By: Robert R. Sachs
Two years ago this Sunday, the Supreme Court in Alice Corp. Pty Ltd. v. CLS Bank Int'l1 addressed a relatively narrow issue: does a claim reciting a generic computer implementation transform an abstract idea into a patent-eligible invention? The Court considered this a "minor case" in which it did not break new ground, but instead simply followed its decisions in Bilski2 and Mayo.3 The Court reiterated a two-step test set forth in Mayo determine whether the claim recites a judicial exception and if so, determine whether the claim recites an "inventive concept," something "significantly more" than the exception and "enough" to transform the claim into eligible subject matter.4 The Court applied this test to find that Alice’s claim simply recited a fundamental economic practice of risk intermediation through third party settlement, and then held that the presence of generic computing elements or steps was not sufficient to provide an inventive concept.5 To the Court, this was an easy case.
Three aspects of the decision are worth noting. First, the Court did not see the case as presenting a difficult question of defining what is an abstract idea. "In any event, we need not labor to delimit the precise contours of the "abstract ideas" category in this case….Both [Alice and Bilski’s claims] are squarely within the realm of "abstract ideas" as we have used that term.6 In other words, whatever an abstract idea was before Alice, it was the same afterward: there was no expansion of the scope of the term.
Second, the Court’s decision was not addressing the patent eligibility of software in this particular case, let alone in general. During oral argument, the Court was told by CLS—and accepted the representation that—"they [Alice] have no software…they’ve never written software."7 Even Alice acknowledged to the Court that it would have been trivially easy to write the software, agreeing with Justice Kennedy that:
any computer group of people sitting around a coffee shop in Silicon Valley could do this over a weekend.8
In other words, to the Court, this case was not about a software invention, but a business method that just happen to be implemented in software.
The Court was also led to believe that its decision would not be broadly applicable. CLS told the Court:
This is not the death of software patents… This will not affect software patents.9
Likewise, the Solicitor General reassured the Court that they need not address the patent eligibility of the software to decide the matter. The Court apparently accepted this view, as indicated by Justice Sotomayor:
What's the necessity for us to announce a general rule with respect to software? There is no software being patented in this case.10
Indeed, the Court’s decision makes no mention of the eligibility of software as general matter; rather they only considered whether a "generic computer…transform a patent-ineligible abstract idea into a patent-eligible invention," whether "a the mere instruction to "implemen[t]" an abstract idea "on . . . a computer" suffices.11 It is a misreading of Alice to say the Court held that software was abstract to begin with, or that the presence of a generic computer was evidence that the invention was an abstract idea.
Third, and most important, the Court was obviously aware that the lack of definition in both steps of the Mayo test created the risk of an over-expansive application of the judicial exceptions. Thus, the Court extended a theme found in Benson12 and Bilski,13 that Section 101 should not be interpreted to impede innovation, particularly in the realm of computer technology. The Alice Court made clear that the judicial exceptions must be cautiously applied: "we tread carefully in construing this exclusionary principle lest it swallow all of patent law. At some level, "all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas."14
However limited the Court believed or intended the Alice decision to be, the case has been broadly interpreted by both the federal courts and the USPTO, and the impact has been dramatic.15 I call this (legal) phenomenon AliceStorm. What follows is a survey of AliceStorm in the federal courts and USPTO.
The Impact of AliceStorm
Figure 1 shows the number of district court and Federal Circuit decisions addressing § 101 related motions on the merits since Alice was decided, through June 8, 2016.16 Except for an artificial spike in March 2016, in every month since Alice. the number of decisions invalidating at least one patent in suit has equaled or exceeded those upholding all of the contested patents.17
Here’s the first clue that the Court did not anticipate, let alone intend, AliceStorm. CLS told the Court that the issue was "a very small problem" that impacted only the "most marginal, most dubious, most skeptical patents," noting that in the four years "since Bilski, there have only been 57 district court decisions on Section 101 issues" and "only 12 Federal Circuit decisions total."18 Yet, in only two years since Alice, there have been four times as many district court decisions (247), with the Federal Circuit close behind (40)—reflecting that the patent defense bar saw the applicability of Alice quite differently from the Court.
