What will happen next with the Supreme Court case of CLS v Alice (software and business method patents)

In this blog I will try to review what has happened thus far in the CLS v Alice case, which deals with software and business method patents.  And I will talk about what the Supreme Court is likely to say when it decides this case next month.  Finally I will discuss the likely effect of the upcoming Supreme Court decision on the tens of thousands of already-issued software and business method patents.

First a bit of background.  What exactly is a “software patent”?  What exactly is a “business method patent”? I get it that there are people who feel very strongly that nobody should be able to obtain a “software patent” and I get it that there are people who feel very strongly that nobody should be able to obtain a “business method patent”.  Many of those people, when pressed, have difficulty actually providing a definition of either term, but will still say that “they know it when they see it”.

And I get it that on at least a few occasions the USPTO has slipped up and granted patents on things that most people would say should not be deserving of a patent.  Using a laser pointer to exercise a catSwinging to the left and right on a playground swing rather than forward and back.

The thing is that the only way you know whether something is or is not deserving of a patent is by looking at the claim itself.  It does no good to talk generally of what some patent application “relates to”.  It does no good to do a text analysis to see how often the word “software” appears in the specification.  You have to look at a particular claim.

Here are two hypothetical claims for discussion:

1.  A method comprising the steps of:

– displaying fresh bananas to prospective customers;

– learning from a prospective customer that he or she wishes to purchase some of the fresh bananas;  and

– selling the fresh bananas to the customer;

wherein the improvement comprises carrying out the displaying, learning, and selling steps by means of the internet.

2.  A method comprising the steps of:

– displaying fresh bananas to prospective customers;

– learning from a prospective customer that he or she wishes to purchase some of the fresh bananas;  and

– selling the fresh bananas to the customer;

wherein the improvement comprises carrying out the displaying, learning, and selling steps by means of a general purpose computer running software that brings about the displaying, learning, and selling.

If someone were to file a patent application containing one of these claims (and containing an enabling disclosure and disclosing the best mode), should the Examiner allow the claim?  I think most people would say “no”, the Examiner should not allow the claim.

But the subtle and important question is, why exactly should the Examiner not allow this claim?

I think the right answer is that the Examiner should reject this claim based upon application of either 35 USC § 102 or 35 USC § 103.  If, for example, the Examiner is able to find that someone already sold fresh bananas on the internet before the filing date of the patent application, then the Examiner would cite the proof of this prior activity and reject the claim as anticipated under 35 USC § 102.

But suppose this application had been filed in the infancy of the internet, say in about 1993.  It might be that in 1993 nobody had actually ever sold fresh bananas on the internet.  If so, then the Examiner would not then have been able to reject this claim under 35 USC § 102.  Instead, in my view the right way for the Examiner to proceed in 1993 would have been to find proof that people had sold fresh bananas generally (the displaying, learning, and selling steps).  With a citation to that proof, the Examiner could then have said “it is obvious to do on the internet the same thing that people have done for many years without the internet”.  The Examiner would have rejected the claim as obvious under 35 USC § 103.

The year is now 2014 and the perception of some critics is that USPTO has granted patents that are like this “fresh bananas on the internet” claim.  And that USPTO has granted patents that are like this “fresh bananas sold by means of a general purpose computer running particular banana-related software”.  Patents that take something that everybody knows and puts it on the internet or accomplishes it with a computer.

Taking some real-life examples, look at the recent PTAB case CRS v Frontline.  I have blogged about this PTAB decision.  (Note that “CRS” is not the same as “CLS”.)  The patent in this case contained a claim that was along the lines of “keeping track of instances of an employee calling in sick and finding someone to fill their position for the day while they are out sick, and doing it with the help of a computer running appropriate software”.  (Please understand I am not quoting from the claim or from the patent, I am trying to summarize the chief issue presented in the case.)  This process of finding someone to fill in for an employee who had called in sick was referred to in the opinion as “substitute fulfillment”.

Should USPTO have granted this patent?  Maybe not.  CRS filed a “covered business method” proceeding to try to destroy this patent.  The PTAB obliged.

What reason did the PTAB give for doing what CRS asked?  The PTAB said:

The claims are directed to concepts for taking the preexisting process of substitute fulfillment and implementing it in a networked computing environment.

Note the use of the word “preexisting”.  So would anyone like to guess what the PTAB said next?  Maybe this is what they said:

The petitioner cited a reference showing that “substitute fulfillment” was in the prior art as of the filing date of the subject patent application.  This reference was unfortunately not before the Examiner during the examination of the patent application.  We hold that merely implementing substitute fulfillment in a networked computer environment would have been obvious in view of the cited reference.  The patent is invalid for obviousness under 35 USC § 103.

No, that is not what the PTAB said next.  What the PTAB said next was that you can tell by looking at this patent that it is the sort of thing that ought never to have been “eligible” for patent protection.  The PTAB said that the patent was invalid under 35 USC § 101.

What does 35 USC § 101 say?

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

Section 101 has always been a sort of gatekeeper, rendering some things ineligible for patent protection because they are not a process or machine or manufacture or composition of matter.  For decades the usual examples of non-patent-eligible subject matter have been:

  • laws of nature;
  • physical phenomena;  and
  • abstract ideas.

For a patent examiner examining a patent application, the usual approach has been to start with an initial screen as to whether Section 101 is satisfied.  Is the application trying to claim a law of nature?  If so, kick it out as non-patent-eligible subject matter.  Is it trying to claim a physical phenomenon?  If so, kick it out as non-patent-eligible subject matter.  Is it trying to claim an abstract idea?  If so, kick it out as non-patent-eligible subject matter.  Then if the patent application passes this initial screen, the Examiner proceeds to the more normal questions like whether the claimed invention is novel or not when compared with the prior art, and whether the claimed invention is obvious or not when compared with the prior art.

