On 19 June 2014, the Supreme Court of the United States published its opinion in the case Alice Corporation Pty. Ltd. v. CLS Bank International et al. (No. 13-298) (“Alice v CLS”).
The decision sets-out a new test for patent claims that are directed to business methods. It remains to be seen how this new test will be applied to US patents and patent applications by the US Patent and Trade Mark Office (USPTO) and the Courts. Although the answers are not clear at this stage, we offer some guidance below both as regards drafting new patent applications and in prosecuting existing patent applications in the US in the light of this case. Over time, we expect more clarity as more patent applications are examined by the USPTO and new cases are heard in the US courts that apply the new test.
Although the opinion sets out the Court’s view on what constitutes patent-eligible subject-matter in relation to business methods, in practice, the decision may impact on software inventions more generally. This is the most significant case in this field for many years.
Definition Of Patentable Subject-matter In The US
Broadly, Alice v CLS is about defining the limits of patentable subject-matter.
“Inventions patentable” are defined by 35 U.S.C. 101 of the US statute as:
“Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.”
For more than 150 years, it has been held by the US Courts in a judicial exemption that “laws of nature, natural phenomena and abstract ideas” are excluded from patentability (Le Roy v. Tatham, 14 How 156, 174-175 (1853)).
The US Supreme Court explains that the concern driving this exemption is one of pre-emption (citing Bilski v. Kappos, 561 U.S. 593 (2010)); patents should not be granted if they impede innovation rather than promote it (citing Mayo Colloborative Services v. Prometheus Laboratories, Inc., 566 U.S. (2012) (Mayo)).
However, again citing Mayo, the Supreme Court explains that they have to tread carefully in construing this exclusion because, at some level, all inventions embody, use, reflect, rest upon or apply laws of nature, natural phenomena or abstract ideas.
The key judicial exemption considered in this case is the concept of an abstract idea. The Supreme Court goes on to explain that an invention is not rendered ineligible simply because it involves an abstract concept. In fact, inventions that integrate the building blocks of human ingenuity into something more by applying the abstract idea in a meaningful way are patent eligible.
In the four patents in suit (US patent Nos. 5,970,479; 6,912,510; 7,149,720; and 7,725,375), the claims are directed to a scheme for mitigating settlement risk implemented on a generic computer system. Settlement risk is the risk that one party to an agreed financial exchange will satisfy its obligation. The patents included system, method and computer-readable storage medium claims.
In a brief 18 page decision, all nine judges of the Supreme Court unanimously decided that implementing this business scheme on a generic computer system did not make the claims patent eligible. The reasoning focussed on an example method claim from one of the four patents (method claim 33 from US patent No. 5,970,479). The Court held that the method, system and computer readable claims fail for the same reason (Alice conceding that the media claims rise or fall with the method claims).
This appears in contrast to the previous practice of the USPTO, which had been granting patents with claims in which business method steps are carried out by a generic computer system (including system, method and computer-readable storage medium claims). Most of the judges did not accept the view in a concurring opinion that any “claim that merely describes a method of doing business does not qualify as a [patent eligible] process”.
In coming to this conclusion, the Supreme Court applied the framework from the Mayo decision to analyse the claims. The Court explained that this framework should be applied to claims directed to any of the judicial exemptions of laws of nature, natural phenomena, and abstract ideas. Previously, this framework had being used to consider laws of nature only.
Furthermore, the Supreme Court applied the same analysis for all categories of claims (for example, product and process claims). Previously, different analysis had been applied to product claims (set-out in the Manual of Patent Examining Practice at MPEP 2106(Il)(A)) that explains a requirement for tangibility) as compared to process or method claims (based on a test set-out in Bilski).
The test to determine subject matter eligibility explained in Alice v CLS is as follows, and this is now included in preliminary examination guidance from the USPTO at: http://www.uspto.gov/patents/announce/interim_alice_guidance.jsp).
1) Determine whether the claim is directed to one of the four statutory categories of invention, i.e., process, machine, manufacture, or composition of matter.
2) If the claim does fall within one of these statutory categories, determine whether the claim is directed to one of the four judicial exceptions (law of nature, natural phenomenon, and abstract idea) using the following two-part analysis:
(i) Determine whether the claim is directed to an abstract idea, examples given in Alice v CLS include:
(a) fundamental economic practices;
(b) certain methods of organizing human activities;
(c) an idea of itself; and
(d) mathematical relationships/formulas.
(ii) If an abstract idea is present in the claim, determine whether 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. In other words, are there other limitations in the claim that show a patent-eligible application of the abstract idea, e.g., more than a mere instruction to apply the abstract idea?
Limitations referred to in Alice v CLS that may be enough to qualify as “significantly more”, as non-limiting or non-exclusive examples are:
(a) improvements to another technology or technical fields;
(b) improvements to the functioning of the computer itself; and
(c) meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment
Limitations referred to in Alice v CLS that are not enough to qualify as “significantly more” include:
(a) adding the words “apply it” (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer; and
(b) requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry.
As regards the test at (i) (whether the claims are directed to an abstract idea), in the patents in suit, the claims were found to be directed to a fundamental economic principle and, therefore, abstract. Following the test at (ii), in view of this fundamental economic principle being carried out be a generic computer system the claims were found not to be significantly more than the abstract idea itself.
It is interesting to note that looking at the test at (ii) (whether a claim amounts to significantly more than the abstract idea itself), the first two possibilities seem to be along the lines of the approach taken in Europe to patentable subject-matter, but the third possibility seems to be a get-out from this strict European approach suggesting that the US will continue to take a more lenient approach to patentable subject-matter than in Europe.
How Does This Impact Patents & Patent Applications In Practice?
While this Supreme Court decision does not directly consider the patent-eligibility of software, it is hard to imagine that this case will not impact the considerations made by the USPTO when examining the patentability of software inventions more generally.
When drafting new patent applications, it would seem that a European style patent application with a technical focus would still contain the right ingredients to overcome the objections. Such applications may not be considered abstract at all and, even if they are, they should overcome the test of being “significantly more” than the abstract idea.
During prosecution of existing US patent applications directed to software and business methods and filed before the Alice v CLS decision, we can expect more objections to patentable subject-matter from the USPTO. The USPTO are likely to expect applicants to explain why they believe the test set-out in Alice v CLS is satisfied.
Generally, we also expect that it will be easier to overcome these objections if the invention is claimed as being carried out by a more “technical” computing arrangement (rather than a generic system) with technical detail to differentiate.
For patent applications that claim a business method carried out on a generic computer system, a significant argument may be that the claimed business method is, in fact, not a fundamental economic principle, but something new, in other words, a new and inventive business method. If the USPTO are persuaded by this, there should be no requirement to argue that the claim amounts to significantly more than an abstract idea itself, and no need to show a technical improvement. This is an example of where the US approach may be hoped to remain more lenient than the position in Europe.
However, we will have to wait and see how such arguments develop, as cases are heard in the US Courts, the USPTO issues more guidance, and more patent applications are prosecuted at the USPTO over the coming months and years.
In Alice v CLS, a new test has been set-out for patent eligibility in the US particularly in relation to business methods. It appears to take a stricter more European approach than before, but still appears to offer more leniency in some respects than found in Europe. It will take more time for the full effect on the interpretation of patentable subject matter to be known, but there remain many strategies that can be taken for US patent applications directed to business methods to overcome the patent eligibility test.
Please do talk to us about any software and business method inventions you wish to protect.
This article is for general information only. Its content is not a statement of the law on any subject and does not constitute advice. Please contact Reddie & Grose LLP for advice before taking before any action in reliance on it.