning & Martin, LLP

On June 19, 2014, the U.S. Supreme Court handed down its eagerly anticipated decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. ___ (2014).  The court held that the claims of several patents held by Alice Corp. were drawn to patent-ineligible abstract ideas, and were thus unpatentable subject matter under the U.S. patent laws, 35 U.S.C. § 101.  The patent-ineligible claims were directed to a scheme for “mitigating settlement risk” in a financial exchange.  For the most part, the patents in question would be considered pure “business method” patents.

The case had the potential to severely curtail software patents, but the Supreme Court did not go that far, instead focusing on the notion of abstractness in the claims. The Court concluded that the method claims in Alice Corp.’s patents “merely require[ed] generic computer implementation” and thus failed to transform that abstract idea into a patent-eligible invention.  This left open the possibility that some computer-implemented processes will still be considered patent-eligible subject matter.

Alice Corp.’s patents relate to implementing “mitigated settlement risk” by exchanging financial obligations between parties via an exchange institution.  Although the concept was described in the patent and stipulated as being implemented on a computer system, the Court found that the patent claims did not either (a) purport to improve the functioning of the computer itself, or (b) effect an improvement in any other technology or area.  All the claims (method, system, and computer readable media) were deemed too abstract and therefore unpatentable.

The decision did not strike down software patents as unpatentable subject matter per se.  However, the Supreme Court strongly signaled that patent claims directed to business processes which “merely require generic computer implementation” will not transform abstract ideas into a patent-eligible invention without some “additional features.”  Drawing upon several of its prior cases, the Supreme Court left open the possibility for patenting software-implemented inventions where the technology is claimed and described as meeting the machine-or-transformation test, or improving the functioning of a computer itself, or effecting improvements to “other technology or technical fields”, or having sufficient “additional features” that ensure that the claim is not designed to monopolize an abstract idea.

The case had the potential for the Court to provide clearer indications as to what may be patentable.  Despite the potential, the decision provides little practical guidance for those who seek or try to enforce business method patents, as well as some computer-implemented process and software patents.  Although the decision is not surprising in view of past cases from the Supreme Court on patent-eligibility under Section 101, many patent system stakeholders were hoping for a ruling that provides greater certainty in assessing patenting strategies.  That did not occur.

The patents in question included some method claims that did not expressly require a computer, as well as claims directed to a computer system configured to carry out the method and to a computer-readable medium containing program code for performing the method.  For reasons not entirely clear in the opinion itself, the Court stated that “all of the claims are implemented using a computer.” This is not strictly true – claim 33 of U.S. Patent 5,970,479 (mentioned in footnote 1 of the opinion) did not include a computer.  Further, the parties apparently stipulated that the method claims require a computer.

The claims all involved creating “shadow records” of debits and credits of parties with an exchange institution, obtaining start-of-day balances for those shadow records, adjusting those records based on transactions, and issuing instructions for exchanging debits or credits of the parties.  In the computer system claims, at least, the operations were carried out by a computer.

The decision came out of an appeal from a divided panel of the Court of Appeals for the Federal Circuit in 2012, which held that the claims in Alice Corp.’s patents were drawn on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary, and that the use of a computer to maintain, adjust, and reconcile the so-called shadow accounts added nothing of substance to that abstract idea.

The Court relied on a number of its prior decisions stating that abstract ideas have long been considered patent-ineligible subject matter.  However, true to recent form in Supreme Court patent decisions, little practical guidance was provided to those who would seek patents in areas such as financial technologies (“fintech”), healthcare information technology (IT), electronic trading, e-commerce, and many other areas involving computer-implemented processes, or those who would seek to enforce those patents.  The Court used its common approach to decision making in patent cases by setting out broad principles (“abstract ideas are not patentable”) without providing any truly workable framework for patent practitioners to follow in filing and seeking patents.

The Court relied heavily on its prior decisions in Mayo Collaborative Services v. Prometheus Laboratories, Inc. 566 U.S ___ (2012) and Bilski v. Kappos, 561 U.S. 593 (2010).  Both of those decisions discussed the fundamental principle – relied upon heavily in the Alice decision – that laws of nature, natural phenomena, and abstract ideas are not patentable.   However, practical applications of such concepts may be patentable, under circumstances that remain only partially defined.

Despite the clear message against patenting abstract business methods, the Court did provide some hints as to approaches for presenting claims directed to computer-implemented inventions that might still be viable. Those familiar with the past cases involving computer-implemented inventions will know that the so-called “machine or transformation test” was sanctioned in the Bilski v. Kappos decision as one possible test for patentable subject matter, but “not the sole test for patent eligibility under § 101.”  That statement left open the possibility of other tests for determining patentable subject matter.  The Court in Alice Corp. v. CLS Bank provided two additional tests – (1) does the claim purport to improve the functioning of the computer itself, or (b) does the claim effect an improvement in any other technology or area?

Under the machine-or-transformation test as discussed in Bilski, “[a] claimed process is surely patent eligible under §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”   This approach was initially set forth by the Supreme Court in Diamond v. Diehr, 450 U.S. 175 (1981).  That case was and still is the “touchstone” for patents that relate to computer technology – but in that case, as applied to the automated, computer-controlled making of rubber tires.  The practical application of computer technology to improving the manufacture of tires was apparently viewed by the Alice court as effecting an improvement in some “other technology or area.”

