Bilski Blog

Two Steps Forward, One Step Back

By Greg Hopewell

If the focus on fact finding in Aatrix, Berkheimer, and Exergen from earlier this year helped provide additional clarity on the analysis of “something more,” the SAP America decision, at least to my mind, failed to clarify, and possibly further muddied, the analysis.

Reaching This Result Could Have Been Easy

First, a representative claim:

1. A method for calculating, analyzing and displaying investment data comprising the steps of:

(a) selecting a sample space, wherein the sample space includes at least one investment data sample;

(b) generating a distribution function using a re-sampled statistical method and a bias parameter, wherein the bias parameter determines a degree of randomness in a resampling process; and,

(c) generating a plot of the distribution function.

The other independent claims differ a bit from claim 1, but like claim 1 recite “resampling” of the data set and, in claim 11, doing so with a “bias parameter.” According to the patent, this resampling of investment data permits analysis that doesn’t assume a normal distribution of the data.

On a judgment on the pleadings, the district court found all claims ineligible and the Federal Circuit affirmed.

Seeing a Forest, Not Just Trees: Core Wireless v. LG

By Gregory Hopewell

Do you remember obviousness before KSR v. Teleflex? To invalidate, the rule went, one must find an express rationale for combining references (a teaching, suggestion or motivation). The KSR ruling reminded us that the TSM test was too rigid—the proper analysis should more flexibly evaluate obviousness with the skilled artisan in mind, without rigid requirements for these rationales in the references themselves.

If we knew how to more flexibly identify rationales for obviousness post-KSR, it was not clear how to more flexibly apply patent eligibility without the machine or transformation test after Bilski and Alice. A machine, apparently, was now just a clue. But identifying how to apply the more general principles from Alice and Bilski was not as easy to apply as a flexible obviousness test. The recent Core Wireless decision may show us a more useful theme for applying a more general approach to obviousness.

Eligible Decisions Have Focused on Specific Facts

Learning the new contours of the broad, general terms of the Court’s instructions in Bilski and Alice has felt like blundering through a forest, carefully inspecting the facts of individual patents at issue in various decisions and learning they are “abstract” with “no inventive concept” without easily apparent themes. Drawing the more general contours of the growing Federal Circuit case law has been challenging and compounded by selection bias of those claims actually appealed to the Federal Circuit—trolls and other enforcers may be more likely to litigate and appeal broad and results-oriented claims that appear to have many infringers (and are now ripe for challenge as ineligible). Each eligible case has often lived on its own facts, while in ineligible cases, courts (and patent examiners) may run through and reject the litany of individual reasons that eligible cases were permissible. For ineligible claims, there appeared to be the same general reasons that could broadly be applied to invalidate (e.g., an abstract idea executed on a general purpose computer). 

Unifying Principles Among Eligible Cases

General principles for finding claims eligible have been elusive. A few weeks ago, the Core Wireless decision (Fed. Cir., Jan. 25, 2018, by J. Moore, affirming eligibility) suggests a broader theme that may help tie these eligible cases together.

In summarizing prior eligible decisions, the court returned, again and again, to how prior eligible decisions addressed claims with features that were “particular” and “unconventional.” This table summarizes treatment of the previous cases cited in Core Wireless:

Prior Decision	Description in Core Wireless (internal citations and edits omitted)
Enfish [eligible, self-referential table]	“The claims were directed to a particular improvement in the computer’s functionality.” “The claimed self-referential table was a specific type of data structure designed to improve the way a computer stores and retrieves data in memory.”
Thales [eligible, determining position of object using inertial sensors]	“The claims specified a particular configuration of the sensors and a particular method of utilizing the raw data that eliminated many of the complications inherent in conventional methods”
Visual Memory [eligible, programmable operational characteristics defined by the processor]	“The claimed invention provided flexibility that prior art processors did not possess, and obviated the need to design a separate memory system for each type of processor.”
Finjan [eligible, behavior-based application scan and security profile]	“They [the claims] employ a new kind of file that enables a computer security system to do things it could not do before, including accumulating and utilizing newly available, behavior-based information about potential threats.” “The claimed behavior-based scans, in contrast to prior art systems…”

Here is one representative claim from the ‘476 patent at issue in Core Wireless: 

1. A computing device comprising a display screen, the computing device being configured to display on the screen a menu listing one or more applications, and additionally being configured to display on the screen an application summary that can be reached directly from the menu, wherein the application summary displays a limited list of data offered within the one or more applications, each of the data in the list being selectable to launch the respective application and enable the selected data to be seen within the respective application, and wherein the application summary is displayed while the one or more applications are in an un-launched state.

In looking at this claim, the court noted ways in which a particular approach was being used to create an improvement and variously described limitations as follows: “a particular manner of summarizing and presenting information” “specifying a particular manner by which the summary window must be accessed,” “this claim limitation restrains the type of data that can be displayed,” and “a requirement that the device applications exist in a particular state.” Together, the court found the claim recited “a specific manner of displaying a limited set of information to the user, rather than using conventional user interface methods to display a generic index on a computer.” Like the cases above, “these claims recite a specific improvement over prior systems, resulting in an improved user interface for electronic devices.”

In this case, the court then looked to the specification to confirm that these particulars are interesting. The court notes that the specification describes problems with the prior art displays, especially for smaller screens, and that prior interfaces may require significant “drill down” through layers of interface to reach information within applications.    

Tying it All Together

This focus on the “particular approach” and its “unconventional” nature with respect to the prior art appears to me to thread the needle for many post-Alice 101 decisions. Though the evaluation for the apparently-distinct tests of “directed to an abstract idea” and “something more” has been challenging to untangle, this approach of identifying the “specific” effects of a particular approach and then evaluating if and how it is “unconventional” appears to provide a theoretical touchstone applicable to many cases.

In this framework, the first question appears to be whether the claims actually do provide a particular solution to a problem. That particular solution can be confirmed as eligible when it provides something unconventional—something beyond a “field of use” or “conventional” execution of a concept. I’ll be taking a deeper look at the broader applicability of this approach to prior decisions in a later post.[1]

 

[1] One reason the “directed to an ineligible concept” portion of the Bilski/Alice test is troublesome is that it facially appears to suggest that additional limitations or concepts in the claim beyond the abstract idea ought to, alone, render a claim eligible. If I take my abstract idea and practice it with a computer in Siberia, locating the computer in Siberia should, by definition, prevent the claim from being directed to some abstraction and avoid preemption, right?  In practice, however, any additional limitation (or even any number of arbitrary limitations) has not been enough. Confusingly, while we are cautioned to look at the “claim as a whole” for determining whether the claim is directed to an abstract idea, it becomes unclear when additional limitations are to be evaluated as part of the “directed to” inquiry or when they are addressed in the “something more” analysis. E.g., Electric Power Group recited a long claim, but the fact that it received and processed power system data and recited various power-related measurements was a “field of use.”

Surviving Alice with an Appeal

By Mark Nowotarski

This third article in the “Surviving Alice” series[1] examines how the USPTO’s Patent Trial and Appeal Board has responded to the U.S. Supreme Court’s June 2014 Alice decision[2].  It also shows how applicants can use the PTAB’s recent decisions to substantially increase their chances of success before the board.  We look at appeals coming out of the USPTO’s business method work groups 3620, 3680 and 3690. 

Applicants have had a difficult time getting business method patents allowed since Alice.  The Alice decision firmly established the two part “Alice/Mayo test” as the standard for determining whether a patent’s claims were statutory under 35 U.S.C. 101.  The two steps in the Alice/Mayo test are:

1. “Determine whether the claims at issue are directed to a patent-ineligible concept” [3](e.g. abstract idea or fundamental economic practice); and
2. If the claims are directed to a patent–ineligible concept then "search for 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. "[4] (e.g. an improvement to another technology)

The business method work groups[5] at the USPTO implemented the Alice/Mayo test right after the Alice decision.  Allowances in some work groups (e.g. 3690 finance) plunged by a factor of 10 within a month of the decision.  Even three years later, there is still over a 90% chance that an office action on a business method patent application will have a 101 rejection[6].  In response to these repeated § 101 rejections by the examiners, many applicants have appealed their rejections to the PTAB.  We are just now seeing these appeals being decided by the board, and overall the results have not been good for applicants.  Only about 20% of the 101 rejections are being reversed.  Nonetheless, we are gaining a significant and rapidly growing body of PTAB decisions which we can learn from.  These decisions[7] are discussed below.   

Surviving Alice in the e-Commerce Arts

 By Mark Nowotarski

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.

Work groups 3620 and 3680 act as parallel work groups with matching individual art units handling applications in the same e-commerce subclasses.  The applications are assigned roughly equally to the matching art units as they come in from the classification contractor[4].  The subclasses with the most applications are Discounts or Incentives, Operations Research, Electronic Shopping, Business Cryptography, and Healthcare Management.  Each of these majority subclasses is examined in one or more of its own art units that specializes in that subclass.  Minority subclasses (e.g. reservations, shipping, transportation) are grouped together and assigned to the remaining art units.

I’ve highlighted the “business cryptography” subclass green since this technology has been the least impacted by the Alice decision.   The allowances per month have actually increased in the primary examining art unit 3685[5].  I’ve highlighted the “heath care management” subclass red since this technology has been the most severely impacted by the Alice.  The impact of Alice in the other technology subclasses falls somewhere in between cryptography and health care management.   

Overall Trends

Figure 1

Figure 1 above is a graph of allowances per month, abandons per month and appeals per month for the combined e-commerce work groups 3620 & 3680.  The graph covers the time period of January 2014 (pre Alice) to September 2016.  Data was obtained using PatentAdvisor[6]. 

The allowances per month dropped almost immediately after the Alice decision and the USPTO preliminary guidance of June of 2014.  This is similar to what happened in the finance arts (work group 3690).  Examiners have related to me that there was a tremendous urgency on the part of USPTO management to implement the Alice decision as soon as possible.  This was in sharp contrast to how management reacted to the Bilski decision in 2010.[7]  Management’s direction to examiners at that time was to not make any abrupt changes until the full implications of the decision were clear. 

The drop in allowances per month was followed by a rise in allowances per month coinciding with the first comprehensive guidance given to examiners in December of 2014.  It looked like examiners and applicants were able to use the guidance to find common ground.  Applicants were able to amend claims to show that their inventions had the “something more” required to overcome an Alice 101 rejection.   Unfortunately the allowances per month again dropped a few months later and settled back down to the same low level that was seen immediate after Alice.  The window of allowability that had opened was closed.

The abandons per month grew steadily after Alice but appear to have recently gone down.  Abandons per month are still very high, however, relative to allowances per month.  They correspond to an allowance rate[8] of about 14% for 2016.   

Figure 1 also shows the notices of appeal filed per month.  The notices of appeal per month dropped after Alice, rose in 2015 and have since fallen back to about their pre Alice level.  Most notices of appeal have been briefed and are proceeding to the PTAB.    

Allowance recalls

Management urgency in implementing the Alice decision is reflected in the large number of allowances that were reviewed and immediately withdrawn in July and August of 2014.  This immediate recall of allowances is similar to what happened in work group 3690.  Work groups 3620 and 3680, however, have continued the practice of reviewing allowances after they are mailed and withdrawing those that the reviewers don’t feel satisfy Alice.  This is illustrated in figure 2 below.

 

Figure 2

Figure 2 shows all allowances that have been mailed between January of 2014 and September of 2016.  The allowances that were recalled in July and August of 2014 are shown in red (based on the mailing date of the notice of allowance, not recall date).  The allowances that have been withdrawn in the ongoing recalls are shown in black outlined by red.  Allowances that have issued as patents are shown in green.  

The ongoing recalls appear to occur on about a monthly basis with different individual art units being reviewed in a given month.  All of the withdrawn allowances shown above had 101 rejections after the allowance.  Many of the ongoing recalls also have had 112, 102 and 103 rejections.   This pattern of ongoing recalls is expressly at odds with statements made by the USPTO that the recalls immediately after Alice were a one-time event.  The ongoing recalls further demonstrate how arbitrary the 101 examination process is.

I found the withdrawn allowances by using PatentAdvisor to identify applications that had a notice of allowance followed by a nonfinal rejection.  I then reviewed each case to make sure that the nonfinal rejection directly followed the notice of allowance without any intervening actions by the applicant (e.g. an RCE).  The last withdrawal I’ve seen was in October of 2016.  I’ve set up a watch in PatentAdvisor to see if any more show up in the future.

Overcoming an Alice 101 rejection

Allowances per month have fallen since Alice, but there are still a significant number of patents issuing in these work groups.  The majority of allowed cases that do issue have had to overcome a post Alice 101 rejection.  I reviewed a random selection of 200 file wrappers for these allowed cases to see if there were any common themes in the claim amendments that led to their overcoming their respective 101 rejections.  The reviewed cases were randomly selected from the allowances of 2016.  For 58% of the applications in the sample, the last rejection before allowance had a 101 rejection.  For 20% of the allowed applications, the 101 rejection was resolved before the last action.  For 22% of the applications, there was no post-Alice 101 rejection.  So for many applications, the 101 rejection was not the hardest rejection to overcome.   This is somewhat better than what I saw in work group 3690 where the 101 rejection was usually the hardest rejection to overcome and wasn’t resolved until the last rejection before allowance.   

One of the major challenges of figuring out why some cases are being allowed and some are not is that only a few examiners give a detailed reason for why a 101 rejection was overcome in their notices of allowance.  Most examiners either give a cursory reason (e.g. “the applicant’s arguments are persuasive”) or no reason at all.  My method, therefore, was to find the amendments to the independent claims that overcame a 101 rejection and use my best judgment to identify the “something more” in the added limitations that overcame the 101 rejection.  If there was no post Alice 101 rejection, I tried to identify the limitations that would have led the examiner to immediately accept the claims as statutory.  I then categorized these limitations into different groups with common themes.  Others may look at the same data and reach different conclusions as to what the common themes are.  If any reader would like a list of the cases, I would be happy to share it with them.

The major themes were “physical limitations” and “software limitations”.  The minor themes within physical limitations were “mobile devices/sales kiosks” and “physical sensors”.  The minor themes within software were “graphics/ image processing”, “business methods: cryptography/security” and “business methods: other”.   Examples of the limitations in each theme are shown in Table 2 below.

Table 2

The percentage of applications falling into each theme is shown in the header rows.  The percentages add up to more than 100% since the limitations often fell into more than one theme. 

None of these limitations are magic bullets.  Most applications that have similar limitations are still being rejected under 101.  Nonetheless, the applications that do have these limitations are being allowed at a higher rate than those that don’t. 

The fact that incorporating physical limitations into an e-commerce claim leads to a holding of statutory subject matter makes a certain amount of sense.  At least superficially the claim looks more like standard patentable subject matter.  Mobile devices and sales kiosks are physical things.  Similarly, a claim that measures a physical quantity makes the claim look like the statutory claims in Diamond v. Diehr[9].  In Diehr, the statutory claim had a temperature sensor.  Similar logic may extend into the graphics/ image processing theme.  Often image processing requires the capture of a physical image or the portrayal of a physical object. 

It is not clear to me, however, why cryptography should stand out as statutory subject matter.  Cryptography can be characterized as the purely mathematical transformation of data from one coding scheme to another.  Purely mathematical transformations were held to be non-statutory in Gottschalk v. Benson[10].  Nonetheless, as Figure 3 below shows, the allowances per month for applications classified as business cryptography have been only moderately affected by Alice.

Figure 3

If anything, the allowances per month have gone up.  This is not to say that these applications aren’t getting 101 rejections, but it does indicate that overcoming a 101 rejection in this art unit is relatively straightforward.  It also suggests that applicants would do well to incorporate any aspect of cryptography or system security related to their invention in their applications.  Applicants might even look to making the cryptography or system security aspects of their invention the focus of the application.  This will help get the application classified into the cryptography art unit where there seems to be better reception to amendments and arguments to overcome a 101 rejection.

