Supreme Court issues new guidance on software patents

December 30, 2014

Patent LawSoftware patents can be an attractive alternative to copyright protection since patents may be used to protect the functional idea or concept underlying the program.

Until the early 1980s, software was not patentable; however, in 1981 the Supreme Court opened the door for software patents by declaring that a patent would be available for a process for curing synthetic rubber that used a mathematical formula in a programmed digital computer. Since that decision, the number of applications for software patents has increased dramatically, and patents have been issued on a wide range of programs, including a method for seismic exploration using a summing algorithm; a CAT scan imaging technique using a mathematical algorithm; a method for smoothing oscilloscope waveforms based on a mathematical algorithm; and a mathematical algorithm relating to detection of late potential EKG signals known to correspond to an identified type of heart irregularity.  However, companies have claimed that the software patents that have been issued are often overly broad and invalid, largely because the patent examiners lack the experience to determine whether a program is sufficiently novel to merit a patent.

In an important case regarding the patentability of business method software, the Federal Circuit decided that software used internally by a mutual fund accounting company was not an abstract idea, and, therefore, deemed patentable by the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc. Three categories of subject matter have been held unpatentable by the Supreme Court– “laws of nature, natural phenomena, and abstract ideas.” In this case, an argument was made that an accounting software program was not patentable because it was a mathematical algorithm–which has been held to be an abstract idea. However, mathematical subject matter which is reduced to some type of practical application, i.e., “a useful, concrete, and tangible result;” is patentable.  The court also decided to ““take this opportunity to lay this ill-conceived exception to rest,”” and held that business methods are subject to the same legal requirements for patentability as applied to any other process or method. Accordingly, the court decided that the accounting software was patentable subject matter and not exempted from patentability. Subsequently, the Supreme Court reaffirmed that business methods that are merely abstract ideas are not patentable and therefore appears that there must be a demonstration of an inventive use of the algorithm/idea associated with the business method, rather than just a statutory use (e.g., use in an industrial process) in order for patent protection to be granted.

In June 2014 the Supreme Court’s ruling in Alice Corporation Pty. Ltd. v. CLS Bank International (573 U.S. ___, No. 13-298 (June 19, 2014)) addressed the process that patent examiners should follow when confronted with business methods and software applications.  The Supreme Court applied the analytical framework it had first announced several years earlier in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and required that the first question that needed to be answered is whether the patents’ claims were drawn to a patent-ineligible abstract idea.  If the answer to this question was affirmative then it was necessary to see if the claims included an “inventive concept” that was sufficient to transform the abstract idea into a patent-eligible concept.  In the particular case before it the Supreme Court considered whether a computerized platform for eliminating risk in conducting financial transactions was eligible for patent protection and concluded that the claims pertained to the abstract idea of “intermediate settlement” and that the claimants had failed to demonstrate that their use of what the Court described as a “generic computer implementation” amounted to a new and useful application of an abstract idea sufficient to meet the threshold for patentability.

The Supreme Court’s decision was followed on June 25, 2014 by a memorandum from the PTO to its patent examiners that provided the examiners with instructions on the two step preliminary examination process dictated by the Supreme Court in the Alice case.  See http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf   The PTO directed that examiners must begin with determining if an abstract idea was present in the claim and noted that if an abstract idea was present the claim would not eligible for patentability unless “any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to significantly more than the abstract idea itself.”   The memo included several examples of what the PTO considered to be abstract ideas including fundamental economic practices, certain methods of organizing human activities, an idea of itself and mathematical relationships/formulas.   As for ways in which a claimant might be able to transform an abstract idea into a patent eligible claim the memo provided several examples of elements for transformation including improvements to another technology or technical field, improvements to the functioning of the computer itself and meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.

Commentators expressed dismay that the Supreme Court failed to adopt a bright line test that claimants and examiners could look to in order to determine with certain whether software or business methods would be patentable.  While the PTO made it clear that no particular category of subject matters, such as software or business methods, is per se excluded from patent eligibility, commentators have pointed out that it appears that software and business methods will likely fall into the category of abstract ideas and that claimants will have to overcome the challenge of identifying and explaining the inventive transformation within their claims in order secure patent protection.  A particular problem in all this is that examiners appear to have wide latitude in making their assessments and that there is a significant chance that decisions will be unpredictable given that the Supreme Court did not choose to use the 2014 case to provide much-needed clarity as to what constitutes an “abstract idea”.   The immediate fallout from the Alice case and the issuance of the PTO memo was an upturn in the number of challenges by the PTO and lower courts to the patentability of certain types of computer-implemented inventions; however, it remains unclear what the long-term impact of the Supreme Court’s decision will be.