Schantz: Software patents — the phoenix of patent subject matter

April 19, 2017
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By Matthew Schantz

Software patents have seen better times. The glory days of the 1980s and 1990s, after the U.S. Supreme Court held in Diamond v. Diehr (1981) that inventions implemented in software are not unpatentable just because they are implemented in software, continued long past the generalized expansion of patentable subject matter by the Court of Appeals for the Federal Circuit in State Street Bank v. Signature Financial Group (1998). But the Supreme Court shook the foundations of the software patent world in 2012 (Mayo v. Prometheus) and 2014 (Alice Corp. v. CLS Bank International), leaving business leaders (and their patent attorneys) to wonder whether — or even hope that — software patents were dead. While the U.S. Patent and Trademark Office and courts have struggled to find reasonable, “new normal” limits on software patents that are practical in application and justifiable under precedent, recent cases reflect a maturing of the law surrounding patents on software-implemented inventions.

Prometheus reasserted the historic prohibition on patents (merely) covering laws of nature, natural phenomena and abstract ideas. Alice applied this last limitation to invalidate a patent on software that implemented a hedging strategy for mitigating “settlement risk.” The initial response by the PTO was to bolster its processes and change its examiners’ attitudes to avoid allowing any patents — especially software-related patents — that either excluded all other use of, covered, described, mentioned, or bore any relation whatsoever to an abstract idea. As a thoughtful reader might appreciate, however, every single invention, whether made from sheet metal and screws or bits and bytes, can be described in many ways at a variety of levels of abstraction. A patent on a dump truck might literally focus its limitations on hydraulic connections and physical structures and movements, but these same limitations could be characterized as “merely” attempting to patent the abstract idea of hydraulic movement. PTO examiners took this latter approach in droves, rejecting and invalidating patent applications and patents with extreme prejudice. The examiner corps who review patents on some classifications of subject matter literally refused more than 97 percent of the patent applications before them.

At the same time, certain members of the technology community and certain organizations redoubled their efforts to prevent patenting of any software whatsoever on philosophical grounds. The Electronic Frontier Foundation and other free and open-source software (FOSS) advocates resist the application of normal patent policy to the software industry. The public also became increasingly aware of “patent insertion entities” who leverage the cost of defending a patent infringement suit to extract settlements from those who probably didn’t infringe the patents. The hue and cry of public sentiment did software-oriented inventors no favor as the PTO and courts worked to find a practical standard for reviewing software patent applications that gave due regard for recent precedent as well as patent policies enshrined in the Constitution and U.S. law since the founding of the Republic.

Over the last couple of years, cooler heads and thoughtful analysis have occasionally prevailed. The Federal Circuit held in DDR Holdings, LLC v. Hotels.com, L.P. (December 2014) that a patent on systems for dynamically constructing web pages was patent-eligible subject matter. In March 2016, after a patent examiner rejected all of the claims in an application as directed to a nonstatutory “abstract idea,” the Patent Trial and Appeal Board reversed the examiner’s conclusion, explaining that “the claims are directed to a computer system and methods of using same, and not an abstract idea.” Ex parte Jacob A. Shipon. In May 2016, the Federal Circuit held in Enfish v. Microsoft that a self-referential database model is patentable. A few months later, in September 2016, the court held in McRO v. Bandai that a patent’s “ordered combination of claimed steps, using unconventional rules that relate sub-sequences of phonemes, timings, and morph weight sets, is not directed to an abstract idea and is therefore patent-eligible. …” The Enfish court wisely counseled that the initial stage of the two-stage Mayo/Alice subject matter inquiry should be meaningful, not “simply ask whether the claims involve a patent-ineligible concept, because essentially every routinely patent-eligible claim involving physical products and actions involves a law of nature and/or natural phenomenon …. Rather, the ‘directed to’ inquiry applies a stage-one filter to claims … based on whether ‘their character as a whole is directed to excluded subject matter.’” In January 2017, the Federal Circuit declared in Trading Techs. Int’l, Inc. v. CQG, Inc. that a patent on a graphical user interface method presented patentable subject matter. Clearly, one might conclude, not every software-related invention presents unpatentable subject matter.

Unfortunately, not everyone agrees. Judge Haldane Mayer of the Federal Circuit wrote in a September 2016 concurring opinion that “claims directed to software implemented on a generic computer are categorically not eligible for patent,” apparently contradicting the Supreme Court’s holding in Diamond v. Diehr mentioned above. The Federal Circuit has held generation of device-dependent transformations and combining them into a device profile (Digitech Image Tech., LLC v. Electronics for Imaging, Inc., 2014), an automatic pricing system (OIP Technologies, Inc. v. Amazon.com, Inc., 2015), real-time monitoring of electric power grids (Electric Power Group, LLC v. Alstom, 2016), and classification/filtering of email (Intellectual Ventures I LLC v. Symantec Corp., March 2017) to be patent ineligible.

While there are outliers, many opinions are starting to follow a pattern. Patents on inventions that improve the operation of industrial processes or computers themselves are typically upheld. Patents that just use computers to manage rights of persons are often doomed. The more that the “technical character” of an invention is the focus of the description and the claims, the better. If we are mindful of this pattern, inventors who contribute truly novel and nonobvious advances in the software space may continue to see their just reward.•

• Matthew Schantz is a member at Frost Brown Todd LLC. His practice includes patent, software, trademark, information security, automotive, and privacy law. The opinions expressed are those of the author.