Seeing that cryptography was an “Alice friendly” art unit led me to consider whether or not there were any especially “Alice hostile” art units.  The answer that came up was the health care management art units 3626 and 3686.  Figure 4 below shows the combined allowances per month for these art units.

These are among the most devastated art units I have seen so far.  Similar to financial services, allowances per month have fallen by about a factor of 10.  There apparently is very little in the field of health care management innovation that these art units consider to be statutory.  Yet it’s hard to imagine a field more crucial to the welfare of the people of the United States.   Political solutions alone won’t solve our skyrocketing health care costs.  Radical, high risk innovation by the private sector is also needed.  If radical high risk innovation can put a smart phone in everyone’s pocket, it certainly can help make health care more universally affordable.  This is the type of innovation that patents are designed to promote.  Table 3 below gives you an idea of the innovations in health care management that, in all likelihood, will not get patented in our current post Alice environment.  This table is a random selection of titles for currently pending applications in Health Care Management that have received a post Alice 101 final rejection.  The chances of any of these applications getting allowed is very small.

Table 3

Applicants seeking high risk investment to implement health care management innovations may have a significant hurdle to overcome if they can’t get patents.  High risk investors need patents to protect their investments.  If there is no likelihood of protection, there is less likelihood of investment.  If there is no investment, there is no progress in solving these extremely difficult problems.

Many applicants in the business method fields of finance and e-commerce fully appreciate that convincing an examiner to allow their claims is almost impossible.  Quite naturally they are turning to an appeal.  In our next article we will examine how appeals in these work groups are faring to see if that provides any realistic hope of overcoming a post Alice 101 rejection.

 Mark Nowotarski is a registered U.S. patent agent specializing in business methods and consumer products.  He has had his own practice, “Markets, Patents & Alliances” since 2001.  Prior to being a patent agent, Mark was a  corporate research fellow for Praxair where he developed and patented green manufacturing technologies for the electronics, metals, food and healthcare industries.

---

[1] Nowotarski, Mark “Surviving Alice in the Finance Arts”, Bilski Blog 30 January 2017.

[2] After January 1, 2016, the USPTO no longer published the US Patent Classifications on issued patents or pending applications, and instead used the Cooperative Patent Classifications.  However, applications are still assigned to art units based on the old USPTO classification system.  These are the classifications still used in PAIR. 

[3] The patent examiner corps is organized and managed by art units (e.g. 3681).  Art units are organized into work groups (e.g. 3680).  Work groups are organized into technology centers (e.g. 3600).   

[4] Classification of US patent applications is done by an outside contractor, but it is confirmed by the SPEs when they get cases assigned to their art units.

[5] A significant number of business cryptography applications are also examined in art unit 3621. The allowances per month of business cryptography applications have also increased in art unit 3621.  The allowances per month of the other subclasses examined in art unit 3621 (discount/incentive) have not.

[6] http://www.reedtech.com/products-services/intellectual-property-solutions/lexisnexis-patentadvisor

[7] Bilski v. Kappos, 561 U. S. 593 (2010).

[8] Allowance rate = allowances per month/(allowances per month + abandons per month)

[9] Diamond v. Diehr, 450 U. S. 175, 187 (1981).

[10] Gottschalk v. Benson, 409 U. S. 63, 67 (1972).

 

Heads Up: The Federal Circuit Sees Patent Eligibility in Knowing Which Way to Look

By Robert R. Sachs

The most significant Federal Circuit decision in March was Thales Visionix, Inc. v. United States, another case finding eligible subject matter.  What distinguishes this case—and demonstrates the inherently subjective I-know-it-when-I-see-it nature of the Alice test—is the extraordinary breadth of the claims.  Consider claim 22, a single-step method claim:

22. A method comprising determining an orientation of an object relative to a moving reference frame based on signals from two inertial sensors mounted respectively on the object and on the moving reference frame.

The court held that this claim was patent eligible, because it was not directed to an abstract idea in Step 1 of the Alice test: 

We hold that the ’159 patent claims at issue in this appeal are not directed to an abstract idea. The claims specify a particular configuration of inertial sensors and a particular method of using the raw data from the sensors in order to more accurately calculate the position and orientation of an object on a moving platform.  

This statement and the focus on the particularity of the claim is at odds with actual claim language and with the way the Alice test is normally applied.  The claim says nothing “particular” about the configuration other than one sensor is mounted on the object and one on the moving reference frame.  That’s it.  No limitation of how mounted, how far or near each other, or they are oriented with respect to each other, or other physical parameters.  You could have one sensor mounted on an “object” (e.g. a sensor worn on the wrist of a passenger) in the front compartment of a mile-long train (“moving reference frame”), and the other sensor mounted in the caboose.   Indeed, there’s nothing in the claim that even requires the object to be in or on the moving reference frame.  So one sensor could be mounted at the train station while the train with the passenger goes by.  And talk about abstraction: “moving reference frame.”  That’s anything that moves.  The court seems to be relying on something more about the arrangement of the sensors than is in the claims themselves, given how they quote Diehr: “This arrangement is analogous to the claims in Diehr, which required the temperature measurement “at a location closely adjacent to the mold cavity in the press during molding.”  But Diehr has specific claimed spatial relations--"closely adjacent"-- Thales has none.  This suggests that the court was implicitly performing claim construction—which generally should happen before patent eligibility, but which the court has repeatedly kicked to the curb as a predicate of the Alice test.

Nor is there any limitation on how orientation is determined, other than “based on signals.” There is no limitation on the kinds of signals, or how the determination is done.  In other words, this simply claims the result of getting an orientation when you have two sensors, one mounted on some object and one mounted on a moving reference frame. This “claiming the result” and the absence of “how” are precisely the features that the court has used in other cases to find ineligible subject matter—even with claims vastly more specific. 

Consider Vehicle Intelligence:

None of the claims at issue are limited to a particular kind of impairment, explain how to perform either screening or testing for any impairment, specify how to program the “expert system” to perform any screening or testing, or explain the nature of control to be exercised on the vehicle in response to the test results...

With a bit of obvious word substitution, this language applies directly to Thales’ claim.

Or consider Electric Power Group, which had an extremely detailed claim.  Brushing such details aside, the court stated:

The claims, defining a desirable information-based result and not limited to inventive means of achieving the result, fail under § 101.

…

The focus of the asserted claims, as illustrated by claim 12 quoted above, is on collecting information, analyzing it, and displaying certain results of the collection and analysis.

…

The advance they purport to make is a process of gathering and analyzing information of a specified content, then displaying the results, and not any particular assertedly inventive technology for performing those functions. They are therefore directed to an abstract idea.

…

Nothing in the claims, understood in light of the specification, requires anything other than off-the-shelf, conventional computer, network, and display technology for gathering, sending, and presenting the desired information...

The Electric Power court takes­ pains to point out that simply determining the results of information gathering (i.e. obtaining signals) is patent ineligible.  That’s a direct read on “determining an orientation of an object relative to a moving reference frame based on signals.”  How is it that “off-the-shelf” hardware failed to save the claim in Electric Power Group, but was apparently irrelevant in Thales, where the inertial sensors were off-the-shelf as well?

The answer is that the Thales court said that the method claim was not abstract because of the “unconventional configuration of sensors.” Wait: the unconventional arrangement analysis is considered in Step 2, not Step 1.  That’s what the court held in BASCOM:

As is the case here, an inventive concept can be found in the non-conventional and non-generic arrangement of known, conventional pieces.

And it’s not clear that this even applies to Thales’ method claim, which recites the single step of “determining.”  The arrangement of the sensors is only inferentially claimed, as part of the environment itself.  In BASCOM the method claim included limitations that actively, not inferentially, performed the filtering operations at the unconventional locations.

Putting this all together, the court just as easily could have issued this ruling, and found the claim 22 ineligible:

First, we consider whether the claim is directed to an abstract idea.  Claim 22 recites a single step of “determining the orientation of an object relative to a moving reference frame.”  Humans have been determining the orientation of objects relative to moving reference frames for time immemorial.  When we watch the faces of passengers go by in a moving train, we determine their orientation (which way they are looking).  When the cowhand on horseback watches how her cattle look at her sheepdog, she determines their orientation as well.  Indeed, one could say that the human brain is so well adapted to determining the orientation of objects, that we do not even notice that we do it all the time.  See, Peer et al, “Brain system for mental orientation in space, time, and person,” Proceedings of the National Academy of Sciences of the United States of America, vol. 112, no. 35 (Sept. 2015) (“Orientation is a fundamental mental function that processes the relations between the behaving self to space (places), time (events), and person (people).”). Thus, determining the orientation of an object relative to a moving reference frame is an abstract idea itself, and a mental step long practiced by humans.  As there is only this single step in claim 22, the claim is unmistakably “directed to” this abstract idea.

We turn then to Step 2.  The Supreme Court has held that merely limiting an abstract idea to a particular technological environment does not transform an otherwise ineligible concept into an eligible one.  Claim 22 only inferentially claims the use of the inertial sensors, at best limiting the single step of the claim to a rather generic, technological environment as opposed to a human one.  That alone cannot contribute an inventive concept.

Thales argues that the non-conventional arrangement of the inertial sensors provides the inventive concept.  That is true, however, only when the arrangement itself contributes to the specifically claimed functional operation of the claim.  In BASCOM, we held that arrangement was unconventional precisely because the functionality of the filtering was performed at the unconventional location (“The inventive concept described and claimed in the ’606 patent is the installation of a filtering tool at a specific location, remote from the end-users, with customizable filtering features specific to each end user.”)  Here, nothing happens at the location of sensors themselves: they operate exactly the same way and provide the same types of signals that they would in any conventional arrangement.  Thus, the unconventional arrangement here does not contribute an inventive functionality.

Finally, we note that claim 22 fails to specify any inventive concept in “how” the determination is made, other than to say “based on signals.”   In McRO we explained that in Step 2, "a patent may issue for the means or method of producing a certain result or effect, and not for the result or effect produced. We therefore look to whether the claims in these patents focus on a specific means or method that improves relevant technology." (emphasis added). But merely making the determining "based on" the signals does not provide a "specific means or "method" as required.  We do not read claim 22 as limited to the specific equations or mathematical framework in the specification.  Even if we did, these equations appear to be nothing more than laws of nature, and thus cannot contribute to the inventive concept.  See, Mayo, Flook. The absence of limitations to particular ways of making this determination or even particular types of signals clearly demonstrates the lack of an inventive concept beyond the merely abstract idea itself.  In other words, given inertial sensors (which themselves are conventional), how else would one determine an orientation except “based on signals”? See, Vehicle Intelligence (“But neither the claims at issue nor the specification provide any details as to how this “expert system” works or how it produces faster, more accurate and reliable results.”). In McRO we held that "The abstract idea exception has been applied to prevent patenting of claims that abstractly cover results where it matters not by what process or machinery the result is accomplished."  Here, we find that the claim 22 covers the result of determining the orientation of an object relative to a moving reference frame where it matters not by what process or machinery that result is accomplished.

This analysis further shows that Thales’ claim risks preempting the abstract idea itself, since there is no other way to make this determination of orientation. In this regard, we find the Supreme Court's decision in O'Reilly v. Morse remarkably on point in their framing of the preemption problem. The Court found that Morse's "claim is too broad, and not warranted by law" because:

It is impossible to misunderstand the extent of this claim. He claims the exclusive right to every improvement where the motive power is the electric or galvanic current [the signals are from inertial sensors mounted on an object and a moving reference frame], and the result is the marking or printing intelligible characters, signs, or letters at a distance [determining the orientation of the object based on the signals].

If this claim can be maintained, it matters not by what process or machinery the result is accomplished. For aught that we now know, some future inventor, in the onward march of science, may discover a mode of writing or printing at a distance [determining an orientation of an object] by means of the electric or galvanic current [inertial sensors], without using any part of the process or combination set forth in the plaintiff's specification. His invention may be less complicated -- less liable to get out of order -- less expensive in construction, and in its operation. But yet if it is covered by this patent, the inventor could not use it, nor the public have the benefit of it, without the permission of this patentee.

Like the Morse Court, we find claim 22 not warranted in law. 

Now, do I believe this is the correct analysis? To be clear I do not (so don’t get any funny ideas about quote mining me).  I only elaborate it to demonstrate that while patent eligibility may no longer depend on the “clever draftsman,” it can certainly depend on the clever jurist. 

I think that the court here saw what it wanted to see: a helmet-mounted display used by jet fighter pilots:

rather than actual scope of the claim (almost too simple to draw):

The context of Thales’ invention was sufficiently “technological” and distinctive from the court’s everyday experience with computers and software that collect and display information that it colored the court’s perception of the claims and the Alice analysis.

Trading Technologies Decision Stands, Federal Circuit Denies CQG Petitions for Rehearing

By Robert R. Sachs

As many of you know, the Federal Circuit’s decision in Trading Technologies was the first time a graphical user interface had been found patent eligible by the Federal Circuit.   The defendant CQG moved for both panel rehearing and enbanc rehearing.   

My client SHzoom filed a request to make the Trading Technologies decision precedential.  CQG attempted to leverage that motion as a further reason for the case to be reheard, arguing in their respose that “SHzoom’s Motion requesting that the panel’s decision in this case be made precedential should be denied. Its arguments further illustrate why CQG’s Petition for rehearing en banc should be granted.”

The Federal Circuit did not bite and today denied CQG’s petitions for rehearing.  We’ll likely see their decision on SHzoom’s motion shortly.  

Judge Mayer’s Concurrence in IV Shows the Problem with Judicially Created Exceptions

By: Stuart P. Meyer

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.

Judge Mayer starts his concurrence not with the categorical condemnation of software patents, but with a First Amendment  argument, saying that “Patents, which function as government-sanctioned monopolies, invade core First Amendment rights when they are allowed to obstruct the essential channels of scientific, economic, and political discourse.” His concern is a valid one, but Congress did not agree with it in framing the patent statute and the courts have not previously seen it that way either. Indeed, many patents in traditional art areas could be said to obstruct such “essential channels,” in various ways. In one sense, excluding a community from building a patented telephone system could be seen as such obstruction. In another aspect, one could not undertake meaningful discussion of the stability of a phase-locked loop circuit under various temperature or supply voltage variations without actually making and using such a circuit. One cannot discuss the durability of a new pitman arm on a truck’s steering system without using one. So patents by their very nature can have varying impacts on discourse.

Judge Mayer’s concurrence characterizes the claims at issue as “disclosing no new technology” and “speak[ing] in vague, functional language.” Assuming he is correct, that is indeed problematic, but such concerns are directly addressed elsewhere in the statute. He concludes on this point saying that “Essential First Amendment freedoms are abridged when the Patent and Trademark Office (‘PTO’) is permitted to balkanize the Internet, granting patent owners the right to exact heavy taxes on widely-used conduits for online expression.” Changing only a couple of words, he could similarly condemn patents directed toward printing, radio and television systems.

His statement that “Section 101 creates a ‘patent-free zone’ and places within it the indispensable instruments of social, economic, and scientific endeavor” could be used to place almost any significant invention within that zone. In fact, the more significant the invention, the less likely it could avoid this “patent-free zone.” Many have previously observed that Congress drafted Section 101 using inclusive rather than exclusive language. Given that, Judge Mayer appears to be arguing that the patent statute on its face is unconstitutional. Under what authority are courts empowered to amend such a statute by inserting exceptions, even in an attempt to “save” the statute?

As a segue to his primary point, Judge Mayer opines that, “Most of the First Amendment concerns associated with patent protection could be avoided if this court were willing to acknowledge that Alice sounded the death knell for software patents.” Judge Mayer does in fact quote the most relevant portion of Alice for support, but that language says only that “mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” The Supreme Court cases from Bilski to Alice go out of their way to avoid the categorical condemnation of software patents, which seems appropriate given the multiple references in the patent statute that would be hard to reconcile with such condemnation (see, e.g., the Court’s discussion of Section 273 in Bilski, 561 U.S. at 607-608, and its corresponding conclusion that “the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text, 561 U.S. at 612).