The 70% overall success rate of § 101 defense motions is extremely impressive—and remarkably steady, down only slightly from the 71.7% I found last year. The success rate on § 101 motions on the pleadings has been even more constant, 67.1% this year versus 67.0% last year. The percentage of patents invalidated has also been constant year over year, 66% vs. 65%. Even more remarkable is the consistency of the Federal Circuit. Last year at this time they had decided only thirteen § 101 decisions, and found only one case, DDR Holdings, patent eligible.19 In the year since, they have decided more than twice that many (27) cases and still found only one case with patent-eligible claims, Enfish, LLC v. Microsoft Corp.20
The Patent Trials and Appeals Board is likewise a good bet for patent defendants seeking to invalidate patents under Covered Business Method Review. The PTAB has granted 83.6% of the CBM petitions in which they considered a § 101 argument on the merits, and reaffirmed 96% of those decisions as Final Decisions. This trend is likely to continue, as the Federal Circuit in Versata Development Group.21 upheld both the USPTO's broad interpretation of "financial product or service" necessary to obtain Section 18 standing, as well as its very narrow definition of "technological invention" that would preclude it.22 This is because to the extent that the PTAB is willing to classify a patent as non-technological financial product or service in deciding whether the patent qualifies for CBM review, it is predisposed to finding the patent directed to ineligible abstract ideas.
As explained above, the Court did not see Alice as a software patent case, but rather an example of a fundamental business method simply implemented on a computer. Even today the common perception is that the patents being invalidated after Alice are generally business method patents. Figure 2 shows that this is not the case.
Business method patents (patents classified in U.S. Patent Class 705) account for 125 (22.4%) of the challenged patents, and similarly 26.3% of the invalidated patents. But software patents account for 256 (45.8%) of the challenged patents and similarly 45% of the invalidated ones. Thus, if the Court was expecting that Alice's patents were representative of a "small problem" that would not impact software patents either they were sorely misled, they failed to understand the scope of their decision, or the lower courts have failed to heed the Court’s cautionary notes. Or all three.
Figure 2 also shows the impact of Mayo and Myriad, with 53% of biotech related patents being invalidated under § 101. In the majority of these cases, the rulings are based on the grounds that the claims are directed to "laws of nature" or "natural products." The problem here is that the Supreme Court's definition of a law of nature—as a correlation that "exists in principle apart from any human action," is scientifically incorrect.23 As a result, courts unfortunately invalidated applications of the discoveries about nature that have historically been patent eligible.
Let’s return to the Federal Circuit. Here is how the judges of that court have voted on patent eligibility:
The forty Federal Circuit decisions are remarkable for two reasons. First, the obvious: that thirty-eight went against the patentee, even though many, indeed most, of these cases had reasonable arguments for the eligibility of the claims. While the Federal Circuit has said24 that the line of patent eligibility is not always clear, they behave as if the line is laser straight and bright. Less obvious is that in forty decisions there have been 120 decision opportunities by the individual judges, and yet there have been no dissents in any of the cases invalidating the patents in suit.25 This lack of dissent—including none from Judge Newman, the court’s primary dissenter—is well below the court’s average rate of dissents over the same period.26
In the district courts, the confusion over not just the boundaries of abstract ideas, but the entire approach, is apparent. Some courts conflate eligibility with novelty and uniqueness,27 others focus on a lack of specificity.28 Most apparent is a return to the pre-1952's nebulous standard of "inventiveness," based on Alice's requirement for an "inventive concept."29 In particular, there is a persistent view that automation of existing processes is per se ineligible, as opposed to being simply obvious.30
On Monday I'll review the impact of AlicesStorm at the USPTO.
1 134 S.Ct. 2347 (2014).
2 Bilski v. Kappos, 130 S.Ct. 3218 (2010).
3 Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012).
4 134 S. Ct. at 2355.
5 Id. at 2360.
6 Id. at 2357.
7 Alice Corp.Pty. v. CLS Bank Int’l., No. 13-298 Oral Argument Transcript ("Alice Oral Argument"), (Mar. 31, 2014), p. 30.
8 Id. at 12.
9 Id. at 42-43.
10 Id. at 46.
11 Alice, 134 S.Ct. at 2352.
12 Gottshalk v. Benson, 409 U.S. 63, 71 (1972) "It is said that the decision precludes a patent for any program servicing a computer. We do not so hold…. It is said we freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology. Such is not our purpose.").
13 Bilksi v. Kappos, 130 S. Ct. 3218, 3226 (2010) ("This Court has "more than once cautioned that courts 'should not read into the patent laws limitations and conditions which the legislature has not expressed.")
14 Alice, 134 S.Ct. at 2354.
16 It is telling indicator of AliceStorm these numbers are already out of date. There have been several district court and PTAB decisions since this data was compiled on June 12, 2016.
17 A split decision, one in which the court invalidates some patents or claims but not others, is included in both the eligibility and ineligibility counts.
18 Alice Oral Argument. at 42-43.
19 DDR Holdings, LLC v. Hotels.Com, L.P., 773 F.3d 1245 (Fed. Cir. 2014).
20 2015-1244 (Fed. Cir. May 12, 2016).
