Alice: Current and Future Implications for Patent- Eligible Subject Matter

Alice: Current and Future Implications for Patent- Eligible Subject Matter Scott M. Alter scott.alter@faegrebd.com Nat l CLE Conference January 9, 2015 Introduction U.S. Supreme Court Alice v. CLS Bank Federal Circuit Digitech v. EFI buysafe v. Google Ultramercial v. Wildtangent DDR Holdings v Hotels.com Content Extraction v. Wells Fargo USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility ABA IP Section Post-Alice Task Force 2

CLS Bank v. Alice (Fed. Cir. 2013) The Basic Facts Alice s four patents at issue related to a computerized platform where a trusted third party settles obligations between a first and second party to eliminate settlement risk. CLS Bank v. Alice (Fed. Cir. 2013) Basic Facts (Cont.) Limitations of the claims at issue include: The creation and use of shadow records by the trusted third party mirroring the real world accounts of the first and second parties. At the end of the day, instructing the relevant financial institutions to carry out the permitted transactions. A computer.

CLS Bank v. Alice (Fed. Cir. 2013) Basic Facts (Cont.) En banc Federal Circuit held all asserted claims invalid under 101 Claims included method, computer-readable media (i.e., Beauregard) and system claims. Very divided court The decision contained 6 opinions and one reflection. Alice v. CLS Bank (S. Ct., June 2014) Court: Need to ensure a patent does not pre-empt uses of a patentineligible concept (i.e., an abstract idea, law of nature or natural phenomena) in all fields. Recognized that all inventions... embody, use, reflect, rest upon, or apply such patent-ineligible concepts, and thus an invention is not rendered patent-ineligible simply for involving such concepts. But the invention must have something more than these concepts. 6

Alice v. CLS Bank (S. Ct., June 2014) Recited two-part test from Mayo v. Prometheus: 1) [D]etermine whether the claims at issue are directed to one of those patent-ineligible concepts. [But the Court seemed to just state that, at some level, everything was... So apply this test to every patent, regardless of technology?] Directed different from embody, use, etc.? [Claim smells like it might preempt an abstract idea?] If yes, proceed to step 2. 2) Is there an inventive concept i.e., 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. [Sounds like some kind of novelty/non-obviousness requirement Is proof of prior art involved?] 7 Alice v. CLS Bank (S. Ct., June 2014) The Mayo test as applied to the claims in Alice: Step 1: are the claims directed to an abstract idea? Just cited other S. Ct cases where the claims were held to be directed to abstract ideas; court then summarily stated that [i]t follows from our prior cases [] that the claims at issue here are directed to an abstract idea, i.e., the concept of intermediated settlement. No indication was given regarding why it follows or otherwise distinguishing it from other patent (software or otherwise) that aren t directed to an abstract idea, or how they arrived at this particular characterization of the idea. Court then summarily concluded that [i]n any event, we need not labor to delimit the precise contours of the abstract ideas category in this case. It is enough that the current case is like Bilski 8

Alice v. CLS Bank (S. Ct., June 2014) The claims at issue in Alice (Cont.): Step 2: Does the claim contain[] an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application? [T]he relevant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea [] on a generic computer. [But how much more?] If the function performed by the computer at each step of the [claimed] process is [p]urely conventional, then they do not. [What s conventional? What s the test?!] 9 Alice v. CLS Bank (S. Ct., June 2014) The claims at issue in Alice ( Step 2 Cont.): Regarding the method claims at issue, the claimed functions at each step, separately, are purely conventional. Then viewed as a whole, the claims simply recite the concept of intermediated settlement as performed by a generic computer. [Didn t really analyze the claim as a whole, though ]. Consequently, claims are not patent-eligible Same results for system claims, since the specific hardware is purely functional and generic. [No] different from the method claims in substance. 10