Nonetheless, Judge Mayer urges that “all software implemented on a standard computer should be deemed categorically outside the bounds of section 101” (emphasis added). He makes no mention of how such a position can be squared with Bilski, or how his view of what should be can be implemented judicially rather than by Congress.

He goes on to state that the “central problem with affording patent protection to generically-implemented software is that standard computers have long been ceded to the public domain.”  Such an approach could just as easily be applied to other inventions. To give an example, one could just as easily say that since items found in a hardware store “have long been ceded to the public domain” (however one wants to interpret that), one should not be able to patent a mechanical invention created just from parts available at a hardware store.

It is at the end of his opinion that we see the policy positions Judge Mayer is really advocating.  He cites four “insurmountable problems” with software claims. First, he asserts that “their scope is generally vastly disproportionate to their technological disclosure.” Again, it seems that other sections of the patent law can ably address problems with inadequate disclosure.

Second, he asserts that software patents “provide incentives at the wrong time” because “they are typically obtained at the ‘idea’ stage, before any real inventive work has been done.” The patent statute’s requirements regarding constructive reduction to practice can readily be applied to address applications that exhibit such problems. And didn’t Congress intentionally provide incentives for inventors to submit patent applications as soon as possible after such reduction to practice?  That’s why the statutory bars are there.

Third, he bluntly states that, “Yet another intractable problem with software patents is their sheer number.” The point is well taken that a patent “thicket” may make it difficult for later entrants to the market, but this is by no means an issue unique to software-implemented inventions. Many industries have established players with thousands of patents in their portfolios, and there is no policy deliberation suggested by Judge Mayer that would support singling out software-implemented inventions alone—indeed these are exactly the considerations that Congress is empowered to undertake in crafting legislation.

Finally, Judge Mayer says that “generically-implemented software invariably lacks the concrete borders the patent law demands.” He provides no explanation as to why the requirements of section 112 are ill-equipped to address this perceived concern.

One of the most common concerns about our government—voiced from all parts of the political spectrum—is that Congress gets too little done. Thus, the worry that a Congressional “fix” to our patent system is not likely anytime soon is understandable. However, problems caused by any real or perceived Congressional dysfunction may be dwarfed by allowing courts to re-write the Patent Act.  If there is ever an area where the balancing of interests calls for the legislative process to be involved, it is in our intellectual property system. One person’s view—or even one Court’s view—of a good solution, however well-intentioned, is not the right approach.

Related articles

Bilski Blog: More Lessons From McRo

Did You Mean to Claim a Function? How the USPTO Applies Section 112(f) to Software Patents

Federal Circuit Creates New (non-Alice) Hurdle for Software Patents

MAZ Encryption Technologies: The Proper Way to Decide a Rule 12(c) Motion for Ineligible Subject Matter

By: Robert R. Sachs

Given the volume of district court decisions regarding Section 101, I typically don't find ones that stand out enough to warrant discussion. But last week's decision by Judge Stark in MAZ Encryption Technologies LLC v. Blackberry Corporation is an exception. The opinion demonstrates a rigorous application of the requirements of a Rule 12(c) motion for judgment on the pleadings, as well as an integrated approach to the Mayo test. The opinion is noteworthy as well because Judge Stark is no pushover on Section 101: Before MAZ he granted six of nine Section 101 motions (including two 12(b) motions) invalidating over a dozen patents. Judge Stark also wrote the opinion invalidating the patents in the Federal Circuit's Mortgage Grader case.  

MAZ's invention solved the problem of integrating encryption into electronic document management system (EDMS). The summary of invention of MAZ's patent provides an overview:

In the encryption method, after a user issues a “close,” “save” or “save as” command for a document, the command is translated into an event, and a crypto module traps the event. The crypto module then obtains an encryption key value and encrypts the document using the encryption key value. With the document encrypted, the crypto module passes control to an electronic document management system which executes the “close,” “save” or “save as” command.

In MAZ, Judge Stark follows the methodologies set out in Enfish and McRo, focusing in step one of the Mayo test on the improvement provided by the invention. Stark correctly states that on a motion to dismiss the court cannot consider any evidence other than the pleadings and the patent (and public records such as the file history). And, for purposes of the motion, the court has to accept as true any statements made in the patent specification, not arguments by counsel.  

However, on the record properly before the Court on Defendant's Motion - which is a motion for judgment on the pleadings - the Court must take the specification's statements about the purported invention to be true. The Court is not free to accept Defendant's contrary attorney argument that claim 31 is directed to a "conventional" way of transparent encryption.

Thus, Judge Stark looks to the patent specification’s discussion of how the invention is an improvement over the prior art, in particular language identifying the problems in art, again accepting these statements as true. 

The patent's specification describes problems associated with "typical" prior art encryption systems, such as incompatibility with EDMS systems and general difficulty of use. (See '681 patent at 3:54-4:9)

This approach follows Enfish which likewise relied on the  specification’s disparagement of the prior art. Here is relevant text from the MAZ patent:

The biggest obstacle to adoption of any type of encryption system has been ease of use. Typical encryption systems are very cumbersome. They require a user to interrupt their normal work flow, save their clear text document, activate the separate encryption software, and save the cipher text document under a different name. Where the subject document is ordinary e-mail contents, the process is especially cumbersome, because the clear text must first be created in a separate application, then encrypted, then attached to the e-mail message.

A major concern in computing today is “total cost of ownership,” or TCO. TCO recognizes that while a program might be inexpensive (or even free in the case of PGP for non-commercial use), there are significant costs in using the software. This includes the cost of installation, training, lost productivity during use and from bugs, and maintenance.

Even where one of the typical encryption systems might satisfy a user's TCO needs, they may not even be an available option. For example, typical EDMSes are self-contained and are not compatible with typical encryption systems.

Judge Stark relied on these statements to find that the claims were directed to an encryption method that enabled encryption within an EDMS, without disrupting the user's workflow thus solving a technological problem. 

Next, Judge Stark rejects the five different "abstract ideas" alleged by the defendants: "Regardless of whether Defendant's five articulations are viewed as different or the same, they each run afoul of the Federal Circuit's guidance in Enfish that courts should not "oversimplify" key inventive concepts or "downplay" an invention's benefits in conducting a step-1 analysis."  

To determine whether the claim is directed to an abstract, Judge Stark then turns to the specific claim limitations and pays particular attention to the limitations that were added to overcome the prior art. The claim before the court was claim 31, which had been amended during re-examination to add the following two limitations relative to the original claim, as shown here:

31.  A method of encrypting an electronic document which is open in an application program running in a general purpose computer, the general purpose computer including a display, a user input device, a crypto module and a processor, the method comprising:

providing plural documents having respective names providing a first table having the names of encrypted documents for each of the names of encrypted documents in the first table, key names associated with the encryption key values for the encrypted documents

(a) from within the application program running in the general purpose computer, a user issuing one of a "close," "save" or "save as" command for the document using the user input device;

(b) automatically translating the command into an event;

(d) the crypto module automatically trapping the event;

(d) the crypto module determining if the document should be encrypted using the first table, and if so then automatically obtaining an encryption key value by retrieving a key name associated with a name of the selected document from the first table and retrieving the encryption key value associated with the key name from a second table, the second table having at least one encryption key value and at least one key name respectively associated with one of the encryption key values

(e) the crypto module automatically encrypting the document using the encryption key value;

(f) the crypto module automatically passing control to an electronic document management system; and

(g) the electronic document management system executing the issued "close," "save" or "save as" command; whereby the electronic document is automatically encrypted.

Judge Stark's analysis:

Whether at step one or step two of the Alice test, in determining the patentability of a method, a court must look to the claims as an ordered combination, without ignoring the requirements of the individual steps." McRo, 2016 WL 4896481, at *7 (emphasis added). Significant "individual steps" in claim 31 were added during reexamination, including the above-described  use of tabular association of documents with "key names" and "key names" with "key values.''  (See D.I. 77 at 13-14) (summarizing exchange between applicant and examiner regarding "key name <-> document association" limitation added to overcome obviousness rejection) These limitations were added to distinguish the claimed invention from the "key­ directory association" found in the prior art and are evidence that claim 31 is "directed to a specific improvement to the way computers operate" rather than an abstract idea. Enfish, 822 F.3d at 1336. Defendant's broad articulations of abstract ideas do not capture what claim 31 is "directed to" because they do not take into account the two separate tables used to distinguish claim 31 over the prior art. (emphasis added)

Judge Stark is not holding that the claim is eligible merely because it was found non-obvious. Rather, he is holding that in deciding what the claim is directed to, it is necessary to consider the elements which distinguish the invention from the prior art because these are the elements that define the improvement when the claim is considered as a whole.  To be clear, this is not Flook's point of novelty approach:  Judge Stark is not looking for the inventive concept here, he is looking for an identifiable improvement as stated by the language of the claims.  This approach is exactly correct and should be followed by other courts and patent examiners.

Judge Stark also rejects the defendant's argument that the claim is directed to an abstract idea because that there is a human analogue for the claims, "the storage and utilization of filenames, key names, and key values recited in the patent claims is no different substantively than how an old hotel would store and keep track of the keys to its patrons' rooms."  The court's response to this argument:

Defendant's analogy is unpersuasive. It fails to capture the key inventive aspect touted in the '681 patent: handling encryption operations without requiring user input, that is, "transparently." ('681 patent at 7:58-62)8  In Defendant's analogy, the hotel clerk manually performs each operation.

and

In addition, the entire exercise of comparing the invention in claim 31 to a human- executable series of steps is relatively unhelpful in this particular case, because the specification of the '681 patent so clearly identifies the claimed invention as "improv[ing] an existing technological process ." Alice, 134 S. Ct. at 2358. Specifically, claim 31 is directed to a specific way of transparently encrypting data without the need for user input, eliminating interruption and inefficiency -as well as human action - in a technology process. Hence, claim 31 is distinguishable from claims that have been found to have human-executable analogues.

It is important to note that the technical improvement in MAZ's invention was not a better encryption algorithm that was faster or more efficient or otherwise "improved" the objective performance of the computer. Rather, the improvement that Alice acknowledges is to "improve the functioning of the computer itself" or, as phrased by the Federal Circuit in Enfish, "whether the claims are directed to an improvement to computer functionality." Functionality is broader than simply an objective performance metric such as improved speed, less memory or other factors. We see this in McRo where the invention made it easier to for animators to lip sync their characters to the dialogue. Similarly in MAZ, the improvement was in usability, making it easier for users to encrypt documents without leaving their workflow within the EDMS. Indeed, given that MAZ's method worked by intercepting requests to the EMDS close or save documents ("the crypto module automatically trapping the event"), and then encrypting them on the fly, it necessarily slowed down the computer: users had to wait well the application encrypted the document (and wait again for the document to be decrypted each time it was opened).  If you use a document management system that does on-the-fly encryption and decryption of documents, then you have experienced this issue. But the tradeoff for reduced objective performance was improved ease of use and better overall security. In short, a problem in usability of a computer is a technological problem, and solutions that improve usability are technological solutions. 

Finally, Judge Stark relies on a preemption analysis in step one, and again ties this to the specific amendments to claim 31 that overcame the prior art. Judge Stark notes the amended claims do not preempt other ways of achieving the solution.  

The specific implementation in claim 31 raises fewer preemption concerns than the broader, original claims of the '681 patent which were rejected during reexamination.

Significantly, Judge Stark treats preemption as a question of fact that requires evidence, relying on McRo:

Defendant has not produced any evidence to support any preemption concerns.  Consequently, the preemption consideration confirms the Court's conclusion at step 1 that claim 31 is not directed to an abstract idea. See [McRo]. ("There has been no showing that any rules-based lip-synchronization process must use rules with the specifically claimed characteristics .").

I think Judge Stark's approach is a model for how the district courts should handle Rule 12(c) (and by extension, Rule 12(b)(6)) motions both on a procedural and substantive level. Rather than employing empty formalisms and strained analogies, the court focuses on what is claimed, the nature of the improvement and whether the claim actually preempts the purported abstract idea. This approach should likewise be followed by examiners at the USPTO.

For patent prosecutors, MAZ, along with DDR, Enfish and McRo, suggests the value of discussing in the patent application specific problems in the prior art and linking aspects of the claimed invention to their solutions.  The general trend over the past several years has been to say less in the background and summary of invention.  That is still good advice, and these cases do not contradict that view, as the underlying patents provided very short and concise statements of the prior art problem, not lengthy expositions. Prosecutors that draft only a trivial background and little or no summary of the invention may end up removing an important basis for establishing eligibility and defeating an early dispositive motion.  If the motivation for this approach is the risk that the background and summary will narrow the scope of the claims, I would say better a slightly narrowed patent than none at all. 

More Lessons From McRo

By: Robert R. Sachs

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.

Second, the improvement need not be in the functioning of the computer itself. McRo’s invention did not make the computer operate any faster, use less memory, or improve any other objective parameter of the device. Rather, the improvement was in subjective dimensions. First, the invention made it easier for human animators to animate 3D characters, thus improving the experience of the computer by the user, the animator. Humans have been drawing cartoons and animating images for well over 200 years, using various mechanical devices. Early film animation was done by drawing images, using pens and pencils and paint brushes as tools for this purely artistic purpose. Computer animation is simply the latest tool for this purpose, and McRo’s invention made this tool easier to use by workers in the field. Thus, McRo supports the proposition that improvements in computer tools that make them easier to use (e.g., user interface inventions) or that save users effort or time or otherwise improve their performance, all are sufficient “improvements” under Mayo.

Next, the invention specifically improved the result as experienced by the viewer by making the animated characters appear to speak more naturally, an entirely aesthetic and subjective improvement. This is consistent with the overall nature of human inventions, which is to create desirable solutions to human wants and needs, including aesthetic and artistic ones. McRo’s invention is only a means to an end, the creation of artistic works. It would have no value to animators if what animators did was of no interest to anyone. It’s because animated films are desired that animators create them, and McRo’s invention makes those end products more desirable still. In this way, McRo extends DDR. The value of the invention in DDR was entirely commercial, to improve the sales and customer retention of online merchants, as its technological contribution was trivial. The invention in DDR did not improve “how” the Internet or ecommerce sites operated in any technical way. Like McRo, DDR’s invention operated at two levels. First, it improved the design framework for creating such sites, thus an improvement in the tools used to create such sites. Second, it improved the end user experience of those sites, making users stay on the sites longer and resulting in improved customer satisfaction.

Third, the court rejected, though it did not mention, the defendant’s mental steps argument, that applying the rules to the transcript was “a simple mathematical operation that can be performed in a person’s head or using a pencil and paper.” That mathematical operations could be done mentally is —like my point above about claims being in the English language—a distraction, not a meaningful argument. By definition, every algorithm that is performed by a computer was first invented by a human who thought up the algorithm and worked it out. I discussed this issue in great detail in my articles on The Mind as Computer Metaphor. The court also rejected, without even pausing to address, the defendant’s primary (and frankly silly) argument that “there can be little question that the idea that the human mouth looks a certain way while speaking particular sounds is a pre-existing fundamental truth” that “exists in principle apart from any human action.” If you think that’s a plausible argument, see my blog on laws of nature.

Fourth, eligibility does not require tangibility. The McRo defendants argued that a “stream of output morph weight sets” is not a tangible product. The court nixed this argument: “While the result may not be tangible, there is nothing that requires a method ‘be tied to a machine or transform an article’ to be patentable.” Bilski, 561 U.S. at 603 (discussing 35 U.S.C. § 100(b)). The concern underlying the exceptions to § 101 is not tangibility, but preemption.” Examiners continue to reject claims on the grounds that the claims only produce intangible data. This basis of rejection is clearly incorrect.

