Software Patents Are Increasingly Coming Under Fire In Court

Editor’s note: Sid Venkatesan is an intellectual property partner in the Silicon Valley office of Orrick, Herrington & Sutcliffe LLP. Sid helps maintain the Norcal IP blog, which covers patent litigation in the San Francisco and Silicon Valley.

Last summer, the United States Supreme Court issued a decision in Alice Corporation v. CLS Bank International in which it directed lower courts to scrutinize computer-implemented abstract methods very closely. Alice’s impact was unclear at the time the decision was issued, but lower courts have since relied on the Supreme Court’s opinion to invalidate a number of software patents in the eight months since the decision.

This legal trend has altered the cost benefit analysis for companies that are seeking software patent protection, enforcing their existing patents, or defending themselves in litigation.

Alice v. CLS Bank

Alice did not take place in a vacuum. In 2012, Congress listened to some criticisms of certain types of “business methods” by limiting patents on tax strategies and implementing a Covered Business Method review process that makes it easier for a challenger to invalidate a patent claiming certain “financial products or services” as part of the America Invents Act.

Moreover, the Supreme Court has shown a renewed interest in recent years in answering the question: What is patentable? under the United States Patent Act, including in the 2009 decision in Bilski v. Kappos, the 2012 decision in Mayo Collaborative Services v. Prometheus, and the 2013 Association for Molecular Pathology v. Myriad Genetics.

Mayo, which rejected patents dealing with a technique of measuring a metabolized drug in a human body as an “abstract concept,” was particularly influential in the Alice decision.

In Alice, a unanimous Supreme Court invalidated a software patent that related to a computer-implemented method that would help ensure that two financial institutions involved in multiple trades could settle up their accounts on a daily basis. Because Alice involved a computer-implemented method to a financial process, it implicated two hot-button patent policy issues: the ongoing debate over the extent to which business-method patents should be viable under U.S. patent law and how much protection software patents should receive under U.S. patent law.

The Alice Court did not answer either question squarely. Instead, the Supreme Court reiterated that patents on “abstract ideas” are invalid under Section 101 the Patent Act and applied a two-part legal test advanced in Mayo to the computer-implemented process at issue. This two-part test – which looks to whether a patent claim is directed to an abstract idea and, if so, whether it includes inventive features (e.g. novel technology) – meant that courts would be analyzing future software and business-method patents on a patent-by-patent basis. Thus, at the time, commentators were unsure about what the impact of Alice would be.

Software Patents Greeted With a Frosty Reception Post-Alice

Federal trial courts and the Federal Circuit (the court that handles patent appeals) decisions since Alice have invalidated many patents using the two-part Section 101 test applied in Alice. For example, the Federal Circuit invalidated a patent dealing with the storage of device-specific profiles, a patent on a system that provided online purchase guarantees, and a patent involving an online system of delivering content with embedded ads in quick succession.

That being said, it has not been a clean sweep against software patents, as the Federal Circuit has also upheld a patent claiming a method of creating a composite webpage using third-party product information within a host website.

Numerous trial courts have also invalidated software patents, including a number here in the Silicon Valley area. Many of these decisions have been made “on the pleadings,” i.e. in the very early stages of a case, meaning that Section 101 is being used early on by patent defendants to try to avoid the costs of a long and drawn out patent case. In fact, in the first four months following the Alice decision, one commentator concluded that courts invalidated patents in 15 out of 20 decisions involving Section 101 challenges.

In addition, the United States Patent & Trademark Office appears to have a greater appetite for hearing Section 101 challenges using the Covered Business Method review proceeding created as part of the AIA. The USPTO has also issued guidelines for its patent examiners to use in evaluating patent applications before they become patents that embody some parts of the recent run of restrictive court cases.

While examination decisions are less public than court rulings, it is a safe bet that companies will face greater resistance in obtaining broad software patents (particularly those in the e-commerce space) from the USPTO than before.

The Future of Software Patents

Alice and the cases that have followed it have already had an impact on many software patent cases. This case law is sure to have a ripple effect that will cause patent plaintiffs to think twice about asserting a software patent before suing, and will get many companies with existing software patent portfolios to take a closer look at their existing patents to see if they have become less enforceable (and hence, less valuable) than before.

Companies looking to file new patents will have to think critically about whether their inventions will pass the “abstract idea” test and should prepare themselves for more aggressive push-back from the USPTO on software patents. Thus, no matter where you sit, it is time to take stock of what you have and where your IP roadmap is headed.

With the Supreme Court continuing to hear new patent cases, and with a Republican Congress considering a revival of patent troll legislation, we can expect further adjustments to the patent system in the years ahead.