Patents for computer-implementation that involve physical processes, such as the automated tire manufacturing in Diamond  v. Diehr, appear to remain on solid patenting ground.  However, questions of patentability will remain when the subject matter of the patent relates to less physical intangibles such as financial services, account values, or other business-related information.  It is arguably far easier to find a tie to a machine (a computer-controlled tire mold) or a transformation (of rubber into a tire), or an improvement to an “other technology” as in Diamond v. Diehr, than to a computer system that involves financial or monetary or account values as in Bilski v. Kappos and Alice v. CLS Bank.  The rise of the Internet and the information economy has moved technology heavily towards manipulating business information and financial account values and somewhat away from manipulating controls and parameters of physical manufacturing equipment.  The Supreme Court does not seem to appreciate this significant technological trend enough to be sympathetic to patents that do not involve a physical transformation, as contrasted with a transformation of data representing some perhaps more intangible – like “shadow account” values or inventory counts or healthcare records.

In the Alice v. CLS Bank decision, the Supreme Court suggested that, perhaps, if a claim (a) purported to improve the function of the computer itself, or (b) effects an improvement in any other technology or technical field, a claim might be still patent eligible.  There was no meaningful discussion as to what was meant by “improve the function of the computer itself”, or what “other technology or technical field” must be improved, or how.  But at least, there are now two more checkboxes for patent practitioners to consider – beyond that of machine-or-transformation – when trying to determine whether and how to patent computer-implemented inventions:

(1)  Can you find a way to claim how the invention improves the function of the computer – For example, is it now faster? Uses less memory?  Better inter-process communication between computer system components?

(2)  Is this invention improving some other technology or field?  Tire manufacturing or other computer-implemented physical process improvement patents seem to be safe, but questions will remain about patents on improvements to processes involving manipulation of business information.

The Court in the Alice Corp. case also set out a two-part approach to analyzing the question of whether claims are patent-ineligible, based on its Mayo v. Prometheus decision:

(1)  A court must first identify the abstract idea represented in the claim, and then,

(2)  Determine whether the balance of the claim “adds significantly more.”

The big question is, significantly more what?  The Supreme Court said that this step two is a search for an “inventive concept,” which it described as an “element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”   Thus, those who seek patents involving computer-implementation must try to figure out an “inventive concept” (whatever that really means), and express it in terms of something “significantly more” (whatever that means) than the abstract idea itself.  This statement is not all that practically helpful.  But it is consistent with the Supreme Court’s customary approach in this area – where Congress has only provided very general guidelines, as it did in Section 101 of the Patent Act, the Court will also only give general guidelines.

Referring to its Mayo decision, the Supreme Court concluded that the method claims in Alice Corp.’s patents, “which merely require generic computer implementation, fail to transform that abstract idea [of intermediated settlement] into a patentable-eligible invention.”  The Court went on to suggest that “[a] claim that recites an abstract idea must include ‘additional features’ to ensure that the [claim] is more than a drafting effort designed to monopolize the [abstract idea].”

However, the nature and extent of those “additional features” is not clear, and thus necessarily left for lower courts to explore the boundaries. It seems clear from the decision that so-called conventional computing functions of maintaining, adjusting, and reconciling “shadow accounts”, obtaining data, adjusting account balances, issuing automated instructions, etc. were not considered “significantly more” and were viewed as “generic computer implementation.” At least, such computing functions were not “significantly more” in this case.

The insistence upon “additional features” for the purpose of avoiding “monopolizing the abstract idea” appears to be central to the Court’s reasoning: “We have described the concern that drives this exclusionary principle [of holding abstract ideas patent-ineligible] as one of pre-emption.”  (Slip op., p. 5)(emphasis supplied.)  The Court seemed concerned that granting claims that might arguably pre-empt a particular approach to a problem in a certain field would grant a monopoly over the abstract idea.   “[M]onopolization [of the basic tools of scientific and technological work] through the grant of a patent might tend to impede innovation more than it would tend to promote it, thereby thwarting the primary object of the patent laws.” However, that is exactly what patents do – provide a temporary monopoly, or at least the right to attempt a temporary monopoly, over some combination of elements that at one time were simply nothing more than “basic tools.”

The Alice Corp. v. CLS Bank decision was heavily briefed by many amicus parties and viewed as potentially very important to key sectors of the economy – computers, software, Internet, financial services, automated marketing, inventory management, enterprise resource management (ERP), human resources, healthcare information technology (IT), etc.  The lack of clear guidelines does not provide much clarity or comfort for a number of stakeholders, especially those with “pure” business method patents that do not describe or claim specific forms of computer implementation.

The decision would not seem to adversely affect those seeking patents or patent enforcement where the technology is claimed and described as meeting the machine-or-transformation test, or improving the functioning of a computer itself, or effecting improvements to “other technology or technical fields”, or having sufficient “additional features.”   Any business-process-oriented technology companies that have patents or may seek patents should pay close attention to the ruling in the case, and attempt to identify what “additional features”, or improvements to the computer itself, or applications to other fields, may be present in any technologies for which patents might be sought.

John R. Harris

Copyright 2014 John R. Harris.  All Rights Reserved.

The information presented and contained within this article is provided as general information only, and does not, and is not intended to constitute legal, employment or tax advice. Any opinions expressed within this article are solely the opinion of the individual author(s). For more information, contact John Harris: jharris@mmmlaw.com.