Fifth, the court did not engage in a reductionist claim analysis.  In step 2 of the Mayo test, many courts and patent examiners simply look to the verbs recited in the claims—receiving, storing, generating, determining, displaying, transmitting, etc. –and state that these functions are entirely conventional and well understood, and therefore cannot be “inventive.”  This approach wipes out all software claims, since there is no way to claim the operations of a computer except by reciting steps that a computer can perform. As noted by the court in Oplus Techs. Ltd. v. Sears Holding Corp., “All software only ‘receives data,’ ‘applies algorithms,’ and ‘ends with decisions.’ That is the only thing software does. Software does nothing more.” That’s why you’ll never see a patent claim for a software process that recites slicing, dicing, shaking, and baking.  The late judge Mariana Pfaelzer recognized this in California Institute of Technology v. Hughes Communications, stating that this “simplistic” approach “would eviscerate all software patents, a result that contradicts Congress’s actions and the Supreme Court’s guidance that software may be patentable if it improves the functioning of a computer.” The reductionist approach further misses the point because it fails to consider the claim limitations as a whole and as a combination.  Had the McRo court done this, it would have been compelled to hold that there was no inventive concept since all of the claim verbs were similarly “conventional”: obtaining, generating, evaluating, and applying.  That the court did not use this approach, but instead focused on the limitations as a whole and how they worked together is instructive.  Again, the court made this plain:

Whether at step one or step two of the Alice test, in determining the patentability of a method, a court must look to the claims as an ordered combination, without ignoring the requirements of the individual steps.

The requirements of the individual steps means not just the verbs (the steps) but the specific details that limit the scope of each step to particular data and how it is structured (e.g. the details of McRo’s rules) and how it is applied (e.g. how the rules were used to evaluate the phoneme sequence).   The USPTO should instruct examiners to follow this example.

All that said, there are a couple of issues that McRo should have addressed but did not.  First, the court could have further clarified that the preemption analysis should be from the perspective of a person of ordinary skill in the art (POSITA), and not a lay court. Using POSITA makes the analysis objective, technology neutral, and adaptive to changes in technology over time. POSITA is the only objective framework in the patent law and is already employed for claim construction, enablement, written description, obviousness, and the doctrine of equivalents. My partner Dan Brownstone and I set forth this theory, what we called Objective Preemption, in our amicus brief in Alice.

Finally, McRo should have distinguished the Federal Circuit’s decision in SmartGene v. Advanced Biological Labs. There the court held that a rule-based expert system for selecting therapeutic treatments for patients with particular diseases was ineligible. The claims recited the use of “a second knowledge base comprising a plurality of expert rules for evaluating and selecting a therapeutic treatment regimen for said disease or medical condition.” The court held “the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options.” The court attempted to limit the reach of this holding by stating “Our ruling is limited to the circumstances presented here, in which every step is a familiar part of the conscious process that doctors can and do perform in their heads,” and designating the opinion as non-precedential. Nonetheless, district courts and more significantly the patent examiners, have read SmartGene as broadly holding that comparing old and new information and using rules to identify options—in any context at all—is an ineligible abstract idea, regardless of whether it was already done by humans in the relevant field. As I have shown, SmartGene has been cited by patent examiners more than any other Federal Circuit or Supreme Court opinions except for Mayo and Alice. (As of today, SmartGene has been cited over 13,000 times; so much for a case being limited to its facts).*

The McRo panel should have distinguished SmartGene and put to an end its overzealous application. Specifically, the panel could have simply clarified two points. First, the claims in SmartGene only stated that there were “expert rules for evaluating and selecting a therapeutic treatment regimen for said disease or medical condition,” but did not state anything about the details of the rules other than their purpose “for evaluating. . . .”   By contrast, the rules in McRo were claimed as encoding a broad, but still specific relationship, to “define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence.” Second, as discussed above, McRo’s rules were not the rules used conventionally by animators, whereas the court believed that the rules in SmartGene were the very rules normally used by doctors in their practice.  The court has frequently characterized its holdings in Ultramercial, TLI, Content Extraction, and other "ineligible" cases and it should do so with SmartGene.

---------

*In full disclosure, I was counsel of record for the patentee Advanced Biological Laboratories.  Feel free to blame some of this mess on me.

Two Years After Alice: A Survey of the Impact of a "Minor Case" (Part 1)

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.

Table 1 summarizes these decisions, along with some additional data:

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.

 ________________________________________

Footnotes:

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.

15  See, https://goo.gl/QymRX9.

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.”).

USPTO Updates Alice Guidance with Examiner Instructions, More Work Needed

 
By Robert R. Sachs

On May 4, the USPTO issued a new memorandum for patent examiners, “Formulating a Subject Matter Eligibility Rejection and Evaluating the Applicant's Response to a Subject Matter Eligibility Rejection” (“Examiner Instructions”)  along with a new set of five example claims, this time in the life sciences and chemistry arts.   The Examiner Instructions are a positive step forward in refining the examination process, but leave open many questions.  

The Examiner Instructions are primarily procedural in nature—how the examiners are to draft § 101 rejections and respond to arguments—rather than addressing substantive issues such as the scope of abstract ideas, laws of nature or natural products  This comes, I believe, in response to many of the public comments to the Interim Guidance and the July Update that focused on having examiners provide more complete and thorough rejections.  There is a widespread perception, backed up by real evidence, that a large percentage of examiners issue boilerplate § 101 rejections that simply identify some alleged abstract idea, and then formulaically assert that there is no inventive concept because all of the claims limitations recite well-known, routine and conventional steps or the functions of a generic computer.  

The Examiner Instructions address this concern in a number of ways.  First, to discourage the boilerplate approach of simply rejecting an entire block of claims in one fell swoop, the Instructions require the examiner to address each claim individually (all bold and underlining in the original):

After determining what the applicant invented and establishing the broadest reasonable interpretation of the claimed invention, the eligibility of each claim should be evaluated as a whole using the two-step analysis detailed in the Interim Eligibility Guidance.

When making the rejection, the Office action must provide an explanation as to why each claim is unpatentable, which must be sufficiently clear and specific to provide applicant sufficient notice of the reasons for ineligibility and enable the applicant to effectively respond.

There is emphasis that each claim must be analyzed at the level of specifics, not hand-waving generalities:

identify the judicial exception by referring to what is recited (i.e., set forth or described) in the claim and explain why it is considered an exception;

identify any additional elements (specifically point to claim features/limitations/steps) recited in the claim beyond the identified judicial exception; and

explain the reason(s) that the additional elements taken individually, and also taken as a combination, do not result in the claim as a whole amounting to significantly more than the judicial exception.

In regards to Step 2A, identification of the judicial exception, the Examiner Instructions hit a keynote that is regularly ignored by examiners: namely, that they must both 1) identify the judicial exception and 2) explain why the claims limitations are considered as such:

The rejection must identify the specific claim limitations and explain why those claim limitations set forth a judicial exception (e.g., an abstract idea). Where the claim describes, but does not expressly set forth, the judicial exception, the rejection must also explain what subject matter those limitations describe, and why the described subject matter is a judicial exception.

This statement is interesting because it draws for the first time a distinction between a claim that “sets forth” and one that “describes” a judicial exception, and how examiners are expected to address this distinction.  

These two steps are emphasized for every type of judicial exception:

When the examiner has determined the claim recites an abstract idea, the rejection should identify the abstract idea as it is recited (i.e., set forth or described) in the claim, and explain why it corresponds to a concept that the courts have identified as an abstract idea.

When the examiner has determined the claim recites a law of nature or a natural phenomenon, the rejection should identify the law of nature or natural phenomenon as it is recited (i.e., set forth or described) in the claim and explain using a reasoned rationale why it is considered a law of nature or natural phenomenon.

When the examiner has determined the claim recites a product of nature, the rejection should identify the exception as it is recited (i.e., set forth or described) in the claim, and explain using a reasoned rationale why the product does not have markedly different characteristics from its naturally occurring counterpart in its natural state.

Ideally, this should prevent two common types of erroneous Step 2A rejections.  Some examiners simply gloss the entire claim, treating it as a very broad category, completely divorced from the context and details.  Other examiners cannot figure out what the generalization should be, so they quote the entire claim and assert that it’s an abstract idea.  In neither case is any real explanation given as to why the claim is abstract.

When “explaining” why something is abstract idea, the examiner typically cites Alice or Bilski, as well as buySafe, Smartgene or Planet Bingo, often when the claims have little similarity to the subject matter of those cases.  The Examiner Instructions note that citation of cases is a “best practice,” but provide an important caution:

Examiners should be familiar with any cited decision relied upon in making or maintaining a rejection to ensure that the rejection is reasonably tied to the facts of the case and to avoid relying upon language taken out of context.

This statement appears to be a response to public comments that examiners routinely take language out of context from cited cases in support of their rejections. To be fair, the examiners only do this because the USPTO itself did this in the Interim Guidance by glossing these decisions very broadly.  After all, the vast majority of examiners are not reading Federal Circuit cases—they are simply quoting from the Interim Guidance when making a rejection.

The best (worst?) example of this is SmartGene, Inc. v Advanced Biological Labs. In the Interim Guidance, the USPTO used the claim in this case as an example of an abstract idea, glossing it simply as “comparing new and stored information and using rules to identify options.”  This is precisely how the case is quoted by examiners.  The problem is two-fold. First, Smartgene is a non-precedential case—on that basis alone, the case should not be relied upon by examiners or even mentioned in the Interim Guidance.

Second, the USPTO’s gloss is a significant overreach. The SmartGene court stated that the

[w]hatever the boundaries of the ‘abstract ideas’ category, the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options. (emphasis added). 

The court itself unambiguously limited the scope of its decision: “[o]ur ruling is limited to the circumstances presented here, in which every step is a familiar part of the conscious process that doctors can and do perform in their heads.”  These two statements make it clear that this case was narrowly decided on the facts and the specific claims.   Nonetheless, the USPTO ignored this express statement limiting the holding, as well as the express qualifications of "the mental steps of" and "to identify medical options" and improperly generalized the abstract idea as simply “comparing new and stored information and using rules to identify options.”  In essence, the USPTO created a new "category" abstract ideas out of a very specific and narrowly tailored non-precedential opinion.

The impact of this manipulation has been dramatic. SmartGene has been cited over 8,880¹ times by examiners since it was first mentioned in the Interim Guidance—the vast majority of cases having nothing whatsoever to with the medical decision-making as in SmartGene.  See for example, “Method for Calculating Feed Value of Alfalfa Hay Using Information Available at the Time of Baling” (13/573,461), and “Method of Operating an Internal Combustion Engine (14/138,367).  Most amazingly, even though SmartGene is non-precedential and expressly limited to its facts, since the July Update last year, SmartGene has been cited more times (7315) than Mayo (4703).  That's hard evidence that the case is being relied upon far beyond it's very limited holding.

Of course, this is entirely expected, since it hard to imagine a data processing method that cannot be characterized as “comparing new and stored information and using rules to identify options.”  This broad generalization covers from the most simple case of storing a single number X and comparing that number with a new value Y (“If Y > X then X=Y”), to the most complex data operations using hundreds, or even millions of input values, and any number of computations. If taken literally, this statement can be used to find any and every claim to data processing an abstract idea.  

SmartGene is not the only non-precedential case relied up on by examiners.  Here are further statistics showing the frequency of citations in office actions.

• Cyberfone Systems, cited more than 6,600 times
• Planet Bingo,cited more than 2,870 times
• Gametek, cited more than 520 times
• Dietgoal, cited more than 440 times
• Fuzzysharp, cited more than 300 times

This reliance on non-precedential cases in part responsible for a second serious problem: the creation of new categories of abstract ideas beyond what the courts have identified. Hence the Examiner Instructions state:

Examiners should not go beyond those concepts that are similar to what the courts have identified as abstract ideas.

and

If applicant challenges the identification of an abstract idea that was based on a court case and the challenge is not persuasive, an appropriate response would be an explanation as to why the abstract idea identified in the claim is similar to the concept in the cited case. If the original rejection did not identify a Supreme Court or Federal Circuit decision in which a similar abstract idea was found and applicant challenges identification of the abstract idea, the examiner would need to point to a case in which a similar abstract idea was identified and explain why the abstract idea recited in the claim corresponds to the abstract idea identified in the case to maintain the rejection.

Prosecutors regularly face rejections in which the examiners push the envelope of judicial exceptions by identifying something as abstract when there has been no precedential Federal Circuit case on point.  In one application, we argued this point and the examiner replied that she was not limited to existing examples from the courts, arguing that how else would the list of abstract ideas be expanded?  This examiner did not appreciate that the exceptions are judicial, not administrative, in nature: it is up to the courts, not the examiners to expand the list. The limiting statement in the Examiner Instructions should restrain these more aggressive attempts to enlarge the scope of abstract ideas.  

The Examiner Instructions say that appropriate response to the applicant challenging the abstract idea is to find a case in support of the rejection.  This is incomplete, as there is another obvious option: withdraw the rejection.  If there is no precedential case with an abstract idea that is similar to the claims, then the rejection should be withdrawn.  Of course, that devolves into a question of what is similar, and therein lies a world of differences between what examiners and applicants think.  Any claim that has any hint of a commercial flavor is said by examiners to be “not meaningfully different” from Alice or Bilski, regardless of how different in fact it is: to examiners, hedging is the same as payment processing is the same as advertising is the same as insurance pricing is the same as inventory management and so on.  The Alice test may be well call Death by Analogy.   To those of skill in the art--our clients in particular--the difference between these fields is blindingly clear.  

So while the Examiner Instructions do caution examiners here on how to set forth a rejection under Step 2A, they do not remedy the underlying problem: the inclusion of non-precedential cases in the Eligibility Guidance. Either the cases should be removed, or the gloss of the abstract ideas in those cases should be--as the Examiner Instructions state--"reasonably tied to the facts of the case and to avoid relying upon language taken out of context."   Further, the examiners should be further instructed that any cited case has to be similar not just in a general sense, but similar in context and content as well.

In future posts I’ll review the other aspects of the Examiner Instructions dealing with Step 2B and the claim examples. 

Footnotes:

1.  The statistics here regarding the number of citations for various Federal Circuit cases come from full text searches of office actions since January 24, 2014 (the publication date of SmartGene).  The searches were conducted on May 6, 2016 using Patent Advisor.  All numbers are cited are minimum counts, since Patent Advisor only has access to published applications in PAIR.  Published applications account for approximately 60% of all applications filed with the USPTO. Hence the actual number of citations of these cases is likely to be 66% higher; i.e., it's likely that SmartGene has been cited about 14,800 times by now.

The Mind as Computer Metaphor: Benson and the Mistaken Application of Mental Steps to Software (Part 5)

Go to: Part 1, Part 2, Part 3, Part 4, Part 5

(This series of posts is based on an upcoming paper for the AIPLA Spring 2016 meeting.)

 
By Robert R. Sachs

Part V. THE FICTIONAL MENTAL STEPS DOCTRINE DOES NOT APPLY TO PROGRAMMED GENERAL PURPOSE COMPUTERS

The fictional form of the mental steps doctrine is inapplicable to digital computers and computer-implemented inventions for several reasons.

First, prior to the widespread usage of the general purpose computer, many inventions were created, and many patents granted, for mechanical and electrical machines that performed mathematical calculations. For example, between 1900 and 1960, there were over 2,300 patents issued that related to mechanical computing devices. That such devices were patent-eligible subject matter seemed beyond dispute, and there are no federal cases in which claims to such devices or their methods of operation were held to be unpatentable subject matter. Calculating machines also perform simple arithmetic that a human could easily do by “head and hand”, but that does not disqualify them as patentable subject matter. This is because the mathematical operations had been mechanized into physical elements: the “locus of the operation” was in the mechanical or electrical elements of the machine.

Most calculating machines typically could only perform individual mathematical operations such as addition, subtraction, multiplication, division, logarithm, and so forth. Performing a complex series of mathematical calculations, therefore, required the human operator to control the sequence and execution of a series of calculations, as well as in many cases to store, typically on a notepad, intermediate results for later entry into the machine. In short, even though the locus of the operation was in the machine, the locus of control in those devices was always in the mind of the human operator, whether he was using a desk calculator, a slide rule, or an abacus. Accordingly, in patent cases decided prior to the widespread application of computers, the courts were correct to hold that a claim to mathematical procedures or use of formula was essentially one for mental steps, because there was then no known way to have a machine perform the entire mathematical process automatically.