Alice v. CLS Bank (S. Ct., June 2014) Examples the Court indicates may lead to patent-eligibility: Improving the functioning of the computer itself, e.g., a specific or limiting recitation of... improved computer technology... Effecting an improvement in [another] technology or technical field, e.g., Diamond v. Diehr. 11 Alice v. CLS Bank (S. Ct., June 2014) Distinguishing Diamond v. Diehr: Diehr used a thermocouple in conjunction with an equation to record constant temperature measurements inside [a] rubber mold Thus, showing that you re solving a problem/improving a process in a technological field using more than a computer (e.g., using a thermocouple) appears helpful for patent-eligibility, BUT What s technical? Thermocouple arguably conventional? Justice Stevens 12

Potential Additional observations in view of Alice Machine or Transformation Test (a non-exclusive useful clue, as stated in Bilski) should still be applicable. Supreme Court did not say that software or even so-called business methods were patent-ineligible. Note: a concurring opinion in Alice was needed to opine that business methods were ineligible. Thus, majority did not think they were. Decision didn t indicate whole categories of subject matter were ineligible Explicitly didn t overrule Diamond v. Diehr Justice Stevens would likely have done that 13 Alice v. CLS Bank (S. Ct., June 2014) Court s mindset: This Court has long warn[ed]... against interpreting 101 in ways that make patent eligibility depend simply on the draftsman s art. 14

Digitech v. EFI (Federal Circuit, July 2014) * Judges Reyna (author), Moore and Hughes * General patented technology: Translates color and spatial information from a device dependent format [e.g., from a digital camera] into an independent color space which can then be translated to any number of output devices [e.g., a specific printer] at a reduced level of distortion. 15 Digitech v. EFI (Federal Circuit, July 2014) Court: The method claims an abstract idea because it describes a process of organizing information through mathematical correlations and is not tied to a specific structure or machine. Contrary to Digitech s argument, nothing in the claim language expressly ties the method to an image processor. * Claims preempt all uses of [the abstract idea] We therefore need not decide whether tying the method to an image processor would lead us to conclude that the claims are directed to patent eligible subject matter in accordance with the Supreme Court s Mayo test. * Didn t formally step through the Mayo two-part test 16

buysafe v. Google (Federal Circuit, September 2014) * Judges Taranto (author) and Hughes [Rader did not participate] Patent at issue (method steps) * A computer is used to underwrite a requesting party in order to provide a third party guarantee of a sales transaction 17 buysafe v. Google (Federal Circuit, September 2014) Federal Circuit, quoting/interpreting some S. Ct. case law: *From AMP v. Myriad Genetics: Laws of nature, natural phenomena, and abstract ideas, no matter how [g]roundbreaking, innovative, or even brilliant, are not patent-eligible under 35 U.S.C. Sec. 101. 18

buysafe v. Google (Federal Circuit, September 2014) Application of Alice to the claims at issue: * The claims in this case do not push or even test the boundaries of the Supreme Court precedents under section 101. Regarding Step 1 (abstract idea): The claims are squarely about creating a contractual relationship a transaction performance guaranty that is beyond question of ancient lineage. [But if it doesn t matter how groundbreaking an abstract idea is, why would its ancient lineage be relevant?] 19 buysafe v. Google (Federal Circuit, September 2014) Regarding Step 2: The claims invocation of computers adds no inventive concept. The computer functionality is generic. 20

Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Judges Lourie (author), Mayer* and O Malley Patent [D]irected to a method for distributing copyrighted media products over the Internet where the consumer receives a copyrighted media product at no cost in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content. Representative claim 1: 11 steps, including use of interactive messages and tracking the number of times a sponsor message has been presented. 21 Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Procedural history 2010: Dist. Ct. granted Wildtangent s motion to dismiss for failure to state a claim (patent lacked patent-eligible subject matter) without formally construing the claims. 2011: Fed Cir reversed Claimed subject matter is not an abstract idea but rather a practical application of [the] idea. 2012: GVR by S. Ct. in view of Mayo v. Prometheus 22

Ultramercial v. Wildtangent (Federal Circuit, November, 2014) 2013: Fed Cir reversed again: [R]are that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter, since every issued patent is presumed to have been issued properly The analysis under 101 is rife with underlying factual issues Lourie s concurrence: In faithfully following Mayo, for the second step of the 2 part Mayo/Flook test, unlike the method claims in [Alice], in my view, the added limitations in these claims represent significantly more than the underlying abstract idea 2014: GVR again by S. Ct. in view of Alice v. CLS Bank 23 Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Current Fed Cir decision: Judge Lorie noted that all four amicus briefs were in favor of appellee WildTangent. Public Knowledge, Electronic Frontier Foundation, Google, The Clearing House Association (banks) Fed Cir did not focus or even address the issue of dismissal for failure to state a claim. Went right into Mayo/Flook 2-step test 24

Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Step 1: Determine whether the claims at issue are directed to [e.g., an abstract idea] The court asserted that the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content No indication how those particular limitations were chosen Court disagreed with Ultramercial that the addition of merely novel or nonroutine components to the claimed idea necessarily turns an abstraction into something concrete. [A]ny novelty in implementation of the idea is a factor to be considered only in the second step of the Alice analysis. Consistent with buysafe/myriad 25 Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Step 2: determine whether the claims do significantly more than simply describe that abstract method. Here, the court found that adding routine additional steps such as updating an activity log [and others in the claim that are in addition to the abstract idea] does not transform an otherwise abstract idea into patent-eligible subject matter. [Should there at least be a requirement of showing the steps are routine as we do for prior art rejections? Should, e.g., secondary considerations be taken into account?] 26

Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Step 2 (Cont.) That some of the [claimed] steps were not previously employed in this art is not enough standing alone to confer patent eligibility upon the claims at issue. [However, the S. Ct. in Alice did seem to indicate that this should be a significant factor pointing toward patent-eligibility] Note: In his earlier concurrence, Judge Lourie had said that, in view of Mayo, unlike the method claims in [Alice], in my view, the added limitations in these claims represent significantly more than the underlying abstract idea [] and, as a consequence, do not preempt the use of that idea in all fields. [Funny that it s now less than more ] 27 Ultramercial v. Wildtangent (Federal Circuit, November, 2014) Judge Mayer s concurrence emphasized three points 1) Whether claims meet the demands of 35 U.S.C. 101 is a threshold question that must be addressed at the outset of litigation. 2) No presumption of eligibility attends the section 101 inquiry That rationale [for presuming validity] is much diminished in situations in which the PTO has not properly considered an issue. [So does this mean, e.g., the presumption of validity shouldn't apply for obviousness for patents examined prior to KSR?] 3) Alice set out a technological arts test for patent eligibility In Alice, [t]he problem was not that the asserted claims disclosed no innovation, but that it was an entrepreneurial rather than a technological one. What is technical? 28

DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Background: Judges Chen (author), Wallach and Mayer 29 DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Technology: Allows a host website to contain an advertising link that, upon activation, generates a composite (hybrid) web page containing the advertiser s information while also retaining the host website s look and feel. In this way, the host web site retains visitor traffic - doesn t allow user to be transported away to the advertiser s own web site 30

DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Step 1 of Mayo test (is claim directed to a patent-ineligible abstract idea?): Precise nature of the abstract idea not as straightforward as in past decisions Court considers several ways defendant characterized the abstract idea and merely states under any of these characterizations of the abstract idea, the [] patent s claims satisfy Mayo/Alice step two (something more. ) 31 DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Step 2 ( something more no preemption) Claims different from the previous cases because here, the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks. Thus, these claims do not merely recite the performance of some business practice known from the pre-internet world along with the requirement to perform it on the Internet. [What about an invention that overcomes a problem specifically arising in the realm of computers? And why couldn t Ultramercial be said to arise in the realm of computer networks with its recited electronic requests and restrictions on viewing? Much is how you define the abstract idea and separate it from what s left in the claims ] 32

DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Step 2 ( something more no preemption) But unlike Ultramercial, the claims specify a result [] that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink. [T]he claims [thus] recite an invention that is not merely the routine or conventional use of the Internet. Does changing something from expected industry practice (however defined) make it inventive or otherwise unconventional? And then how unconventional does something have to be? Improves an existing technical process per Alice? Ultramercial had an interactive feature relating to the advertisement that arguably was unconventional 33 DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Ultramercial revisited: If abstract idea was said to be distributing content over the internet, then the use of an advertisement to facilitate distribution via the internet is arguably unconventional. 34

