“BUSINESS METHODS” AND PATENT ELIGIBILITY AFTER ALICE

The 1952 Patent Act set up four statutory classes of subject matter for which a United States patent might be granted: processes, machines, articles of manufacture and compositions.[i] This statute was enacted when the country was in the Industrial Age rather than the Information Age.  Computers were in their infancy, and the Internet was unknown.  Patents were granted for purely physical things, or for processes for using, making or transforming such things.  For the expression of ideas, one had the Copyright Act.  For ideas themselves, there was (and remains) no statutory protection.   And no thought at all was given to protecting, as valuable innovation, machines which could emulate processes previously performed only by the human mind.

Since then, the general-purpose, programmable digital computer has become a commonplace in our universe, as have smartphones, tablets and other specific-purpose electronic devices with enhanced processing functionality.  Computer-related innovations have exploded in number and importance.  But the patent law largely has been left behind.

In 2011, Congress passed the “America Invents Act” (AIA).[ii]  The AIA revised the 1952 patent statute in many ways, but did not touch the statutory definition of patentable subject matter.  Congress did express some hostility to so-called “business method” patents by creating a special “transitional post-grant review proceeding”[iii], before a newly created USPTO Patent Trial and Appeal Board.  Otherwise, Congress has declined to address how and whether computer-related inventions should be protected by patent law.  The Federal Judiciary therefore has done so.

Over about the last forty years, the federal courts have gone through an oscillation from hostility to computer-related inventions, to tolerance, to approval, and now back to hostility again, the last grounded on a conviction that patenting emulations of human mental activity by intelligent machines somehow equates to the patenting of abstract ideas, which should instead remain patent-ineligible and in the public domain.  In Parker v. Flook[iv], the Supreme Court examined the patent eligibility of an algorithm that updated alarm limits in the catalytic chemical conversion of hydrocarbons.  The Court held that if a claim is directed essentially at a method of calculating, using a mathematical formula, even if the solution is for a specific purpose [here, updating the alarm limit], the claimed method is nonstatutory.[v].  But in Diamond v. Diehr[vi], the Supreme Court upheld the patentability of a software-related invention that produced a tangible result – the opening of a mold at the end of a calculated cure time.  Federal jurisprudence from that point on grew more liberal with respect to software-related inventions.  One of the more liberal interpretations of what constitutes statutory subject matter can be found in State Street Bank & Trust Co. v. Signature Financial Group Inc.[vii]  In this case, the Court of Appeals for the Federal Circuit ruled that a patent directed to a hub-and-spoke mutual fund investment system constituted subject matter protectable by the patent laws.

Since then, there has been a substantial walk-back on the question of whether computer-implemented “business methods” are patentable.  It is doubtful whether the claims at issue in State Street would now be regarded as patent-eligible.   A pair of Supreme Court cases now controls the analysis of what constitutes statutory subject matter: Mayo Collaborative Services v. Prometheus Laboratories, Inc.[viii] and Alice Corporation Pty. Ltd. v. CLS Bank International.[ix]  Starting from the long-held judicial exception that abstract ideas are not patentable, the court determines whether a particular patent claim “is directed to” a patent-ineligible concept.  If it does, the court next asks what else the claim requires.  It searches for additional claim elements that may transform the nature of the claim from a patent-ineligible abstract idea to a patent-eligible application of that abstract idea.  To be patent-eligible, the claim must include an element or combination of elements that in practice amount to “significantly more” than the patent-ineligible concept itself.

The Supreme Court has made it very clear that the mere introduction of a general-purpose digital computer (or smartphone, or other intelligent device) into a claim that otherwise is directed to an abstract idea will not save it from patent ineligibility.  Simply implementing a mathematical principle on a physical machine, namely a computer, is not a patentable application of an unpatentable principle.  If the claim in question no more than instructs that the abstract idea be implemented on a computer, it will be held to be patent-ineligible.

For a while, a patent draftsman could turn a patent-ineligible business method into a patent-eligible invention by paying attention to how the claim was drafted:  a programmed general-purpose digital computer had been held to be patentably different from an unprogrammed one[x], and a machine-readable medium containing a computer-executable algorithm[xi] could often be patented in cases where the algorithm itself could not.  Those days are gone.  Alice instructs that its two-part test for patent eligibility should be applied to all claims regardless of format.

Mayo and Alice have thus rung down the curtain on obtaining or enforcing patents that merely recite automating a “business method”, or other abstract idea such as a fundamental economic practice, certain methods of organizing human activities, an idea of itself, and mathematical relationships and formulas.  Claims only reciting the gathering, compilation, recombination, recalculation, re-display and/or outbound transmission of text or data by a digital computer are not likely to be met with favor with the USPTO or by courts tasked with adjudicating any such claims that have issued in the past.

But if the claim in question has “significantly more”, it may be patent eligible.  A statutory claim may, for example, recite improvements to another technology or technical field, improvements to the functioning of the computer itself, or have other meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.[xii]   It therefore is important for an inventor to consider whether his or her computer-related or “business method” invention is patent-eligible, in addition to being novel and nonobvious, before substantial sums are spent in attempting to obtain a patent on it, or in asserting one which has been previously issued.

[i] Patent Act, 35 U.S.C. § 101.

[ii] America Invents Act, Pub. L. 112-29 (Sept. 16, 2011) (hereinafter, “AIA”).

[iii] AIA § 18.

[iv] 437 U.S. 584, 98 S.Ct. 2522, 57 L.Ed.2d 451 (1976).

[v] Parker v. Flook, 98 S.Ct. at 2528, quoting In re Richman, 563 F.2d 1026, 1030 (C.C.P.A. 1977).

[vi] 450 U.S. 175 (1981)

[vii] 149 F.3d 1368 (Fed. Cir. 1998).

[viii] 132 S.Ct. 1289 (2012).

[ix] 134 S.Ct. 2347 (2014).

[x] In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994).

[xi] In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995).

[xii] Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al., (Commr. Pats. June 25, 2014.)