As has been well documented, the Supreme Court’s decision in Alice Corp. v. CLS Bank has had a dramatic impact on the allowability of computer implemented inventions.  This second article in our series explores the dynamics of that impact on the e-commerce arts.  Our first article[1] showed that in the finance arts (e.g. banking and insurance) Alice had an immediate and substantial impact reducing allowances per month by a factor of 10.  A similar but more complicated impact was felt in e-commerce.  Allowances per month immediately dropped but then recovered only to drop again.  We will present an analysis of what is being allowed today as a guide to practitioners filing applications in this field.

Art Unit Organization by Subclasses

E-Commerce patents fall under the general category of business methods and are examined in work groups 3620 and 3680.  Table 1 below shows the technologies they encompass as well as the associated “old” US patent classifications[2] and the examining art units[3].  The old US patent classifications are referenced because they are still used to assign applications to art units.  The primary class of e-commerce and business method patents is class 705.  The “e-Commerce subclasses” in the table below is based on the majority subclasses being examined in each art unit.  The subclass designations generally account for at least 80% of the applications being examined in a given art unit.  Interestingly, a significant minority of applications in these art units are not classified as 705 applications.  According to conversations I’ve had with examiners, these are cases that were originally assigned to other work groups but were later referred into these work groups because the classifications done by the contractor were not correct.  Apparently even after reassignment into these work groups, the original class/subclass designations stayed in the PAIR records for the applications.


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With the close of the first quarter of 2017, there have been some interesting patterns developing in AliceStorm.  Let’s start with the big picture: There was a flurry of activity in March, with a record number of Section 101 decisions.  The Federal Circuit issued 11 decisions alone (its highest monthly output), and the district courts contributed another 24 (third highest month).  However, the overall percentages of invalidity outcomes are stable as compared to last month, which is really more a reflection of the law of large numbers: there have been so many Section 101 decisions that the total percentages are not going to change significantly month to month.
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As many of my readers noticed, I didn’t publish any of my own blogs in January and February.  As it turned out, I suffered from a peculiar form of seasonal affective disorder (SAD), what I would call SMIAD: Subject Matter Ineligible Affective Disorder.  The unrelenting rains here in San Francisco, a similar torrent of Section 101 rejections from the USPTO, and an uptick in the rate of court decisions invalidating patents, converged to put me in a dour and de-inspired mood.  With the return of the sun and some interesting decisions from the Federal Circuit, it’s time to get back to tracking AliceStorm. First, an update on the overall AliceStorm numbers, through the end of February, 2017: Compared to the December numbers, the changes are mixed.  The Federal Circuit ineligibility rate increased 1.9% to 90.9%, while the district court rate declined 1.2% to 61.8%.  There’s been a 1% drop in the overall percentage of patents invalidated as well, down to 59.3%. The success rate on motions on the pleadings (including both motions to dismiss and motions for judgment on the pleadings) is down 0.6% to 62.3%.
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The U.S. Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank (“Alice”)[i] has had a dramatic impact on the allowability of computer implemented inventions, especially in the finance arts (e.g. insurance, banking, etc.).  This series of articles explores the dynamics of that impact in different computer implemented arts as a useful guide to help patent practitioners navigate the new realities of post-Alice prosecution. In Technology Center 3600, art units 3691-3696 within Work Group 3690 examine applications in finance, banking and insurance (“Finance Art Units”).  These art units have been the most heavily impacted by Alice.

Fig. 1

Figure 1 shows the total number of allowances per month, abandons per month and appeals per month for patent applications examined in Work Group 3690, from January 2014 to March 2016.  The data is from the USPTO’s public PAIR[ii] system.  PatentAdvisor™[iii] was used to collect and process the data. There are currently about 80 examiners in this Work Group.  The Work Group produces about 8400 office actions on the merits per year (i.e. nonfinal rejections, final rejections and allowances).  Prior to Alice, about 2100 of the actions per year were allowances (25% of the total actions).  Post Alice, only 220 of the actions per year have been allowances (2.6% of the total actions).
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In June, the Government Accounting Office (GAO) issued a performance audit of the U.S. Patent and Trademark Office (USPTO), “Patent Office Should Define Quality, Reassess Incentives, and Improve Clarity.” [1] The report was prepared at the request of the House Judiciary Committee, which asked the GAO to examine trends in patent litigation and identify opportunities to improve patent quality. To address the latter, the GAO attempted to identify the factors that contributed to “low quality patents.” The GAO’s analysis of these factors was based primarily on a lengthy survey of USPTO patent examiners on various factors that affected the quality of the applications they examined. The GAO report identified Requests for Continued Examination (RCEs) as a key issue impacting patent quality:

Requests for continued examination: Applicants are currently allowed to file an unlimited number of requests for continued examination, which is a request by an applicant to reopen examination of the patent application after the prosecution of the application has been closed. Applicants request continued examination most often after final rejection of an application, according to USPTO officials. Such requests provide applicants with virtually unlimited attempts to secure a patent, which is problematic for patent quality, according to some stakeholders. Some stakeholders also told us that such unlimited requests can wear down examiners, making them more likely to eventually grant the patent. While USPTO has reached out to patent applicants to learn why they were using such continued examinations, the number of requests for continued examination continues to pose a burden for the agency’s examiners. [2]

In its introductory paragraph the GAO report expressly linked “low quality patents” to “an increase in patent infringement suits,” and in the above quotation it links RCEs to “low quality patents,” stating “Such requests provide applicants with virtually unlimited attempts to secure a patent, which is problematic for patent quality, according to some stakeholders.” Other than the “stakeholders” the GAO offers no evidence for this assertion.
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The Federal Circuit’s recent decision in McRO has been interpreted by many in the patent community as a further signal that the so-called “pendulum” is swinging back to a more favorable position for patentees.  There is some superficial evidence of this possibility.  Let’s look at the numbers. September 2016 was the first time since Alice that the number of federal court decisions finding eligible subject matter (16) exceeded those finding ineligible subject matter (13).  Those sixteen decisions also mark the highest number of eligibility decisions in a single month.  The most significant contribution to the switchover is that only two motions to dismiss under § 101 were granted in September, compared to nine that were denied, the largest gap since March 2016 (6 granted, 10 denied).
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The press is all abuzz with reactions to Judge Mayer’s concurring opinion bluntly stating that “claims directed to software implemented on a generic computer are categorically not eligible for patent.”  Intellectual Ventures I LLC v. Symantec Corp. et al., 2015-1769, -1770, -1771 (Fed. Cir. Sept. 30, 2016).

Here, I’ll just explore one aspect of this remarkable opinion—the reasons that judicially created exceptions are dangerous. As we have previously detailed on this blog, the precipitous drop-off in PTO allowances and Article III court confirmations of validity are not driven by the literal text of Section 101 or other portions of the patent statute, but instead by judicial interpretations of exceptions that the courts deem must be read into the Patent Act. Many commentators have observed that such judicially created exceptions may be an extremely convenient way to sidestep “bad” patents but are not needed, given that the provisions of sections 102, 103 and 112 would be just as effective in addressing vague or overbroad patent claims. Single-paragraph district court explanations of why particular patents claim nothing more than an abstract idea now regularly invalidate patents at the pleadings stage. Judge Mayer’s concurrence adds fuel to this fire. A few examples from his concurrence are illustrative.


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My previous blog on McRo focused on the direct aspects of the decision, but there are other excellent points that the court makes and that can be derived from the opinion, and that should play an important role in how the courts and the USPTO handle the Mayo test. First, the mathematical nature of the invention was not fatal; it was vital. One of the favorite buzz-saw arguments for finding ineligibility is that claims for computer-implemented inventions recite—either directly or indirectly—mathematical operations. This is about as insightful as stating that patent claims in U.S. patents are written in the English language. The invocation of the dreaded mathematical algorithm Jabberwocky and talismans of Benson and Flook often convince jurists that the claims are abstract.  The McRo court did not run scared here. Quite the contrary, the McRo court relied on the underlying mathematical nature of the rules to demonstrate non-preemption: “Defendants concede an animator’s process was driven by subjective determinations rather than specific, limited mathematical rules. . . . It is the incorporation of the claimed [mathematical] rules, not the use of the computer, that “improved [the] existing technological process” by allowing the automation of further tasks.” This holding should be heeded by the courts and the USPTO to not treat all mathematically implemented inventions as necessarily abstract.
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Over the past two months, the trends I’ve discussed in my previous blogs on AliceStorm have continued and become more entrenched. In particular, the Federal Circuit has been quite active, issuing nine decisions since late June. These decisions lay out a theory of patent eligibility that in my view is divorced from both scientific reality and how innovation actually occurs. I’ll discuss those points below, but first let’s do the numbers. June, July and August showed an uptick in the number Section 101 decisions from April and May, the majority of these being motions to dismiss and judgments on the pleadings. The rates of invalidity holdings continue to be steady: 70% overall, and 66.3% in the district courts. Success on motions on the pleadings is up to 68.1%.
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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. 


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