DDR Holdings v Hotels.com (Federal Circuit, December, 2014) Dissent Judge Meyer DDR s patents fail to meet the demands of section 101 because they describe a goal confusing consumers by making two web pages look alike but disclose no new technology, or inventive concept Because DDR s claims, like those at issue in Alice Corporation v. CLS Bank International, simply instruct the practitioner to implement [an] abstract idea... on a generic computer, they do not meet section 101. 35 Content Extraction v. Wells Fargo (Federal Circuit, December, 2014) Background * Judges Chen (author) Dyk and Taranto * Patents generally relate to information recognition technology involving scanning a check (i.e., involving a scanner) to, e.g., recognize information thereon within an ATM Focus was on two method claims (patents had a total of 242 claims) * Dist Ct. had granted defendant s motion to dismiss for failure to state a claim no claim construction 36

Content Extraction v. Wells Fargo (Federal Circuit, December, 2014) Federal Circuit discussed the Mayo two-step framework Step 1: Are claims directed to a patent-ineligible abstract idea? The Supreme Court has not delimit[ed] the precise contours of the abstract ideas category. After merely noting they had identified abstract ideas in previous decisions, the Fed Cir. agreed with Dist. Ct. that the abstract idea was: Collecting data, recognizing data within the collected data, and storing the recognized data These concepts are well known and humans have always performed these functions 37 Content Extraction v. Wells Fargo (Federal Circuit, December, 2014) Step 2: Patentee conceded that use of a scanner to extract data from a document was well known at the time of filing There is no inventive concept in [the] use of a generic scanner and computer to perform well-understood, routine, and conventional activities commonly used in industry. [Isn t it the other (non-abstract idea) limitations that are to be evaluated as conventional ] * No mention of looking at the claim as a whole or even whether the claim might improve a technological process, per Alice/Diehr Court asserted it looked at the remaining 240 claims and none of them added anything patent-eligible 38

Content Extraction v. Wells Fargo (Federal Circuit, December, 2014) Motion to dismiss for failure to state a claim * Claim construction is not an inviolable prerequisite to a validity determination under 101, pointing to Ultramercial. Grant of motion was proper. Dist Ct. construed claims most favorably to patentee, necessarily assuming all claims required a machine [Might be something for patentees to push for?] Even when construed in that manner, none of [the] claims amount to significantly more than the abstract idea 39 Example claim If claim as a whole (or improvement to a technological process ) is not considered: Improved turbocharger for reducing fuel consumption and exhaust emissions comprising: -various known electronic controllers and sensors to measure aspects of exhaust emissions and control the exhaust gas recirculating through the turbocharger Can assert the abstract idea is controlling recirculated exhaust gas (known) and all the controllers and sensors are merely generic? See U.S. Application 12/555,043 40

State Street Diehr Flook Alice, (Current Fed Cir.) Reaction to Alice oral argument and aftermath by commentators... 41 What to do now at USPTO? Depending on the art unit... Many software-related claims still being allowed Use clues left by the courts as indicated above, and commensurate ones from PTO Guidelines (below) Claims should be of varying ranges of patent-eligibility, where possible Not sure where pendulum will be in a couple of years (PTO and courts) If, e.g., NPE issue diminishes, fewer will care about patent-ineligibility Apprise clients of risks 42

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Supplements the June, 2014 post-alice Preliminary Instructions Supersedes MPEP 2106.01 Supersedes the March, 2014 Laws of Nature/Natural Principles guidelines USPTO seeking public comment - must be received by March 16, 2015. A public forum will be hosted at the USPTO in Alexandria, Va. on Jan. 21, 2015, to receive public feedback. The meeting is also accessible via WebEx This guidance is now in effect and applies to all applications regardless of filing date Seem to also state that failure of examiners to follow the guidelines is appealable only of the grounds of appeal are based upon the substantive law Additional explanatory examples of what is and is not patent-eligible subject matter (Part 2) are currently being developed 43 USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility 2 part Flook/ Mayo/Alice Test 44

