United States: The Supreme Court's Decision In Alice Corp. V. CLS Bank Has Taken A Heavy Toll On Patents For Computer-Related Inventions

The patent statue broadly defines patent-eligible subject matter as "any new and useful process, machine, manufacture, or composition of matter" and any improvements.  But inventors cannot patent laws of nature, natural phenomena, or abstract ideas.  The prohibition on patenting abstract ideas has caused federal courts to declare hundreds of patents for computer-related inventions invalid since the Supreme Court's June 2014 decision in Alice Corp. v. CLS Bank.  After Alice, about 70% of challenges for failure to claim patent-eligible subject matter have succeeded.

In Alice, the Supreme Court articulated a two-step process for assessing patent-eligible subject matter in the context of computer-related inventions.  Initially, determine whether the patent claim at issue is directed to an abstract idea.  If so, consider whether the claim elements individually or in combination "transform" the claim into a patent-eligible invention.  The Court described the second step as a search for an "inventive concept" to ensure that the patent amounts to "significantly more" than an abstract idea.

For the second step, the Supreme Court in Alice explained that "the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention."  Further, according to the Court, claiming well-understood, routine, and conventional features specified at a high level of generality does not suffice for an "inventive concept."  But the Court provided little guidance beyond those somewhat extreme examples.  In addition, the Court did not "labor to delimit the precise contours of the 'abstract ideas' category."

Absent clear guidance from the Supreme Court, lower courts have at times had difficulty determining what constitutes an abstract idea and what amounts to an inventive concept.  For example, the Court of Appeals for the Federal Circuit has said, "Distinguishing between claims that recite a patent-eligible invention and claims that add too little to a patent-ineligible abstract concept can be difficult, as the line separating the two is not always clear."  Similarly, District Judge Rodney Gilstrap in the Eastern District of Texas, who has more patent cases on his docket than any other judge, has remarked, "[T]he contours are often unclear between those inventions that are directed to an abstract idea and those that are not."  Another district judge has likened the analysis to Justice Stewart's famous statement concerning obscenity: hard to define "[b]ut I know it when I see it."

Complicating matters, the Supreme Court has observed that all inventions at some level "embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas."  One district judge has noted that "any claim, described at a certain level of generality, can be challenged as directed to an abstract idea."

A review of decisions concerning computer-related inventions shows a trend.  A court's characterization of the patented technology often determines the patent-eligibility result.  For instance, if a court describes the underlying concept broadly, it will likely decide that the patent claims only an abstract idea.

As an example, in OIP Technologies v. Amazon.com, OIP asserted a patent claiming a "method of pricing a product for sale" comprising several steps, including generating statistics concerning test prices, estimating likely outcomes for various potential prices based on the statistics, and selecting a price based on the estimated outcomes.  The Federal Circuit decided that "the claims are directed to the concept of offer-based price optimization."  After describing the underlying concept broadly, the court reasoned that "[b]eyond the abstract idea of offer-based price optimization, the claims merely recite . . . conventional computer activities or routine data-gathering steps."  Hence, the court held the asserted patent invalid because it did not claim patent-eligible subject matter.

As another example, in Intellectual Ventures v. Capital One, Intellectual Ventures alleged infringement of claims concerning an "apparatus for manipulating XML documents" comprising "a processor," "a user interface," and six "components" that organized, identified, mapped, defined, detected modification of, and modified data in XML documents.  When addressing the first step in the patent-eligibility analysis, the district court said, "[T]he patent is, at its core, directed to the abstract idea of organizing, displaying, and manipulating data related to business documents."  When addressing the second step, the court concluded that the processor and the user interface did "not transform the abstract idea into a patent-worthy inventive concept."

Alice has taken a heavy toll on patents for computer-related inventions, particularly software patents.  The patent claims that have weathered the storm have usually done so by including meaningful limitations that sufficiently narrow their scope.

For instance, the Federal Circuit in DDR Holdings v. Hotels.com upheld the validity of a patent covering systems and methods for retaining website visitors.  The patents addressed a problem occurring when a third-party merchant advertised on a host website:  Visitors to the host website were transported the third-party merchant's website when they clicked on the merchant's advertisement on the host website.  The patents solved that problem by creating a new, composite website displaying the merchant's product information but keeping the host website's "look and feel."  The composite website gave a visitor the impression of viewing pages served by the host website.

In DDR, the Federal Circuit concluded that the claim elements taken together as an ordered combination amounted to an inventive concept for resolving a particular Internet-centric problem, and thus recited patent-eligible subject matter.  The court reasoned that the claims at issue did "not attempt to preempt every application of the idea of increasing sales by making two web pages look the same" but instead covered "a specific way to automate" composite web page creation by incorporating content from multiple sources "to solve a problem faced by websites on the Internet."

In upholding the validity of the claims at issue, however, the Federal Circuit cautioned that "that not all claims purporting to address Internet-centric challenges are eligible for patent."  When considering patents for computer-related inventions after Alice, the Federal Circuit has, except in DDR, decided that the challenged claims did not recite patent-ineligible subject matter.

Further, the Federal Circuit in a later decision limited DDR when addressing a patent relating to "customizing web page content as a function of navigation history and information known about the user."  The court viewed that customizing as analogous to tailoring advertising content based on customer location and time of day, which it considered long prevalent and known "for decades."  The court noted that in DDR the patent "provided an Internet-based solution to solve a problem unique to the Internet."  The court then said, "The patent claims here do not address problems unique to the Internet, so DDR has no applicability."  Because the claims at issue recited "conventional computer components . . . operating in a conventional manner," the court decided that they lacked an inventive concept.

Nevertheless, the Federal Circuit's decision in DDR supplies guidance for patents addressing problems unique to computers or the Internet.  For instance, in DataTern v. Microstrategy, the district court considered a patent with claims covering a "method of interfacing an object oriented software application with a relational database" and found them eligible for patent protection.  Citing DDR, the court reasoned that the "patent is directed at solving a problem that specifically arises in the realm of computing; indeed, object-oriented programs exist only in the realm of computers, and relational databases are utilized primarily, if not exclusively, on computers."  The court then ruled that the claims "appear to be sufficiently limited in scope as to supply an 'inventive concept.'"

Similarly, in California Institute of Technology v. Hughes Communications, the district court considered patents with method and apparatus claims relating to error correction in transmitted data.  When addressing the first step in the patent-eligibility analysis, the court determined that the claims were "directed to the abstract idea of encoding and decoding data for the purpose of achieving error correction."  But when addressing the second step, the court decided that the claims contained "meaningful limitations" representing "sufficiently inventive concepts."  The court based that decision on claim limitations specifying particular ways to achieve encoding and decoding.

Many unexpired software patents were granted before Supreme Court's decision in Alice.  Before filing a lawsuit alleging infringement of a software patent, the patent owner should scrutinize the claims in light of 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.

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