21 Versata Development Group v. SAP Am., Inc., 793 F.3d 1306 (Fed. Cir. 2015). Versata is seeking certiorari of the Federal Circuit decision, arguing, inter alia, that PTAB’s definition of "financial service" covers a salesman quoting the price of a mattress.
22 Id., at 1325, 1326.
23 See, Robert R. Sachs, Jennifer R. Bush, "Prometheus Unbound: The Untethering of Laws of Nature and Patent Eligibility From Scientific Reality," Bilski Blog, July 3, 2013, at http://goo.gl/KUIkvV.
24 See DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1255 (Fed. Cir. 2014); Internet
Patents Corp. v. Active Network, Inc., 790 F.3d 1343, 1345 (Fed. Cir. 2015) ("Recently, the courts have focused on the patent eligibility of "abstract ideas," for precision has been elusive in defining an all-purpose boundary between the abstract and the concrete, leaving innovators and competitors uncertain as to their legal rights").
25 The low number of dissents is partly a result of the fact that half of the decisions are per curiam, in which a dissent is very rare.
26 Between Alice and April 25, 2016, there were 108 dissents in 1724 Federal Circuit cases (6.2%), with J. Newman issuing 35, more twice that of Reyna (14), the next most prolific dissent. Statistically speaking, one would have "expected" about 2 or 3 dissents thus far.
27 OpenTV, Inc. v. Apple, Inc., No. 5:15-cv-02008-EJD (N.D. Cal.1/28/2016) (“The concept of a database is not novel or unique. See Alice, 134 S. Ct. at 2360; Information exchanged between a database (as part of or remote from a computer) and the computer is not novel and adds nothing to the 101 analysis.”).
28 See, e.g, Intellectual Ventures I v. Canon Inc. (D. Del. 11/9/2015) (Noting that DDR Holdings provides “a benchmark of specificity to which other claims can be compared,” and that “even though most of the patent claims now being challenged under § 101 would have survived such challenges if mounted at the time of issuance, these claims are now in jeopardy under the heightened specificity required by the Federal Circuit post-Alice.); Clear With Computers LLC v. Altec Indus., Inc. 2015 U.S. Dist. LEXIS 28816 (E.D. Tex. 3/3/2015) (“The additional recitation of specific computer components such as a “database,” “memory,” “transceiver” and “wire-based network,” and computer functions such as “storing,” “transmitting” and “receiving,” are incapable of conferring the requisite specificity.”); Source Search Techs., LLC v. Kayak Software Corp., 111 F. Supp. 3d 603, 617 (D.N.J. 2015) (“That specificity removes the claims from the abstract realm.” (emphasis in original))
29 See, e.g., Intellectual Ventures I LLC v. Capital One Fin. Corp., 2015 U.S. Dist. LEXIS 62601 (D. Md. 6/11/2015 (“The use of generic hardware and software running an intrusion detection application is not viewed as new and inventive"); HealthTrio, LLC v. Aetna, Inc. No. 12-CV-03229-REB-MJW, 2015 WL 5675303 (D. Colo. Sept. 28, 2015) ("because Plaintiff’s insight…is not a sufficiently inventive concept, the Court concludes that the patents are drawn to an ineligible subject matter”).
30 GT Nexus, Inc. v. Inttra, Inc. U.S. Dist. LEXIS 150579 (N.D. Cal., 11/5/2015). (“Here, the Court finds that the patent claims merely automate the practice of booking and tracking shipping containers; this automation is insufficient to transform the nature of the patents.”); Hewlett-Packard Co. v. ServiceNow, Inc., 2015 U.S. Dist. LEXIS 29384 (N.D. Cal.,3/10/2015 (“the automation of IT incident resolution is an abstract idea, not patentable under § 101.”); Parus Holdings, Inc. v. Sallie Mae Bank, 2015 U.S. Dist. LEXIS 137444 (D. Del. 10/8/2015) (“Organizing business functions based on commands provided by a user is tantamount to the automation of the management of business communications usually performed by human administrative assistants (the identified purpose of the invention).”); Cogent Med., Inc. v. Elsevier Inc., 70 F. Supp. 3d 1058, 1060 (N.D. Cal. 2014) (“the ’879 Patent claims no more than a computer automation of what “can be performed in the human mind, or by a human using a pen and paper.””); Voxathon LLC v. Alpine Elecs. of Am., Inc.,Case No. 2:15-cv-562-JRG (E.D. Tex. 1/20/2016) (“Claim 1 is really nothing more than the automation of responding to the sender of a message received on a telephone.”).