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 1: Is claim directed to a judicial exception? Acknowledged that at some level all inventions embody, use, reflect, rest upon, or apply a law of nature, natural phenomenon, or abstract idea So what s the difference between all that and directed?? Indirectly seems to say that those claims that tie up or preempt the judicial exception are directed to it. Claims that recite a judicial exception, but are directed to inventions that clearly do not seek to tie up the judicial exception can get a streamlined eligibility analysis, which effectively appears to imply eligibility. Tip: Argue, if possible, that claimed invention merely embodies/uses a judicial exception that is not being tied up by the claim. May necessitate arguing the relevant abstract idea is different than what the examiner initially sets forth 45 USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 1: Is claim directed to a judicial exception? Note: Guidelines silent on how to determine the scope of the judicial exception (e.g., what, exactly, constitutes the scope of an abstract idea of a given invention). Just states it is important to understand what the applicant has invented and is seeking to patent. Merely mentions examples from cases for the types of concepts courts have found to be abstract ideas, e.g.: Mitigating settlement risk (Alice) Using advertising as an exchange or currency (Ultramercial) 46

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 2: Does a claim element or combination thereof ensure the claim amounts to significantly more than the judicial exception? Claim directed to more than a drafting effort designed to monopolize the exception Preemption concept again; Deemed search for an inventive concept Guidelines do emphasize looking at claim as a whole Individual elements viewed on their own may not appear to add significantly more to the claim, but when combined may amount to significantly more than the exception Opportunity to present better arguments to examiner for patent-eligibility Also mentiones every claim must be examined individually, based on the particular elements recited therein Not what many examiners are currently doing... 47 USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 2: (Cont.) What is significantly more set forth by examples from S. Ct. decisions: Improvements to another technology or technical field Diehr: formula applied in a specific rubber molding process (taking temperature readings) Improvements to the functioning of the computer itself Applying the judicial exception with, or by use of, a particular machine or effecting a transformation of a particular article to a different state or thing Noted machine or transformation test still an useful clue for patent eligibility Adding a specific limitation other than what is well-understood, routine and conventional in the field, or adding unconventional steps that confine the claim to a particular useful application Seems consistent with Lourie s concurrence in Alice but not latest Ultramercial. Nonetheless, may make for potential good arguments to examiner 48

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 2: (Cont.) What is not significantly more set forth by examples from S. Ct. decisions: Mere instructions to implement an abstract idea on a computer Appending well-understood, routine and conventional activities previously known to the industry to the judicial exception Adding insignificant extrasolution activity to the judicial exception, e.g., mere data gathering in conjunction with a law of nature or abstract idea Generally linking the use of the judicial exception to a particular technological environment or field of use 49 USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Part 2: (Cont.) Instructions for examination: Identify the exception (e.g., the abstract idea) and why it is considered an exception If the claim includes additional elements, identify the elements in the rejection and explain why they do not add significantly more to the exception Tip: If examiner asserts something is conventional, ask for proof if appropriate, especially if not conventional in the relevant technology field of the invention and/or as a whole 50

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Other Items Await final guidelines And how they re applied... 51 USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Streamlined Analysis Use if claim as a whole clearly does not seek to tie up any judicial exception such that others cannot practice it Seems that anything qualifying will generally be patent-eligible Seems to just be a way to allow examiners a second look at whether, in fact, the claim does tie up an exception Example of clearly does not tie up an exception is a robotic arm assembly having a control system that operates using certain mathematical relationships Seems to imply that as long as something physical is associated with the mathematical relationship/software (other than a "computer"), it can be "streamlined" (which, according to the definition of streamlined, seems to imply it's thus patent-eligible). 52

USPTO 2014 Interim Guidance on Patent Subject Matter Eligibility Sample analysis (S. Ct. Decisions) For each decision, guidelines basically indicate what the claim focuses on and what it is thus directed to. However, ironically, they do not indicated in the examples what the nature of the exception is, but only that it is, e.g., directed to an abstract idea. Diamond v. Diehr is the only algorithm-computer-related decision found patent-eligible Constant measurement of temperature a rubber-molding press and the repetitive computer recalculation of the appropriate cure time were additional elements that provide something more Improve[d] an existing technological process 53 ABA IP Section Alice Task Force 54