US Cracking Down On Software Patents

The US courts are aggressively applying the ruling. So is the US Patent and Trademark Office (USPTO). Thanks to their common interpretation of the US Supreme Court’s recent decision in Alice Corp. v. CLS Bank, it is now open season on software patents.

The US used to be unusually generous towards software patents. For decades, the courts and the USPTO found almost any software-related invention to be patent-eligible subject matter.

Then in June, the US Supreme Court handed down its decision in Alice [pdf]. The patents at issue in that case claimed an electronic escrow service for online securities sales. These patents did not claim a precise and unusual type of escrow. They merely claimed the general concept of escrow as it has been known for centuries – just done online using a general purpose computer.

The high court unanimously struck down these patents, holding that an abstract idea (such as escrow) does not become patent-eligible simply because it is implemented using a computer. “[T]he mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention,” wrote Justice Clarence Thomas in the court’s opinion.

Almost immediately after the ruling was issued, the USPTO began taking a much tougher line on patent applications for software-related inventions. The agency has, over the past three months, rejected numerous patent applications on the grounds that they claimed abstract ideas being implemented by computers.

“The Patent Office has taken Alice and pushed it as far as the agency can,” said Robert R. Sachs, a partner in the law firm of Fenwick & West. “The patent office is rejecting everything it can. Some applications are even being pulled after allowance, which is unheard of in my experience.”

The Patent Office’s administrative appeals unit, the Patent Trial and Appeal Board, has been similarly tough. The PTAB has reviewed, under a program set up by the 2011 America Invents Act, many existing business method patents affecting financial services. After the ruling in Alice, these patents have not fared well.

“These business method patents are going down in droves,” said Rochelle C. Dreyfuss, professor at New York University School of Law and co-director of the Engelberg Center on Innovation Law and Policy.

However, the PTAB’s decisions are erratic, according to critics. “Some PTAB panels are more liberal and others more aggressive on Section 101 rejections [patent-ineligible subject matter]. There is no clear dividing line on when claims will be allowed and when they will be rejected,” said Sachs.

He added that the USPTO’s treatment of patent applications is similarly erratic. “We are seeing different approaches from different examiners and different art units,” Sachs said.

Bench Pressure

The US trial and appellate courts are displaying a new hostility towards software-related patents. Since Alice, these courts have ruled on 12 cases challenging the validity of software-related patents. In every one of these cases, the courts struck down the patents on Section 101 grounds, holding they covered patent-ineligible subject matter.

“It’s a new world order in the aftermath of Alice. The trial courts and the Federal Circuit [often called America’s ‘patent court’] have invalidated almost as many patents in the last three months as they did in all of last year,” said Feldman.

These court decisions are important not just for what they held, but when they were issued. A significant number of them were handed down before trial, on motions to dismiss. That is great news for anyone who wants to contest accusations of infringing a software-related patent, because it allows an alleged infringer to challenge a patent’s validity without incurring the time and cost of a trial.

“Patent infringement cases are long and expensive. The ability to knock out a weak case early on is critical. Otherwise, accused infringers have to invest large sums of money just to get to the point at which the court can declare a patent is no good,” said Robin Feldman, professor at University of California Hastings College of the Law and director of the Institute for Innovation Law.

“This certainly changes the dynamic of patent litigation. It tilts the field in favor of defendants,” said Sachs.

The USPTO’s and the judiciary’s new hostility towards software-related patents seems likely to weaken so-called “patent trolls” – companies whose main source of revenue is licensing their patents and suing those who refuse to purchase licenses.

“Software patents are the favorite weapon of patent trolls,” said Feldman. “I would not expect Alice to shut down patent trolls, but it will take a bite out of their business.”

More Like Europe

America’s new, more skeptical view of software-related patents has brought the country much closer to Europe’s position on these patents.

“It appears we are moving towards a European-type test for the patent eligibility of software-related inventions,” said Sachs. “To patent these inventions in Europe, there must be technical solution that is being claimed. In the US, software-related claims now have to cover something technological – such as an improvement in the functioning of the computer or an improvement in any other technology or technical field – but that doesn’t put us directly in camp with the European model.”

Europe still takes a tougher line than the US. “Articles 52 and 53 of European Patent Convention exclude certain items from patentability, such as business methods, computer programs, and diagnostic methods. We in the US haven’t gone as far as that,” said Sachs.

Will there be further harmonization in this area? It is unclear. Some businesses and patent experts want the US to go further and declare, like the EU, that software cannot be patented. Others think the US has already gone too far and expect America’s current hostility towards software-related patents will not last.

“Over the past three decades, I have watched the pendulum swing on whether software-related inventions are patentable subject matter. That pendulum has never stood still. It has always been moving,” said Dale S. Lazar, a partner in the law firm of DLA Piper. “I think the pendulum is now at one extreme. I expect it to start swinging the other way.”

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