United States: Software And Business Method Inventions After Alice

Patent attorneys are often asked the question: "Is my idea patentable?"  Often the idea is related to software or business methods.  Well-known business methods include Amazon's "1-click shopping" and Priceline's "reverse auction."  In the new digital economy, innovative software and business method models have given rise to new very successful companies such as LinkedIn, Uber, and Airbnb.  As important software and business method inventions are in the new digital economy, it is often unclear whether they can be patented.  This uncertainty is largely due to a legal rule that "abstract ideas" are not eligible for patent protection.  This rule originates from a long line of U.S. Supreme Court cases, with Alice Corporation v. CLS Bank International, decided in June of 2014, being the most recent and influential of these cases.  The basic rationale for the rule is a concern over so-called "preemption" of abstract ideas.  That is to say abstract ideas are the basic building blocks of science and industry, and allowing patents to monopolize abstract ideas can preempt the use of such basic building blocks.

Inventions related to software and business methods have faced enormous challenges since Alice.  As referred to in this article, software refers to programs or applications that run on computers or mobile devices, such as for antivirus detection, contact management, social media, gaming, and mobile navigation.  Business methods refer to methods of doing business, including new types of e-commerce, insurance, banking, etc., often implemented as software in computers and involving the Internet.  There has been a sharp increase in the number of so-called "Alice" motions filed in the federal courts against these types of inventions.  The motions challenge the validity of patents asserted in infringement lawsuits, and have an overall success rate of about 65% for software patents and 78% for business method patents.  Likewise, the United States Patent Office, through a procedure called Covered Business Method Review ("CBM"), has invalidated more than 80% of business method patents challenged under Alice.  There has also been a sharp increase in patent eligibility rejections during patent prosecution before the USPTO and a sharp decrease in issued patents for software and business method inventions since Alice.  Inventions related to electronic commerce have been hit the hardest.  For example, in a division of the Patent Office responsible for electronic commerce technology, the average number of patents issued per month after Alice dropped by 95%.

Under Alice, determining whether a patent is directed to eligible subject matter involves two steps.  In step one, you must determine whether claims of a patent are directed to an abstract idea.  If the answer is "no", the claims are patent-eligible.  If the answer is "yes", in step two, you must determine whether the claims recite that result in substantially more than the abstract idea being claimed.  That is to say: whether the claim includes additional elements that transform the claim into a patent eligible application of the abstract concept.  It is not always easy to apply Alice's two-step test, especially since the Supreme Court has not clearly defined what constitutes an "abstract idea", or how to identify an abstract idea in a claim.

Those challenging the validity of a patent often try to define the abstract idea as broadly as possible to inflate the preemption concern, whereas patent owners try to define it as narrowly as possible to minimize the preemption concern.  The challengers also often argue that the claim at issue is directed to a concept similar to concepts previously held to be abstract by the Supreme Court, such as, for example, fundamental economic practices, methods of organizing human activity, and mathematical relationships and formulas.  Examples of such concepts include: (1) converting binary-coded decimal numbers into pure binary numbers in Gottschalk v. Benson; (2) calculating alarm limits using "a smoothing algorithm" in Parker v. Flook; (3) hedging the seasonal risk of busying energy in Bilski v. Kapos; and (4) mitigation of settlement risk in Alice.  Beyond these Supreme Court cases, the challengers also rely on more than 40 post-Alice Federal Circuit cases that upheld lower courts' patent illegibility findings.  On other hand, the Supreme Court and Federal Circuit finding patents eligible have been extremely limited until very recently.  The only pro-patentee Supreme Court patent eligibility case to date is Diamond v. Diehr which was decided in 1981. In Diehr the Court held that claims directed to digital control of a rubber molding process using the "Arrhenius" equation were patent eligible because the invention involves "transforming or reducing an article to a different state or thing," namely, "molding raw, uncured synthetic rubber into cured precision products."   The only post-Alice Federal Circuit case that upheld the validity of a software/business method patent until very recently was DDR Holdings v. Hotels.com decided on December 4, 2014, where the Federal Circuit upheld the validity of patent claims addressing the problem of retaining website visitors who could otherwise be lured away from a host website by clicking on an advertisement.  The Federal Circuit held that the claims are patent eligible because, despite the fact that they are drawn to a method of doing business (i.e., e-commerce), the invention was "necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks."