But of course examination for novelty and obviousness is real work.  The Examiner has to establish what is in the prior art, for example.  Only after establishing what is in the prior art can the Examiner arrive at a determination of whether the claimed invention is novel.  Only after establishing what is in the prior art can the Examiner arrive at a determination of whether the claimed invention is obvious.

Working out whether something is novel and unobvious is hard work not only for Examiners but is also hard work for critics of the patent system who see software patents and business method patents that they think should not have been granted.   Likewise it is hard work for a PTAB that is asked to destroy a patent such as the patent in the CRS case.  And it is hard work for the litigant in court that seeks to invalidate a patent in court.

All of which helps us to see why it is that some people have urged the use of 35 USC § 101 to try to invalidate software patents and business method patents.  Section 101 is very handy for this purpose.  For one thing, you get to skip the pesky business of finding and citing the actual prior art that would be needed to support a 102 or 103 attack.  You can just state that this is not the sort of thing that is supposed to be eligible for patent protection under section 101.

And for those who feel that “software should not be patentable at all” or who feel that “business methods should not be patentable at all”, Section 101 is just the ticket.  If Section 101 can be interpreted so as to block categorically any and all patent applications directed to software and business methods, then their work is done.

The CLS case now before the Supreme Court came to the Supreme Court from the Federal Circuit. Stating things in an oversimplified way, the CLS patent claimed the notion of managing the risk that one party or the other in a financial agreement might turn out not to be able to fulfill its obligations, using a computer.  The Federal Circuit said the patent should not have been granted (which many would say is the right outcome) but said this was because of Section 101, not Section 102 or 103.  One of the opinions articulated a “genuine human contribution” test that would be applied to work out whether a given patent claim was directed to patent-eligible subject matter under Section 101.

The stakes are high.  One reason the stakes are high is that depending on how you count them, the number of at-risk granted patents is probably somewhere in the tens of thousands.  A Supreme-Court-sanctioned interpretation of Section 101 that categorically ruled out patents on (nonetheless novel and unobvious) software-related inventions or business-method-related inventions would at a stroke invalidate tens of thousands of patents.  (For those oppose these kinds of patents, this result at the Supreme Court would of course be cause for celebration.)

A second reason the stakes are high is that in today’s world, much that is inventive is accomplished at least partly through use of cleverly written computer software.  Many high-tech startups and larger companies that rely upon the patent system for their survival would be far worse off if Section 101 were interpreted by the Supreme Court in such a way that the software or business method content of a patent application (regardless of the novelty and unobviousness thereof) would render the invention ineligible for patent protection.

The Federal Circuit decision was, charitably put, a disaster.  Here is how AIPLA put it in its amicus brief to the Supreme Court:

Unfortunately, after more than 30 years of jurisprudence, cases involving “algorithms” implemented on a computer have not provided certainty or predictability as to subject matter eligibility. Nowhere perhaps is this morass more starkly evident than in the Federal Circuit’s CLS Bank decision, where the only agreement that the en banc court could muster was in a one-paragraph per curiam decision stating the result of the case, accompanied by seven different additional opinions. None of the authors of those opinions found a rationale to attract a majority, although each thought that he or she was correctly applying this Court’s precedent.

The CLS case in the Supreme Court was fully briefed some months ago and oral arguments took place a few weeks ago.  A decision from the Supreme Court is expected in June of 2014.

What will the Supreme Court do?  Well of course one cannot predict this with certainty.  Broadly speaking I suppose the Supreme Court will do one of the following:

  • Encourage and affirm the use of Section 101 as a general way of preventing and invalidating software- and business-method-related patents, articulating some test by which you can know whether a patent application (regardless of whether it is novel and unobvious) is or is not a “software patent” application or a “business method” patent application and thus whether it is patent-eligible under Section 101.
  • Construe Section 101 more narrowly, limiting the scope of non-eligible subject matter to the long-standing categories of laws of nature, physical phenomena, and abstract ideas, and instructing the USPTO and the courts that mere software or business method content in a patent application does not permit one to skip over sections 102 and 103 when deciding whether to grant a patent.

If the Supreme Court picks the first approach, the consequences are clear.  Tens of thousands of granted patents will face easy invalidation in court and in PTAB proceedings.  Startups and larger companies with novel and unobvious inventions that happen to contain software or a business method will find it difficult or impossible to get patents on their inventions.  This will cause for celebration among those who feel that such patents should not be granted and should never have been granted.

If the Supreme Court picks the second approach, the consequences are also clear.  The focus within the patent office and in litigation will shift toward the work of evaluating the novelty and unobviousness of patent applications and patents.  This will, in my view, promote science and the useful arts.

2 thoughts on “What will happen next with the Supreme Court case of CLS v Alice (software and business method patents)

  1. The second approach is also much closer to the European system, with the EPO practically always evaluating the inventiveness of computer-implemented inventions. In what regards harmonization, that would be a good approach.

  2. I agree that the 101 standard becomes almost impossible to formulate when you are trying to use it for 103 purposes. I have read formulations (including in the Supreme Court oral arguments transcript) that describe a shifting scale of 101, where technologies that are new are more likely to represent statutory subject matter than technologies that are well-developed and widely relied-upon. In other words, eerily similar to the ordinary skill in the art standard used for 103.

    I have to take issue, however, with Carl’s reference to “Many high-tech startups and larger companies that rely upon the patent system for their survival.” I am not aware of any that rely on the patent system for their survival. There may be some, but I would believe they are few and far between. In my experience, most high-tech companies engage in the patent system simply to head off extortion over their own independent inventive work, and not to protect their ideas from copyists. As far as I am aware, all of the successful internet startups have achieved success not because of the patent system but in spite of it.

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