However, von Neumann’s architecture of the stored program computer represented a fundamental change in where control of the operations is held.  Prior to the von Neumann architecture, a human had to enter a program one step at a time into the computer’s memory—this was essentially the same as the human controlling the adding machine by pressing keys and pulling handles. In the stored program computer, the locus of control resides in the machine itself: the computer program controls the operation of the computer by sequentially changing the signals stored and manipulated by the computer, without any human intervention other than high level inputs. These low level signals are not representative of the mental states of the human but rather are signals that electronically represent the machine language “instructions” that the computer can execute. At a minimum, just as the mechanical or electrical implementation of calculating machines would not be ignored in deciding patent eligibility, the implementation of a digital computer should not be ignored either.

The only reason to ignore the presence of digital computer elements, such as the shift register in Benson, or even a general-purpose computer itself, is if one assumes that computers perform mental steps in the same way that a human does. Once this assumption is removed, there is no principled reason to distinguish between the mechanical nature of a calculating machine and the computer technology in digital computers. Both likewise contribute to patent eligibility. And as shown above, the assumptions of functional and procedural equivalence was without support in Benson in 1972 and remains even less likely today.

The fictional form of the mental steps doctrine represents a significant and unwise departure from the factual form.  The fictional form is untethered from the conceptual and technological attributes of computer design, the nature of human cognition, and the practical reality and value in computer-implemented inventions.  The courts should return to the doctrine’s factual form, and avoid a further descent into the fact-free analysis that now characterizes patent eligibility.

The Mind as Computer Metaphor: Benson and the Mistaken Application of Mental Steps to Software (Part 4)

Go to: Part 1, Part 2, Part 3, Part 4, Part 5

(This series of posts is based on an upcoming paper for the AIPLA Spring 2016 meeting.)

 
By Robert R. Sachs

Part IV. THE CONTINUED APPLICATION OF MENTAL STEPS TO SOFTWARE INVENTIONS

Unfortunately, the Supreme Court’s misstatement of the relationship between computers and minds continues to this day to be cited as authority and a statement of fact about how computers operate. The Court’s conversion of the mental steps doctrine from its factual form to its fictional form in essence turned the performance of mental steps from being a necessary condition for ineligibility to a sufficient condition. And since the Alice decision refused to offer a definition or even a methodology for identifying abstract ideas, the fictional form of mental steps has been taken up as a model tool. As a result, it has substantively impacted both the case law and the outcome of many patent cases.

Though the Federal Circuit decided dozens eligibility cases after Benson, it was not until some forty years later that Federal Circuit adopted the fictional form of mental steps. First, in Cybersource, that court stated that “in finding that the process in Benson was not patent-eligible, the Supreme Court appeared to endorse the view that methods which can be performed mentally, or which are the equivalent of human mental work, are unpatentable abstract ideas--the "basic tools of scientific and technological work" that are open to all.”¹ Then in Bancorp, the court stated

As the Supreme Court has explained, “[a] digital computer . . . operates on data expressed in digits, solving a problem by doing arithmetic as a person would do it by head and hand.” Benson, 409 U.S. at 65. Indeed, prior to the information age, a “computer” was not a machine at all; rather, it was a job title: “a person employed to make calculations.” Oxford English Dictionary, supra. Those meanings conveniently illustrate the interchangeability of certain mental processes and basic digital computation, and help explain why the use of a computer in an otherwise patent-ineligible process for no more than its most basic function—making calculations or computations—fails to circumvent the prohibition against patenting abstract ideas and mental processes.²

Here too, the statements from UDC have been taken out of context and used in a manner at odds with their intended purpose and meaning. However, as should be clear, the digital operations of a computer are not “interchangeable” with the mental processes of a human. That both can be described in a common way does not make them the same in fact. If the programmed operations of a computer are interchangeable with the mental processes of a human, then so too are the mechanical operations of an adding machine, since these operations can likewise be described as the “same procedures” performed by a human. Clearly, this result would not be correct, and thus it implies that the “interchangeability” premise is false.

After Alice, reliance on Benson’s “mental steps” and the pencil-and-paper test increased significantly, even where the claims were directed to processes that were disclosed as fully performed by a computer.  These types of claims that would have been eligible under the pre-Benson factual mental steps approach of Judge Rich and the Court of Customs and Patent Appeals.  What follows is a short survey of several exemplary cases:

In Planet Bingo, LLC v. VKGS LLC, the Federal Circuit stated that “The district court correctly concluded that managing the game of bingo “consists solely of mental steps which can be carried out by a human using pen and paper,” and expressly relied on Benson: “Like the claims at issue in Benson, not only can these steps be “carried out in existing computers long in use,” but they also can be “done mentally.””³  

In Broadband iTV, Inc. v. Oceanic Time Warner Cable, LLC, the claims included steps of “enabling the online uploading of videos” and “converting the uploaded videos standard TV digital format.” ⁴ The court nonetheless held “Even though the ‘336 Patent anticipates that its steps will be performed through computer operation, it describes a process that a person could perform “[u]sing a pen, paper, and her own brain.”⁵ The court did not explain how a human with pencil and paper could themselves enable uploading of videos or convert the videos into a specific digital format.

In Concaten, Inc. v. Ameritrak Fleet Solutions, LLC, one of the claims dealt with generating maps of the locations of snow plows, and presenting graphical users interfaces based on such maps, along with automated instructions to the snow plow operator.  The claim included steps of “processing, by the server, the received collected information to (i) provide a map associated with a physical location of a selected snow maintenance vehicle” and providing, over the wireless cellular network, the map and an operator instruction to the selected snow maintenance vehicle of the plurality of snow maintenance vehicles, wherein the map is visually displayed, by a touch screen monitor”.⁶  The court held that these steps were “nothing more than taking steps routinely performed by humans.”⁷

In Evolutionary Intelligence, LLC v. Sprint Nextel Corp., the claims were directed computer search methods using a data structure described as a “container” formed of “registers” with specific types of relationships ("the container registers having defined therein data comprising historical data associated with interactions of the identified containers with other containers from the plurality of containers, wherein searching the first container registers comprises searching the historical data;” etc.). ⁸  The court held that the claims cover “no more than a computer automation of what “can be performed in the human mind, or by a human using a pen and paper.””⁹

In Kinglite Holdings Inc. v. Micro-Star Int'l Co. Ltd., the claims were directed to encrypting the BIOS of a computer:¹⁰ “A method to securely invoke Basic Input and Output System (BIOS) services, comprising: creating a service request to invoke BIOS services; signing the service request with a service request signature generated using a private key in a cryptographic key pair; and verifying the service request signature using a public key in the cryptographic key pair to ensure the integrity of the service request.”¹¹ The court held that the steps of “generating a signature using a “private key” and verifying that signature with a “public key” can be performed by a human who is capable of reading such keys.”¹²  The court did not explain exactly how a human would mentally create a service request for a BIOS service, since such an operation take place within the operating system, not at any user-accessible level of the computer. 

Finally, perhaps the strangest application of the mental steps doctrine is Stanacard v. Rubard, LLC.¹³  The invention involved combining caller ID and call forwarding to route and connect a call to a unique recipient.  The customer of a telephone service has their own phone number, as is normal. The telephone service also provides a local ten-digit telephone number that the customer can assign to a second phone number (including long distance international numbers) of another person. When the customer, calling from their own phone, calls the local number, the telephone service determines the caller’s number using caller ID, and then looks up the second number that the caller assigned to the local number.  The service then connects the caller to that second number.¹⁴  Claim 1 recited:

1. A method comprising

detecting an identity of a caller;

receiving an assigned incoming telephone number;

identifying a recipient associated with the assigned incoming telephone number and the identity;

connecting the caller and the recipient;

wherein said caller has a plurality of assigned incoming telephone numbers to choose from, at least one of said plurality of assigned incoming telephone numbers being associated with said recipient,

wherein each assigned incoming telephone number is associated with multiple recipient telephone numbers, a particular telephone number of a recipient being determined solely by a particular assigned incoming telephone number used by a particular identified caller and without input of further data by said caller, whereby said caller is not required to be within a particular network for making calls.

The court went so far as to refer to the “genius of the '156 patent (and it is indeed clever and creative),”¹⁵ as an “elegant solution to the problem of the calling card PIN was apparently overlooked by a lot of smart people for a very long time.”¹⁶  Nonetheless, the court found the claims directed to a mental process, relying on Cybersource and the pencil-and-paper analysis.  The court’s implementation of the pencil-and-paper test, however, borders on the bizarre:

When I was a child I watched Lassie on television. Whenever June Lockhart, playing Ruth Martin, wanted to reach someone by telephone, she rang Jenny at Central and got herself connected to whomever she wished just by saying "Can you get the doctor?" or "I need to speak to Timmy's teacher, Miss Jones." Ruth didn't have to dial any numbers at all. Jenny, the intermediary, recognized Ruth as the caller from the line that rang at Central, and she knew which receptacle to plug Ruth's line into so that Ruth's call to Central would be forwarded to its intended recipient. Nothing different happens here, except that switching machinery and computers (none of which is claimed) recognize who the incoming caller is and to whom she wishes her call forwarded. As defendant points out, a room full of telephone operators with sheets of paper containing the look-up tables could accomplish the same result- expensively, true, but the same result, using the same process.¹⁷ 

It’s a fair bet that in the history of patent litigation no court has invalidated a patent based on its childhood memories of television shows.  

These cases illustrate the types of patents that have been invalidated under the fictional form of the mental steps doctrine and pencil-and-paper test.  Not all courts presented claims for software inventions adopt the mental steps approach.  The most cogent judicial critique of the mental steps test is by Judge Pfaelzer in California Inst. of Tech. v. Hughes Commc'ns Inc.¹⁸  The claim before the court dealt with the generation of parity bits for communication packets, “Claim 1 of the ’032 patent recites generating a parity bit by accumulating two values: (i) the value of the previous parity bit and (ii) the sum of a number of randomly chosen irregular repeats of message bits.”  Even accepting this simplification of the claim, the court rejected Hughes’s argument that the steps could be performed mentally:

One of Hughes’ arguments deserves special attention. Hughes argues that calculating parity bit values involve “mental steps [that] can be performed by a person with pencil and paper.” Therefore, Hughes, argues the claim is not patentable. Defs.’ Mem. in Supp. of Invalidity at 14, Dkt. No. 126. The Court finds this mode of analysis unhelpful for computer inventions. Many inventions could be theorized with pencil and paper, but pencil and paper can rarely produce the actual effect of the invention. Likewise, with regard to software, a human could spend months or years writing on paper the 1s and 0s comprising a computer program and applying the same algorithms as the program. At the end of the effort, he would be left with a lot of paper that obviously would not produce the same result as the software.¹⁹

The court offers two further insightful observations.  First, “Pencil-and-paper analysis can mislead courts into ignoring a key fact: although a computer performs the same math as a human, a human cannot always achieve the same results as a computer.”²⁰  This is an important point, one regularly overlooked by the courts, as the examples in Kinglite and Broadband iTV above show: while a human may be able to calculate manually a cryptographic key (Kinglite) or perhaps even manually encode a video (Broadband iTV) that would not achieve the same results as claimed. This is consistent with Judge Rich’s observation in In re Benson that speed of computation is “essential in the practical utilization” of the process.²¹ Today, the courts have distanced themselves entirely from appreciating the significance of practical considerations—patent eligibility is performed in an intellectual vacuum.

The court’s second observation was that “it is clear that Caltech’s error correction codes were not conventional activity that humans engaged in before computers, and the codes do not become conventional simply because humans can do math.”²²  This point is likewise routinely ignored: once a court decides a human can perform the claimed steps, it typically reduces the subsequent analysis of whether there is an inventive step to these simplistic terms. This is how the Stanacard undertook the inventive step analysis: “The claimed invention is literally no more sophisticated than what Jenny the Operator did on Lassie, those many years ago; as defendant argues, any telephone operator given a copy of the lookup table (which is not part of the claimed invention) can route and connect the call.”²³

 

1 Cybersource, 654 F.3d at 1371.

2 Bancorp Servs., L.L.C. v. Sun Life Assur. Co. of Canada, 687 F.3d 1266, 1277 (Fed. Cir. 2012) (holding patent claims to a computer-implemented system non-statutory as mental steps).

3 576 F. App’x 1005, 1008 (Fed. Cir. 2014), quoting Benson, 409 U.S. at 67.

4 Civ. No. 15-00131-ACK-RLP, 2015 U.S. Dist. LEXIS 131726, at *16 (D. Haw. Sep. 29, 2015).

5 Id. at *23.

6 Civ. No. 14-cv-00790-PAB-NYW, 2015 U.S. Dist. LEXIS 127679, at *2 (D.Colo. Sep. 23, 2015).

7 Id. at *12.

8 Civ. No. 13-04513, 2015 U.S. Dist. LEXIS 136458, at *6 (N.D. Cal. Oct. 6, 2015).

9 Id. at *15, quoting Cybersource, 654 F.3d at 1372.

10 Civ. No. CV-14-03009 JVS (PJWx), 2015 U.S. Dist. LEXIS 145121 (C.D. Cal. Oct. 16,2015).

11 Id. at *12

12 Id. at 14.

13 12 Civ. 5176 (CM (MHD), 2015 U.S. Dist. LEXIS 157345 (S.D.N.Y. Nov. 18, 2015).

14 Id. at *2.

15 Id. at *10. 

16 Id. 11.

17 Id. at 9

18 59 F. Supp. 3d 974 (C.D. Cal. 2014).

19 Id. at 982.

20 Id.

21 In re Benson, 441 F.2d. at 688 (emphasis added).

22 Id.

23 Stanacard, 2015 U.S. Dist. LEXIS 157345, at *10.

#AliceStorm for Halloween: Was it a Trick or a Treat?

By: Robert R. Sachs

Alice has been busy the last two months, continuing to haunt the federal courts and the Knox and Randolph buildings at the USPTO. Here are the latest #AliceStorm numbers through the end of October 2015:

    

There have been 34 district court decisions in the past two months, but the percentage of invalidity decision is holding constant at 70.5%.   The number of patent claims invalidated is now over 11,000, but also holding steady at around 71%.   

There have been no new Federal Circuit Section 101 decisions, but we're going to see a flurry of activity in the next couple of months, as the court has recently heard oral argument in a number of patent eligibility cases, and more are on calendar for November.   

Motions on the pleadings have soared, with 23 in the past two months alone, and the success rate is up a tick from 70.1% to 71.4%.  

PTAB is a bit mixed: the CBM institution rate is down from 86.2% 83.7%, but the final decision rate is still 100%, with 6 decisions in the past two months invalidating the patents in suit.

Turning to the motion analysis, the motions on the pleadings are the second scariest thing to a patent holder after the specter of attorney fees under Octane Fitness:

The Delaware district court continues as the graveyard of business methods and software patents, with 31 eligibility decisions, up from 19 just two months ago, and their invalidity rate is up from 86.4% to 90.3%. 

Jumping into second place is the Eastern District of Texas, with 23 decisions total (up from 16). Contrary to the rest of the rest of the bench, their invalidity rate is 34.8%.  The Northern District of California edged up from 75% to 78.9% invalidity, and C.D. Cal is up almost 2%.

  

 And finally, here is the run down on the all district court judges with two or more Section 101 decisions. 

  

With today's blog, I'm introducing some entirely new types of data, looking at the characteristics of the patents that have been subject to Section 101 motions.  

As expected, business method patents are the most heavily litigated and invalidated (click to see full size):

 

The distribution of patents in terms of earlier priority dates shows a very large fraction of the invalidated patents were first filed in 2000: 

Now compare that to the distribution of patent classes with respect to priority year as well: 

Here too we see a very large number of the business method patents filed in 2000.  I've coded all of the software related technologies as blue to group them visually. 

Why the cluster around 2000?  State Street Bank, which held that there was no rule against business method patents, was decided in mid-1998.  As those of us who were practicing them remember, it took about two years before the impact of the decision was widespread.  This was also the time of the Dotcom bubble when it seemed that just about everyone was starting up a business on Internet.  Those two factors resulted in a surge of patent filings. 

Of all the patents that have been thus challenged under Alice, only two have post-Bilski priority dates:

• 8447263, Emergency call analysis system, filed in 2011, and litigated in Boar's Head Corp. v. DirectApps, Inc., 2015 U.S. Dist. LEXIS 98502 (E.D. Cal., 7/28/2015).  The court granted DirectApps motion to dismiss, finding the patent invalid.  
• 8938510, On-demand mailbox synchronization and migration system, filed in 2010, and litigated in BitTitan, Inc. v. SkyKick, Inc., 2015 U.S. Dist. LEXIS 114082 (W.D. Wash, 8/27/2015). BitTran's motion for preliminary injunction was denied in part because of SkyKick successfully argued that BitTrans was not likely to succeed on the merits due to Alice problems.

• 8,604,943; 9,070,295; 9,082,097; 9,082,098 and 9,087,313, all of which claim priority to March, 2012, and were invalidated just last week in MacroPoint LLC v. FourKites Inc., Case. No. 1:15-cv-01002 (N.D. Ohio, Nov. 5, 2015).  The court invalided all 94 claims in these patents, as being directed to the abstract idea of “tracking freight.” While the last four patents were issued in June and July, 2015, none of them overcome an Alice rejection, and the court noted that “Nothing in the Reasons for Allowance dictate a finding that these concepts are inventive on the issue of patent-eligible subject matter.”

Over time we'll see more post-Bilski patents being litigated, and then eventually a true test: a business method patent granted after Alice that overcame an Alice rejection.  By my count, there are about 80 such patents thus far, and about another 90 that have been allowed.   It will not be too long then before one of these patents is challenged under Section 101.  

In my next column, I'll review some very disturbing decisions by coming out of the Delaware district courts. 

Massachusetts Court Upholds Software Method Patent

By: Stuart P. Meyer

On September 4, a Massachusetts district court issued an interesting ruling that calls into question many of the recent preliminary stage Alice-based invalidations we’ve seen over the past year.  The decision, the latest round in ongoing litigation between DataTern and numerous defendants, is notable for the following reasons:

• It expressly recognizes that the presumption of validity applies to subject matter eligibility, saying that notwithstanding some suggestions in the Federal Circuit to the contrary (see Judge Mayer in Ultramercial III, 772 F.3d at 720-721), the Supreme Court’s unanimous statement in Microsoft Corp. v. i4i Ltd. Partnership, 131 S. Ct. 2238 (2011) was, without qualification, that 35 U.S.C. § 282 requires an invalidity defense to be proved by clear and convincing evidence.  The DataTern court refused to read the Supreme Court’s silence on the issue in its more recent § 101 decisions as creating any sort of exception to that rule.

• The patent at issue (6,101,502) is remarkable in how little hardware it describes in the specification, and the claims are directed, for example, to, “A method of interfacing an object oriented software application with a relational database, comprising the steps of selecting an object model; generating a map …; employing the map …; and utilizing a runtime engine … to access data from the relational database.”  Thus, these are pretty software-centric claims, which have had a dismal track record in recent § 101 challenges.

• After summarizing the post-Alice case law, the court found that “the ‘502 patent is directed at solving a problem that specifically arises in the realm of computing” so computer limitations in the claims are neither just post-solution limitations nor mere specific applications of an abstract idea.

Based on such reasoning, the court denied the motion for summary judgment of invalidity.  If this decision is appealed, it will be interesting to see the Federal Circuit’s reactions to the presumption of validity issue, the minimal recitation of hardware, and the “realm of computing” analysis.  Given the paucity of other cases upholding such software-related claims, we should expect to see this decision cited in numerous other pending cases in the coming months.

#AliceStorm: The Summertime Blues Continue

By: Robert R. Sachs

In my July post, I noted that Section 101 court decisions were issuing fast and furious, with twelve decisions in just the first ten days.  I predicted that "At this pace, we could see some twenty to thirty decisions this month."

Sadly, I was spot on: there were 21 decisions, with 17 of those (81%) invalidating 36 patents.  With those cases, and the cases through August 26, these are the current #AliceStorm numbers:

Compared to the last numbers from July, the invalidity decision rate is up a tick, patent invalidity percentage is essentially unchanged, and claims are down a bit.  No surprise, PTAB continues its 100% kill rate on final CBM decisions.

Here are the motion numbers:

The Federal Circuit numbers jumped from 16 to 19 decisions because there were two per curiam affirmances of invalidity in July and August, and one we picked up from before.  Successful motions for JOP are up 3% to 75%, while successful motions to dismiss ticked up 1.1%.

As to tribunals:

The Northern District of California showed a slight increase, up 1.7% to a 75% invalidity grant on all Section 101 based motions.  

One of the questions that comes up is how the numbers compare before and after Alice. To determine this, I looked at the 14 month periods before and after Alice.  Here are the results:

Note that the percent change post-Alice for decisions and patents is calculated with respect to the raw counts of decisions and patents, not with respect to the invalidity percentages.  

To put this in perspective:  the courts invalidated more patents in the 14 months since Alice, then they did in the five years previous to Alice. 

Is that what the Supreme Court intended when the cautioned the courts to "tread carefully in construing this exclusionary principle lest it swallow all of patent law."?  

What's Up at the USPTO? Section 101 Rejection Rates, Of Course

With the assistance of Patent Advisor, I now have about 570,000 records of office actions and notices of allowance from the last year or so.   The most recent update I received just over 79,000 office actions and allowances:

Overall, the rejection rates for all kinds run about 69%, with TC 3600 just marginally higher.  But as I've explained, looking at TC 3600 as whole hides the real rejection rates for patent eligibility. 

 

Here, I have the percentages of Section 101 rejections in each of the identified months, broken out between the e-commerce art units (3620, 3680 and 3690) and all other art units at the USPTO (i.e., biotech, communications, computers, etc.).  As you can see, the ecommerce examiners are continuing to issue 101 rejections at a very high rate, almost 87% in June.  What's more, the percentage of notices of allowance dropped dramatically in the ecommerce units, from 11.44% to just 4.6% in June.  

Perhaps more disconcerting, is that even in other art units, the 101 rejection rate more than doubled, from 6.45% to over 13%, and the notice of allowance rate dropped.  Can it really be that so many thousands of patent applications merely claim abstract ideas?  

Let's look at the rejection rates for June, specifically, organized by technology area:

This is a cross-functional summary, in that I've aggregated the rejection rates according to the kinds of technology, which extends across different Tech Centers, or I've extracted technologies from within Tech Centers. For example, I've pulled Medical and Drugs out TC 1600, and Transportation out of TC 3600, in which it's lumped in with business method patents.  I've moved Amusement and Education, which are in TC 3700, to the Commerce group to join with the e-commerce technology from TC 3600.  Again we see the extraordinary percentage of Section 101 rejection rates in Commerce (and the correspondingly low notice of allowance rates), relative to other technology areas.  

USPTO Stats Confirm the Alice Effect

The USPTO just released statistics on patent application filings, pendency, and so forth.  New patent applications are expected to decline by 1.8% overall in FY2015, even though the Office expected 5% growth, continuing a six year growth trend.  

 

Even more interesting is that RCE filings are down about 6% as well, RCE's being the typical mechanism we use to continue to push for allowance. TC 3600 had the sharpest drop in RCE filings in particular.

And, no surprise, the drop in total filings (new and RCE) was most pronounced in TC 3600. Without having the actual data, it's hard to exactly confirm, but from the below it appears that most TC's are flat or have a tiny decline in filings.  Along with the RCE drop in TC 3600, that suggests that TC 3600 is contributing the most to the overall decline in applications filings.  The upshot: Alice is having real measurable impact on application filings.  

If these trends on 101 rejections continue, then examiners are working themselves out of a job, and the USPTO is working itself in the red. Fewer applications does not mean reduced pendency.  Instead it means fewer examiners because there will be less fee income coming into the USPTO to pay examiners--fees from new applications, fees from extensions of time, fees for everything.  And in the long run, it means less maintenance fees, which are already back-end loaded, to pay future examiners.   This is the law of unintended consequences at work. 

There Ain't No Cure for the 101 Blues...

Now some anecdotal evidence. 

First, as many of you know, immediately after Alice the USPTO did a sweep of all cases with notices of allowance--and even paid issue fees--to review for Alice rejections.   The Office stated publicly at AIPLA Spring and other venues that this was a one-time deal, and that they were not going to do any further post-issuance review to issue Section 101 rejections.  However, the Office appears to have gone back on its statement.  Just last week, one of our cases in TC 3600, on which we had received a notice of allowance and immediately paid the issue fee, was yanked back without explanation.  

Similarly, we have an application in TC 3600 art unit that has allowed just 7 patents in the past 6 months (with 118 cases being abandoned).  We appealed a Section 101 rejection.  We were pleased, to say the least, when the examiner withdrew the final rejection after apparently reading our appeal brief, and issued a notice of allowance.  We were not so pleased when just three days later we received a notice of withdrawal of the allowance! We called the SPE and were told that the allowance "was a mistake," and the examiner was being instructed to file an answer to the appeal brief.

It also appears that the USPTO is targeting patent applications for disposals based on Alice.  Consider two applications filed on May 12, 2014,  14/275,026 and 14/275,094, both of which are continuations and both assigned to the same examiner.  The initial claims in the ‘094 mentioned accounting, and that application has already received two non-final office actions, both including an Alice rejection; the first rejection was issued on June 29, 2014, just over a month after filing.  The ‘026 had no such language and has not even been examined yet.  I could understand a month or two difference in the timing of office actions but not more than a year, given that they have the same examiner.  This suggests that the USPTO is focusing on the '094 application precisely because of its accounting-oriented claims.

And then there's this tale: Earlier this week I had an interview with a primary examiner in a business methods art unit to discuss a 101 rejection, where there were no prior art rejections. As you know, a primary examiner in theory has authority to allow an application.  Well, I stress "in theory" because when it comes to 101 rejections in the business methods units, it appears that even if you convince the primary, he still needs to get approval from both his supervisor and a legal specialist. 

This poor fellow has not allowed a case in over year—but not for want of trying.  He told me that he’s had a couple of cases where he was willing to allow the application and withdraw the 101 rejection—but his SPE and the specialist overruled him.   It was pretty clear that he was frustrated by the entire process.  And that very frustration made it more or less impossible for him to offer any suggestions as to what to do, since he figured that anything he suggested would get overruled by his superiors: all he would say is "Read the Interim Guidance and the July examples, they tell you what to do."  He also admitted that he was concerned with getting dinged by the quality assurance reviewers, who scrutinize applications and penalize the examiners for making mistakes—such as allowing a case they should have rejected under Alice.   Thus, with the odds and the incentives stacked against him, he was, by his own admission, just waiting out the final two years before he retires. 

That makes him the lucky one. 

The rest of us are going to be around for a while. 

Versata: What's "Technological" and the Federal Circuit's New Rule Against Improvements

By: Robert R. Sachs

Part II:  See Part I #AliceStorm: July is Hot, Hot, Hot…and Versata is Not, Not, Not

What Is a "technological invention"?

The other part of the CBM definition at issue in Versata is the exclusion of a technological invention from the scope of CBM review. Correctly, the Court noted that the USPTO's circular definition of technological invention as "essentially one having a “technological” feature that solves a “technical” problem using a “technical” solution," "does not offer much help."  But instead of defining what was technological, the Court looked to what PTAB said was not technological, that is "certain characteristics which, if present, did not help support a finding" that an invention was technological.  Here are PTAB's exclusionary factors:

1) mere “recitation of known technologies”;

2) “reciting the use of known prior art technology”; and

3) “combining prior art structures to achieve the normal, expected, or predictable result of that combination.”

As a general rule you do not define a word by what it is not: the definition of mammal is not creatures that do not have scales, cold blood, and lay eggs.  Similarly, the use of exclusions does not effectively differentiate between technological inventions and non-technological inventions. 

Assume I invent a machine to crack nuts:

 

I apply mechanical engineering principles and equations to ensure that the machine will do exactly what it's supposed to do ("the normal, expected, or predictable result of that combination").  I claim the combination of a motors and gears and so forth ("known technologies").  If we apply the PTAB's exclusionary rules, then my nut cracker is not a technological invention. And if I happen to mention in my patent application that my nutcracker reduces the costs of cracking nuts and thus makes the sale of bulk nuts more profitable, then suddenly I have invented a financial product.  

The problem with this approach is that every invention is made with some existing technologies, which are used precisely for their known purpose, and operate according to the laws of physics and engineering to produce a predictable result.  This is certainly true of every invention in mechanical engineering, electrical engineering, chemical engineering, as well as software, telecommunications, networking, and so forth.  The reality of how inventions are made by humans--using prior technologies in new combinations--can be said to the second law of patent-dynamics.  And just as a scientific theory that violates the second law of thermodynamics is wrong, if a definition of technology violates that rule, then it's wrong as well. (The first law of patent-dynamics is Diehr.)

This exclusionary approach improperly imports novelty and non-obviousness into the definition of technology.  The problem is that In other words, something is technological only if it inventive. That my nut cracker uses known technologies and operates according to known principles to provide predictable results may make my machine obvious, but it is still a machine--it's still technology. 

The Court then turns to Alice to justify the PTAB's definition of technological:

As the PTAB correctly noted, even if the invention required the use of a computer, the claim did not constitute a technological invention. As we are now instructed, the presence of a general purpose computer to facilitate operations through uninventive steps does not change the fundamental character of an invention. See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014).

Using Alice in this way is reasoning backward.  Alice decided that merely using a general purpose computer did not provide for eligibility.  But that does not mean using a general purpose computer to implement any invention is not technological—unless you solely equate eligible inventions with technological inventions.  However, in Bilski, the Supreme Court refused to impose a technological arts test in Section 101, as requested by the government.  Further, by the Federal Circuit's reasoning, no software-based invention that makes use of a standard computer would be a technological invention.  That's an absurd result—and certainly not what Congress intended when it created CBM reviews.

Everything Is a Financial Product

Let's accept then the USPTO's definition of financial product and the Federal Circuit's endorsement of that definition.  According to the USPTO, financial means "pertaining or relating to money matters."  The Court held that this definition "readily embraces the ’350 patent which expressly claims a “method for determining a price of a product” in Versata's claim 17.  Since a product includes a machine, the following are financial products since they are used determine prices:

 

On the left, we have a state of the art bar code scanning system as you find in many grocery stores and retail outlets.  In the middle, we also have what was the state of the art in 1853, a cash register that totaled prices.  But these are nothing compared to the technology on the right.  These wax tablets were the state of the art 800 years before the time of Christ, and they were reliable enough to be used for another 2,600 years!  "Wax tablets were used for high-volume business records of transient importance until the 19th century. For instance, the salt mining authority at  Schwabisch Hall employed wax records until 1812." If the unknown Roman inventor of the wax tablet mentioned in his patent application that the tablets could be used to determined prices, then according to PTAB and the Federal Circuit, they are financial products as well.  

For your consideration, here are some more financial products:

   and   

These products definitely relate to "money matters," particularly the administration of money.

 

Similarly, the change machine is a certainly an "apparatus" for "management" of "money matters."

 

This price computing scale automatically determines the price of a bulk item based on its weight and price per pound.  Pure financial product.  

And finally, arguably the financial product that forever altered the landscape of the modern gas station, and eliminated the first job that many teenage males held:

This apparatus is a financial product in spades.  Not only does it determine the price in real time as you pump the gas, it also conducts the financial transaction with your financial card.  Further, these machines are linked to back-end systems that calculate the remaining inventories of gasoline. And if you are unlucky enough to use one of the fancy new pumps with a display monitor, those devices selectively present advertisements based on your location.  

Moreover, once it's determined that these are financial products eligible for CBM review, it takes only a few steps to find such inventions patent ineligible.  As for the price determination and the payment?  A gas station attendant used to do that by mental steps (back in the day, teenage males could do math in their heads, since they had to). Inventory management was done by accountants with pencils.  And the customized advertisements based on location--that's just like putting ad inserts into newspapers (see the Federal Circuit's recent Intellectual Ventures decision).  All of this is abstract, implemented with conventional computers, and thus utterly ineligible subject matter. 

I do not believe that Congress really intended all these machines and systems, and the methods they implement, to be considered financial products and services. Nor do I think the USPTO, in its expertise, considered these technologies when it crafted the CBM definitions.  The USPTO's commitment to such broad definitions, along with the Federal Circuit's endorsement, will certainly result in patents being invalidated that were never part of the problem Congress was trying to solve.

Patent Claims vs. The Invention's Benefits

On the merits, the Federal Circuit decided that Versata's patent claim was an abstract idea (method of determining a price) and did not claim substantially more than the concept itself (conventional to do all of the claimed steps in a computer; where else?).  The analysis was itself conventional—the Court again relied on the mental steps doctrine that a person could do the calculations by pencil and paper.  At this point I think the Court is willfully ignoring the trenchant analysis of Judge Pfaelzer of the Central District of California who has shown that the "pencil-and-paper analysis can mislead courts into ignoring a key fact: although a computer performs the same math as a human, a human cannot always achieve the same results as a computer."  California Inst. of Tech. v. Hughes Comm'ns Inc.

What's really striking though is the Court's brusque treatment of Versata's argument that its invention improved the performance of the computer system.  Versata presented evidence that its method reduced the number of database tables and run-time queries, leading to improvements in computer performance and ease of maintenance.  The Federal Circuit finessed this evidence:

Versata argues that its claims recite “a specific approach to determining the price of a product on a computer, using hierarchies so as to enable the desired benefit for the computing environment: fewer software tables and searches, leading to improvements in computer performance and ease of maintenance.” Appellant’s Br. at 43– 44. However, all of the parties—including Versata— recognize that these supposed benefits are not recited in the claims at issue.  Versata contends that the benefits are relevant under Genetics Inst., LLC v. Novartis Vaccines & Diagnostics, Inc., 655 F.3d 1291 (Fed. Cir. 2011), but this case is inapposite since it does not concern section 101.

Examination of the claims—as a whole and in terms of each claim’s limitations—reveals that the claims are not directed to improving computer performance and do not recite any such benefit. The claims are directed to price determination and merely use a computer to improve the performance of that determination—not the performance of a computer.

As a general rule, patent claims do not recite benefits; they recite the structure and function that provide the benefits. To be sure, there are circumstances in the biological, therapeutic, and related arts, where claiming a benefit is an acceptable practice, but in the mechanical, electrical, and software arts, claims are focused on the invention's direct features, not the benefits of the invention—those are described, if at all, in the specification. 

A claimed benefit becomes an express limitation, and thus anyone who does not provide the claimed benefit avoids infringement, even if they otherwise copy the structure or method.  If my inventive nutcracker cracks nuts ten times faster than the prior art, I don't claim "…wherein said nutcracking machine cracks nuts at least ten times faster than the cited references," or other hortatory statement.  Similarly, I would not claim this functionally, such as "wherein said nutcracking machine cracks at least 100 nuts per minute."  Either way, I did claim this benefit, then someone can copy the structure, but just adjust the machine so it operates a bit more slowly.  

Benefits are typically not claimed because in most cases the patent examiner will not give them any patentable weight in distinguishing over the prior art--they are excess baggage.  This is because an apparatus claim must distinguish over the structure of the prior art.  "A claim containing a “recitation with respect to the manner in which a claimed apparatus is intended to be employed does not differentiate the claimed apparatus from a prior art apparatus” if the prior art apparatus teaches all the structural limitations of the claim." MPEP 2114 Thus, when every word in a patent claim can and will be used against the patentee in a court of law, claiming benefits is likely to do more harm than good.  When it come to methods (like Versata), claiming a benefit often does little to distinguish over the art.

The Federal Circuit should know this.  Indeed, its rulings suggest prosecutors should avoid reciting objects of the invention and lauding features as superior, lest such objects or features limit the claim construction.  Dismissing Versata's argument without any consideration at all because it did not claim the benefits punishes it for adhering to long-standing practices of claim drafting—practices which the Court itself has molded in precisely this way over the years. 

Further, nothing in Alice, Bilski, Benson, Diehr, or Flook suggests, let alone imposes, a rule that only benefits that are claimed can satisfy the safe harbors of improving the functioning of the computer or improving another technology.  At least the Supreme Court got that right.

In properly dismissing Versata's argument that Section 101 cannot be raised in a CBM, the Court notes:

It would require a hyper-technical adherence to form rather than an understanding of substance to arrive at a conclusion that § 101 is not a ground available to test patents under either the PGR or § 18 processes.

But a hyper-technical adherence to the form of the claim, rather than an understanding of the substance of the invention, is precisely what the Court is doing with its rule requiring benefits to be claimed.  

The Federal Circuit has created a very damaging rule, because it lets the courts disregard any evidence of improvements in technology if the benefits are not claimed--which will be the case 99% of the time (at least in the mechanical, electrical, and software arts). Thus, what the Supreme Court gave with one hand, the Federal Circuit has taken away with a formalist meat cleaver.  

Conclusion

The USPTO has adopted definitions of a covered business method patent that conflict with the underlying context of the patent statute, the rules of English grammar, and the basic logic of how inventions are made.  The Federal Circuit has approved these definitions, without consideration of how they play out in real life.

The CBM definitions should instead be based on the widely accepted definitions of financial products and services.  That would comport with the background of the CBM legislation and a correct reading of the statute.  

When it comes to defining what is technology, that may not be easy, but the USPTO's "way of negation" is simply the wrong approach.   Even starting with a dictionary definition would have been better:

1. the branch of knowledge that deals with the creation and use of technical means and their interrelation with life, society, and the environment, drawing upon such subjects as industrial arts, engineering, applied science, and pure science. 
2. the application of this knowledge for practical ends.
3. the terminology of an art, science, etc.; technical nomenclature.
4. a scientific or industrial process, invention, method, or the like.
5. the sum of the ways in which social groups provide themselves with the material objects of their civilization.

If the standard dictionary was the correct resource for the meaning of financial, why did PTAB and the Federal Circuit ignore it when defining technological?  

 

But I would not stop at the dictionary.  There is an entire literature on technology that can and should be considered.  If nothing else, the USPTO and the Federal Circuit can start with Wikipedia--at least there they will find a history of technology, and explanation and analysis that is missing from the dictionary.  Better yet, they can dive into the philosophy of technology.  Or if philosophy is too messy, they can use the more commercial approach of the United Nations Conference on Trade and Development, which defines technology as the "systematic knowledge for the manufacture of a product, for the application of a process or for the rendering of a service."  (UNCTAD, Transfer of Technology, 2001). This knowledge includes 1) the  technical knowledge on which the end product is based, 2) the organizational capacity to convert the relevant productive inputs into the finished item or service, 3) knowledge or methods that are necessary to carry on or to improve the existing production and distribution of goods and services, 4)  the ability develop entire new products or processes as needed, and 5) entrepreneurial expertise and professional know-how.   

 

If the USPTO and the judges have time to read only one book on technology and the nature of invention, then this is it:  Subrata Dasgupta, Technology and Creativity, (New York: Oxford University Press, 1996).  This is by far the best I've read on the subject.  Dasgupta provides a deeply reasoned analysis of how technology is developed and lays out a theory that explains creative developments--essentially how to identify whether something is a technologically inventive concept.  

#AliceStorm: July is Smoking Hot, Hot, Hot…and Versata is Not, Not, Not

By: Robert R. Sachs

NOTE (July 14, 2015): When I wrote this piece on Sunday, there were only 7 decisions announced through July 10. When I came to work on Monday, there were three more, so I revised and published yesterday with the count at ten.  Now today, two more decision from July 10!

All of the tables have been updated accordingly.

Perhaps I should just wait until tomorrow?

Part I: #AliceStorm and Versata

July invokes images of hot days, cool nights, and fireworks.  When it comes to #Alicestorm, the fireworks are happening in the courts, with the Federal Circuit lighting up the sky.

In just the first ten days of July, there have been ten twelve decisions on patent eligibility—more decisions in first ten days of any month since Alice was decided last year the dawn of time.  At this pace, we could see some twenty to thirty decisions this month.   #AliceStorm is accelerating. 

Here are the numbers by motion type:

Here are the numbers for all the courts, by tribunal:

Finally, here's a summary of the number of Section 101 decisions by the various judges on the Federal Circuit since Alice:

I leave the interpretation of this graph as an exercise for the reader.

Versata: The Federal Circuit is Large and In Charge

While the indices are steady, the recent decisions are very interesting.  Most importantly, there have been two Federal Circuit decisions in July, Versata Development Group v. SAP Am., Inc. and Intellectual Ventures I LLC v. Capital One Bank (USA), both of which found the patents in suit ineligible.  Today, I'll focus on Versata.

Versata was a closely watched appeal since it was the first appeal to the Federal Circuit of a Covered Business Methods review.  The Court covered a lot of ground including 1) whether it could review PTAB's determination that Versata's patent was eligible for CBM review, 2)what is the meaning of "covered business method patent," including whether USPTO's definitions of a "financial product or service" and "technological invention" were correct, 3) what is the appropriate standard for claim construction, broadest reasonable interpretation or one correct construction, and 4) an evaluation of the merits. Briefly, the court decided:

• The Court can review PTAB final decisions, even when they touch upon the same legal issues that lead to the institution decision (which the Federal Circuit does not have authority to review), including whether a patent qualifies as a covered business method patent;
• The USPTO's definitions of covered business method patent (which simply copies the statutory language without any definition at all) are just fine.
• PTAB can use broadest reasonable construction; and
• Versata's patent is for a financial service, not a technological invention and is an ineligible abstract idea.

I'm not going to do an extensive analysis of the Federal Circuit's handling of all these issues.  Essentially, the Federal Circuit is saying: PTAB, keep up the good work of invalidating patents, but just remember, we're still in charge. Instead, I'm going just to highlight some of the issues in the Court's reasoning regarding the definitions of a covered business method patent.

As background, Versata's patent is a way of determining prices where you have a very complex collection of products types and business groups, all overlapping and intersecting. Consider a company like General Motors with dozens of divisions and subsidiaries, hundreds of cars, and millions of parts.  The problem is that conventional systems use multiple database tables to track and compute prices, requiring significant storage and reducing run-time performance.  In a nutshell, Versata used hierarchical data structures representing product and business organizational hierarchies to store and compute product prices.  By using hierarchical data structures, Versata's invention saved memory and resulted in faster run-time performance than existing approaches. 

What Is a Financial Product or Service?

Section 18(d)(1) of the statute that authorizes the CBM review states that a covered business method patent is:

a patent that claims a method or corresponding apparatus for performing data processing or other operations used in the practice, administration, or management of a financial product or service, except that the term does not include patents for technological inventions

The question is what is a financial product or service.  The Court adopted the USPTO's parsing of the phrase into financial and product or service.   In doing so, the Court adopted PTAB's incorrect grammatical parsing of the statute, which looked at the definition of financial apart from products and services.  According to PTAB, “The term financial is an adjective that simply means relating to monetary matters."

Running with this analysis the court concludes:

We agree with the USPTO that, as a matter of statutory construction, the definition of “covered business method patent” is not limited to products and services of only the financial industry, or to patents owned by or directly affecting the activities of financial institutions such as banks and brokerage houses. The plain text of the statutory definition contained in § 18(d)(1)— “performing . . . operations used in the practice, administration, or management of a financial product or service”— on its face covers a wide range of finance-related activities. The statutory definition makes no reference to financial institutions as such, and does not limit itself only to those institutions.

To limit the definition as Versata argues would require reading limitations into the statute that are not there.

This analysis is incorrect. The phrase financial product or service is not just the adjective financial modifying the nouns products and services—it's not like sweet pastries and pies or funny songs and videos or complex issues and problems.  Rather, financial product and financial service are open compound nouns, like high school, cell phone, and half sister.  The meaning of these nouns is not determined by looking at the meaning of the individual words; the entire noun has its own meaning. When you attended high school, you did not go to a school that was "of great vertical extent"; when you speak on your cell phone you're not talking on a telephone made of "the smallest structural and functional unit of an organism."  And when you offer to introduce me to your half sister, I don't ask "Left or right?"

The term financial product means something specific and different from the simple combination of financial and product.  It's important to remember that the Covered Business Method program was pushed by three of the largest financial lobbying groups: the Financial Services Roundtable, the Independent Community of Banks of America, and the Securities Industry and Financial Markets Association. In the financial industry, financial products and services has a specific meaning.  

Consider the following definitions of financial product:

a product that is connected with the way in which you manage and use your money, such as a bank account, a credit card, insurance, etc.
Cambridge Dictionary of Business English

Financial products refer to instruments that help you save, invest, get insurance or get a mortgage. These are issued by various banks, financial institutions, stock brokerages, insurance providers, credit card agencies and government sponsored entities. Financial products are categorised in terms of their type or underlying asset class, volatility, risk and return.
EconomyWatch

Better yet, look at the Australian Treasury's definition:

The overarching definition of financial product will focus on the key attributes of, and functions performed by, financial products. A financial product will be defined as: 

A facility or arrangement through which a person does one or more of the following: 

— Makes a financial investment; 
— Manages a financial risk; 
— Obtains credit; or 
— Obtains or receives a means of payment.

The facility or arrangement may be provided by means of a contract or agreement or a number of contracts or agreements.

The term financial services is equally specific:

Financial services are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit card companies, insurance companies, accountancy companies, consumer finance companies, stock brokerages, investment funds, real estate funds and some government sponsored enterprises.
Wikipedia, "Financial services"

Financial Services is a term used to refer to the services provided by the finance market. Financial Services is also the term used to describe organizations that deal with the management of money. Examples are the Banks, investment banks, insurance companies, credit card companies and stock brokerages.
Streetdictionary.com, "What exactly does financial services mean?"

The USPTO and the Federal Circuit ignored these definitions of financial products and services as used by the very industries that sought protection from abusive business methods patents.  The Court even notes that "It is often said, whether accurate or not, that Congress is presumed to know the background against which it is legislating." Indeed, it did here, but the Court simply chooses to discount both that background and correct English language usage.  

The Court further argues that the statutory definition makes no reference to financial institutions as such, implying that Congress did not intend to limit financial products and services to the financial services industries.  To riff off the logical fallacy---evidence of an absence is not the absence of evidence.  There was no need to mention explicitly the financial industry in the statute because the industry context is built into the terms themselves. Contrary to the Court's final statement, the limitations are already in "the plain text of the statute."  

In short, looking up the Random House definition of the adjective financial apart from financial products and services is like extracting greasy from spoon and concluding that a greasy spoon is an oily small, shallow oval or round bowl on a long handle. 

Whether you are talking business or busing tables, you must interpret words according to the relevant context, the relevant grammar, and the relevant dictionary.  

Deference to the USPTO's Expertise: Only Sometimes

In concluding its analysis of the meaning of a covered business method patent, the Court relies on a deference argument.  In its final paragraph regarding the propriety of USPTO's definition of financial product and services, the Court says:

Furthermore, the expertise of the USPTO entitles the agency to substantial deference in how it defines its mission.  

The overall mission of the USPTO is to issue patents for inventions.  The Ninth Circuit made a similar observation about the Copyright Office. In Garcia v. Google, the Copyright Office refused to register Garcia's five-second appearance in a film. The Ninth Circuit noted "We credit this expert opinion of the Copyright Office—the office charged with administration and enforcement of the copyright laws and registration."  And thus the Ninth Circuit found it appropriate to defer to the office's expertise in deciding copyrightable subject matter.  The parallel could not be more perfect: the USPTO is the office charged with the administration and enforcement of the patent laws and registration.   Likewise, the courts should defer to its expertise as well.

Here, when the USPTO comes up with a definition of technology in its interpretation of Section 18(d)(1) of the patent statute--a very small part of its mission--the Federal Circuit says that the Office is due substantial deference. Yet, when the Office comes up with a definition of Section 101--the section of the statute most fundamental to its mission--and when an examiner implements that definition and determines that a particular claim satisfies Section 101, that definition and that decision is given no deference at all.  

Thus, I find it rather inconsistent of the Court to be deferential the USPTO's definition of technology in a very narrow context, but entirely dismissive of the USPTO's historical expertise in identifying patent eligible subject matter.  When it comes to patents, the USPTO is like Rodney Dangerfield: it gets no respect.

See Part II Versata:  What's Technological and The New Rule Against Improvements

 

#AliceStorm In June: A Deeper Dive into Court Trends, and New Data On Alice inside the USPTO

By: Robert R. Sachs

The most important thing that happened in June was not the invalidation of yet another pile of patents, but the rather more consequential decision of the Supreme Court to recognize the right of same-sex couples to marry.  Unlike patent law issues, when it comes to constitutional law, the Court can recognize the complexity and depth of the issue and, not surprisingly, the Court is deeply divided.  That the Court is unanimous on equally complex and divisive issues in patent law—such as eligibility—speaks to me that they do not have the same deep understanding of the domain. 

Now, let's do the #AliceStorm numbers.  First, the federal courts:

Since my May 28 update, there have been 19 § 101 decisions including two Federal Circuit decisions, Internet Patents Corp. v. Active Network, Inc. and Ariosa Diagnostics, Inc. v. Sequenom, Inc., both holding the challenged patents ineligible.  Overall, the Federal Court index is up 3.1% in decisions and an (un?)healthy 6.2% in patents.  The Motions on Pleading index is holding steady; the last five decisions on § 101 motions to dismiss have found the patents in suit invalid.

We can look more specifically at the invalidity rate by type of motion and tribunal:

  

For example, the 73.1% invalidity rate in the federal courts breaks down into 70.2% (66 of 96) in the district courts and a stunning 92.9% in the Federal Circuit (13 for 14).   Motions on the pleadings and motions to dismiss are running equally, at a 69% defense win rate. 

The 73.7% summary judgment success rate is consistent with the high rate on motions to dismiss. Since the courts have taken the position that there are no relevant facts to patent eligibility and there is no actual presumption of validity in practice, there is now little difference between the underlying showings required for the two types of motions.  That's odd since on the motions to dismiss the court is to look only at the pleadings, while on summary judgment they have the full file history, expert testimony, the inventor's testimony and other evidence before them.  Why such evidence is not helping—and indeed appears to be hurting—patentees is because the court is evaluating it from their lay perspective.  In my opinion, the correct perspective is that of a person of ordinary skill in the art (POSITA).  What a court may consider merely abstract may be easily recognized as a real-world technology by an engineer; a claim term that appears trivial to a court ("lookup table", "isolated") or may be significant to the expert.  

We can also evaluate how individual the various district courts are doing. 

  

(The (-1) values in the bottom five rows indicate that the court held that patent was not invalid).

Of the 66 district court decisions since Alice that have invalidated patents on § 101, Delaware, the Central and Northern Districts of California account for 58% of the decisions.   The most prolific judges are shown here:

Yet, when it comes to finding abstract ideas, the USPTO remains the champ.  The best avenue to attack a patent under § 101 is through the Covered Business Method (CBM) review program.  A challenger files an institution petition before the Patent Trial and Appeal Board (PTAB) arguing that the challenged patent is directed to a financial product or service, and setting forth their ineligibility arguments.  PTAB then issues an institution decision as to whether to grant the petition or not.  The standard at this stage is whether it is more likely than not that the claims are ineligible. Once instituted, there is a full proceeding leading up to a final decision as to whether or not the patent is invalid.

At PTAB, CBM institution decisions are up (19 since May 28), and PTAB leads the race with the courts with an 88.6% invalidity rate on CBM institutions, and an unbeatable 100% rate (unchanged) on CBM final decisions.  

 

 If only the SF Giants could play their game this well. 

 Alice and the Patent Prosecutor

In my previous post, I drilled down in the impact of Alice on prosecution in terms of office action rejections and abandonments.  My dataset was some 300,000 applications for the pre- and post-Alice period prepared for me by the team at Patent Advisor.  Since then, I've received an additional 190,000 samples, comprising all office actions issued by the USPTO in September and October 2014.   Together, the data set has over 490,000 office actions and notices of allowances:

   

The additional data from September and October fill in the trends in § 101 rejections that I showed before.  As I explained, Tech Center 3600 includes more than just business methods, including literally down-to-earth technologies like earth moving and well boring. The § 101 rejections are concentrated in three E-commerce work groups:

 

There is some good news for software.  The computer-related art units, TC 2100 and TC 2400, show considerably lower and steady § 101 rejection rates pre- and post-Alice.   

   

After Alice, I think most software prosecutors expected to get non-final § 101 rejections, and consistent with past practice, expected to overcome them by amendment and argument. That would lead to final rejection based on prior art or an allowance.  And that's generally been true—except in a number of areas. In this following table, I compare the percentage of final office actions with § 101 rejections before and after Alice, in various Tech Centers and within TC 3600.

It's important to remember the obvious: that you don't get to a final rejection on § 101 without a first having a non-final rejection.  Thus, this comparison shows how successful prosecutors were in overcoming non-final § 101 rejections before and after Alice—or equally how aggressive examiners were in maintaining these rejections. For example, before Alice 8.1% of final rejections in TC 1600 included a § 101 rejection, doubling to 16.7% after Alice—thus indicating that examiners were much more likely to maintain the rejection after Alice, but still a relatively low rate overall.  By comparison in TC 2600, the rate of final rejections on § 101 declined after Alice, from 10% to 7.7%.  This could be because it's easier to explain why an invention in more traditional fields is an improvement in technology, one of the Alice safe harbors.

But when it comes to business methods, we see the killer statistics:  prior to Alice, prosecutors overcame the non-final § 101 rejections generally about 62% of the time, leading to final rejection rates in the 23-46% range; thus prosecutors had more or less even odds of getting over the rejection. What is shocking is that after Alice, the final rejection rate soared into the 90% range.  If you felt frustrated that your crafted (or crafty) arguments failed to impress the Examiner, get in line.

Now I've reviewed several hundred post-Alice rejections, and I've talked to a large number of prosecutors.  What I've found is that majority of the non-final § 101 rejections were relatively formalistic, with little actual substantive analysis.  Likewise, in a review of 87 office actions issued in November 2014 with § 101 rejections, Scott Alter and Richard Marsh found that 63 percent of those actions were “boilerplate” rejections.  In my view, most prosecutors put forward at least a decent argument to show that the claims are not abstract, have at least one significant limitation, and do not preempt the abstract idea.   Response arguments  to § 101 rejections tend to run longer than response to prior art rejections, and I've seen many that resemble appeal briefs if not legal treatises, all to overcome a one paragraph rejection.  They all presented at least enough of an argument to overcome the prima facie case for the rejection. And yet the final rejections keep coming—and often with little or no substantive rebuttal of the prosecutor's arguments. 

Outside of business methods, I found only two technology areas that had post-Alice rejection rates in excess of 30%:  Amusement and Education devices in Tech Center 3700 (bottom row above) and molecular biology/bioinformatics/genetics in TC 1600 (not shown).  This is a peculiar side effect of Alice. Historically, games and educational devices are classic fields of invention. There are thousands of patents on games, such as card games, board games, physical games, and the like. What is now hurting these applications are two aberrations in the law of patent eligibility: mental steps and methods of organizing human activity.  The majority of § 101 rejections for games argue that the rules that define a game are simply ways of organizing human activity and can be performed by mental steps.  Examiners typically cite the Federal Circuit's Planet Bingo v. VKGS decision for the proposition that a game is an abstract idea and can be performed mentally.  Only a small problem here: Planet Bingo is non-precedential and thus limited to its facts.  In particular, the court did not hold that the game of bingo was an abstract idea.  Instead, the alleged abstract idea was of “solving a tampering problem and also minimizing other security risks during bingo ticket purchases." Thus, the case cannot be extended by examiners to argue that all games are abstract ideas. 

As to methods of organizing human activity, it cannot be the case that all such methods are ineligible, since a vast array of such methods are in fact patented in fields such as farming, metalworking, sewing, manufacturing, tooling, conveying, and the like.  This is just another example how simplistic rules of patent eligibility, taken out of context from one court opinion and repurposed generally, are at complete odds with the reality of invention.

Here is another view of the final rejection data on § 101, this time organized by the technology groups most negatively impacted by Alice (left side) and most positively impacted (right side).

    

The data here is organized by the percentage change in § 101 final rejection rates post-Alice.  The group on the left is all of the technology areas that have had more than a 10% increase in final § 101 since Alice.  Every other technology work group in the USPTO had less than 10% change in final rejection rates.  On the right, we find the groups that seemed to benefit from Alice, in that the final rejection rates on § 101 declined.  Most of these groups are in the computer area—and I'm sure that many of  their applications have claims for purely software operations that could just as easily be argued to be mere data gathering, mental steps, or fundamental practices. And yet the examiners in these groups do not on average impose such blanket formulations on the claims, but appear overall to treat these inventions for what they are: real technology solving real world problems with real commercial applications.   

To me, the data points to a clear conclusion.  Contrary to what the USPTO's Interim Guidance states as policy--that there is no per se exception for business methods--the behavior of examiners suggests that precisely such an exception is being applied in fact.  

 

Federal Circuit Creates New (non-Alice) Hurdle for Software Patents

By: Stuart P. Meyer

In the wake of last year’s Supreme Court decision in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014), dozens of courts have declared scores of patents to be invalid as not satisfying the requirements of §101 of the patent statute. The Federal Circuit recently issued a decision that provides the same result but does not rely on the Alice standard and may have a significant and lasting impact on patents for software-related inventions. Allvoice Devs. US, LLC v. Microsoft Corp., No. 2014-1258, 2015 U.S. App. LEXIS 8476 (Fed. Cir. May 22, 2015). In Allvoice, the Federal Circuit declared a patent’s claims to be invalid because it simply found them not to be directed to one of the four statutory categories of inventions identified in §101.

The Alice case and its progeny have all relied on certain judicially created exceptions to §101, stating that inventions are not of a patentable type if, for instance, they encompass an abstract idea. Various tests evolved over the past few years, culminating in Alice, to determine whether the claims of a patent fall into one of these judicially created exceptions. In Allvoice, the Federal Circuit took a very different approach.

Judge O’Malley, writing an opinion for a unanimous panel including Judges Prost and Dyk, took a strictly literal reading of §101 and said that if a patent claim does not recite an invention that matches one of the four categories recited therein (i.e., a “process, machine, manufacture, or composition of matter”), it is invalid.

For context, the patent at issue is U.S. Patent No. 5,799,273, which carries the somewhat awkward title, “Automated proofreading using interface linking recognized words to their audio data while text is being changed.” The patent has 78 claims. Independent claims 1, 52, 69, and 75 are directed to “data processing apparatus.” Independent claims 15 and 54 are directed to “a data processing arrangement.” Independent claims 28, 56, 71, and 77 are styled as “a data processing method,” while independent claims 40 and 58 begin, “a method of processing data.” Independent claims 51 and 73 are directed to “a computer usable medium having computer readable instructions.” Independent claims 60 and 64 recite “a universal speech-recognition interface.”

It is the last of these that the Federal Circuit considered to be outside the ambit of §101. The court began its analysis by stating that, “except for process claims, the eligible subject matter must exist in some physical or tangible form.” (quoting Digitech Image Techs., LLC v. Elecs. for Imaging, Inc., 758 F.3d 1344, 1348 (Fed. Cir. 2014)). Diving deeper, the court quoted other passages from Digitech, with citations back to the mid-1800s, for the notion that manufactures and compositions of matter must be tangible.

In contrast, the Allvoice court held that claims 60 and 64 (and their dependents) “do not recite a process or tangible or physical object and, thus, do not fall within any of the categories of eligible subject matter.” The court noted that Allvoice had, at the district court level, argued that the claims were limited to software, but before the Federal Circuit, argued that the claimed interfaces are software instructions. The Federal Circuit held that unless a process is claimed, “the subject matter must exist in tangible form. Here, the disputed claims merely claim software instructions without any hardware limitations.”

Closer review of the claims calls this conclusion into question. The claims recite interfaces that comprise three elements: “input means for receiving speech-recognition data,” “output means for outputting the recognized words,” and “means… for determining positions of the recognised words.” The Federal Circuit relegated to a footnote any recognition that this claim form might benefit from the functional claim provisions of §112(6) of the patent statute and essentially ignored that issue based on an assertion that, “the means-plus-function limitations, as construed by Allvoice, do not correspond to tangible structure.”

Thus, the court appears to have simply looked to what it saw as a flawed argument by Allvoice, rather than independently reviewing the specification to determine proper means-plus-function determination of these claim elements. Such an approach seems particularly harsh, placing undue emphasis on lawyering skills as opposed to the court’s independent review of the patent. In this instance, figure 2 of the patent “illustrates a schematic overview of the internal architecture of the computer” and shows the speech recognition interface as being part of a processor of that computer. See ’273 patent at column 5, lines 37 – 44. More generally, the patent includes several system block diagrams and corresponding flow charts describing at several levels the tangible structures that correspond to the elements of the claimed interface. For reasons that are not explained in the opinion, though one might surmise conservation of judicial resources, the Federal Circuit chose not to independently undertake analysis of the patent but instead to allow these claims to fail due to the way that the patent owner’s counsel characterized them in litigation.

Notably, the Allvoice opinion is marked “NOTE: This disposition is nonprecedential.” Under old Federal Circuit rules, nonprecedential opinions could not be cited by parties to later cases in briefs and the like, but this has not been the case since 2007. Current Federal Circuit Rule 32.1 says that a panel of the court can designate an opinion as nonprecedential, but that no longer prevents parties from citing to it or prevents the court from looking to it “for guidance or persuasive reasoning.” In addition, not just parties but “any person” is afforded 60 days after issuance of a nonprecedential opinion or order to request that it be reissued as precedential.

What is particularly concerning in this instance is that other courts may adopt the approach in Allvoice as a convenient proxy for invalidating patents — one that may be even easier to apply than the Alice test. It would be incorrect to look at a claim that begins “an interface comprising” and invalidate such a claim merely because an interface is not necessarily a process, machine, manufacture, or composition of matter.

Practitioners would be wise to take note of this decision in framing claims as well. Constructs that have been commonplace for years may now be suspect if the Allvoice approach begins to be used by courts in other cases. Particularly in the case of software-implemented inventions, but also in other circumstances, patent lawyers may want to clarify both the nature of the interfaces, engines, systems and the like in their claims both to clearly show the tangible aspect of these and to tie them as directly as possible to the specific statutory categories.

One important aspect of §101 that the Allvoice court did not appear to consider is that §101 is not, by its own terms, limited to the four categories recited above. The actual text of the statute reads, “process, machine, manufacture or composition of matter, or any new and useful improvement thereof.” It does not follow that an improvement to a machine must itself be a machine, for instance. For example, a machine can be improved by adjusting it in a particular way. More specifically, a computing machine may be improved by programming it in a particular way. That Congress intended §101 to be broadly rather than narrowly interpreted is settled law, so ignoring or strictly limiting the “improvement” language in §101 would be difficult to square with dozens of Federal Circuit and Supreme Court decisions.

It may be that courts and the Patent and Trademark Office itself are enjoying the convenience of invalidating patents and rejecting patent applications based on simplistic analysis of what qualifies as patentable subject matter. It may be that such approaches provide a quick and inexpensive way to dispose of poorly written claims and overly aggressive patent plaintiffs. However, there is great danger in such an approach as well, since such shortcuts can lead to invalidation of patent claims that do not deserve such a fate. Patent law is not easy, and we must be careful not to jump to anything that seems like too simple a solution. As always, we will see how the situation develops and report further.