Against this historical landscape, in three recent 2016 decisions the Federal Circuit upheld the validity of software patent claims.  First, in Enfish, LLC v. Microsoft Corporation decided on May 12, 2016, the Federal Circuit held that patent claims directed to a fast searching of data in a computer database are "not directed to an abstract idea within the meaning of Alice ... because they are directed to a specific improvement to the way computers operate..."  Thus, the Federal Circuit decided that the invention was patent eligible under the first step in Alice.  The Enfish case therefore tells us that a software invention may be patent eligible if it improves the way a computer operates.  Under this reasoning, software inventions, for example, for optimizing a computer memory or detecting a computer virus are likely to survive Alice challenges.

Second, in Bascom Global Internet Services, Inc. v. AT&T Mobility LLC. decided on June 27, 2016, the Federal Circuit held that patent claims directed to filtering Internet content were patent eligible.  The Federal Circuit held that the although the claims are directed to the abstract idea of filtering content, the claims are nevertheless patent eligible under the second step of Alice because they recite the inventive concept of the "installation of a filtering tool at a specific location, remote from the end-users, with customizable filtering features specific to each end user."  The court also rejected the notion that a claim is not patent eligible if all elements of the claim were known in the art.  As the Court explained, "an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces."  Under this reasoning, merely showing that all elements of a claim were known in the art is not enough to prove patent ineligibility under the second Alice test.

Third, in McRO Inc. v. Bandai Namco Games America Inc. decided on September 13, 2016, the Federal Circuit held that patent claims directed to generating automated lip synchronization and associated facial expression of 3D animated characters were patent eligible.  The Federal Circuit decided the issue under the first step in Alice, even though the claimed invention did not result in an improvement in the way a computer operates, as was the case in Enfish.   In reaching the decision, the Court observed that the claims are "limited to rules that evaluate subsequences consisting of multiple sequential phonemes", and  "[i]t is the incorporation of these claimed rules, not the use of the computer, that improved the existing technological process."   The Court also noted that there is "no suggestion that animators were previously employing the types of rules" required by the claims and there had "been no showing that any rules-based synchronization process must use the rules with the specifically claimed characteristics."   Under this reasoning,  a software or business method claim reciting unconventional rules for performing a technology process can be patent eligible under the first Alice test if the rules (as opposed to the use of the computer) produce an improvement in the existing process and are sufficiently specific such that the claim does not preempt the use of all rules for performing the process.

Software and business method inventions have faced significant patent eligibility challenges in both courts and the Patent Office.  Three recent Federal Circuit decisions interpreting Alice, however, provide much-needed additional guidance on what does and does not constitute an "abstract idea"  and also add to the arsenal of cases that can be used by owners of software and business method patents facing Alice challenges.  This area of the law is still developing.  It remains to be seen what effect these decisions will have on software and business method patents and patent applications facing patent eligibility challenges in courts and the Patent Office and whether the Supreme Court agrees with the Federal Circuit's emerging view on what does and does not constitute an abstract idea under Alice.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
6 Aug 2019, Seminar, Los Angeles, United States

The semi-annual seminar addressing changes and developments in state and federal wage and hour laws is a unique one-day program and hundreds of California employers, personnel managers, controllers, attorneys, payroll managers, and supervisors attend each year.

24 Sep 2019, Other, Los Angeles, United States

There will be networking prior to the panel from 6:30-7:00 p.m. and more networking with demo pitches from 8:00-8:30 p.m.

25 Sep 2019, Other, Los Angeles, United States

Please join Sheppard Mullin for a reception during Solar Power International 2019

Similar Articles
Relevancy Powered by MondaqAI
In association with
Practice Guides
by Mondaq Advice Centers
Relevancy Powered by MondaqAI
United States
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions