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Patents have long been a key component of the innovation engine driving the most dynamic sectors of our economy. But in 2014, the U.S. Supreme Court in a landmark patent case (Alice Corp. v. CLS Bank International) threw a wrench into the innovation engine.

At the time it was issued, the decision prompted many legal experts to predict chaos at the U.S. Patent and Trademark Office (USPTO) and to conclude that inventions in some technology sectors, including e-commerce and fin-tech, might be largely excluded from patent protection. Unfortunately, that is exactly what has happened. Post-Alice, the rejection rate for new payment technologies, for example, went above 90 percent.

The Alice decision also threatens existing patents. An analysis of Yahoo’s patent portfolio—previously touted as among the company’s most valuable assets—published in July by Seattle-based TurboPatent concluded most of the firm’s patents might not meet the tests established under Alice.

Without the ability to protect intellectual property, innovators are less likely to obtain the investment capital needed to fund the development of new products and services. And, without such innovation, we risk stalling the engine driving much of our economy.

Now, after two years of uncertainty, there is cause for hope. A patent issued August 30 to Cleveland-based CardinalCommerce looks to be a critical turning point—one that shows the way forward for securing software patents in a post-Alice world.

Understanding Alice

In the Alice decision, the Supreme Court found that an invention for facilitating financial transactions was patent ineligible because it was merely an abstract idea conventionally implemented on a computer. But the court failed to provide a definition of what it meant by “abstract idea.” Since the facts of the case were directed to a software-based business method, what software-based business methods could be patent eligible, and what were not, was suddenly very unclear.

The Patent Office was in the same predicament as the inventors and their patent attorneys. Having no definition for the concept of an “abstract idea,” the Patent Office seemed to be leaning in the early days after the decision to broadly applying and maintaining the rejection, to avoid mistakenly granting patents for patent ineligible subject matter.

The Alice decision set up a two-step process to determine whether an invention is something that can be patented. First, it must be determined if there is an abstract idea being claimed by the patent. Next, we have to see if “something extra” has been added to the abstract idea that embodies an “inventive concept.”

To say that interpreting these requirements has been complicated and has caused substantial confusion is to wholly understate the scope of the challenge. It sounds simple to differentiate an abstract idea from a concrete one, but try it. Is an adder abstract or concrete? It sounds abstract but most technologists would say it is was a very concrete piece of hardware. Examined in this light, most people quickly come to the conclusion that there is a spectrum on which ideas fall. Some ideas feel much more concrete than others, but a bright line does not exist.

The Story of Cardinal’s Patent

CardinalCommerce has been in the business of authenticating online credit card payments since the early days of e-commerce and has been a pioneer in technologies that enable authentication of online transactions, increasing sales, eliminating fraud and false positives. With over 64 patents, Cardinal’s intellectual property portfolio reflects a rich history of continuous invention and significant experience working with patent authorities globally.

Key to securing the patent issued August 30 was to detail how the technology worked and why it was important. In this case, Cardinal allows retailers to bundle groups of authentications into lighter-weight processes when the transactions match specific criteria, decreasing the load on e-commerce servers and allowing more transactions to be authenticated more quickly. As e-commerce expands, this becomes particularly important during surges in online buying, such as the Christmas holidays.

Alice was particularly painful for this patent application because the USPTO had already allowed the patent. Then, the Alice decision came down, and the allowed application was pulled back. What followed was two years of communications with the Patent Office as Cardinal and the patent examiners struggled to interpret the Alice decision. Pat Roche, a partner at Fay Sharpe and the patent attorney responsible for prosecuting the patent application, explains it this way: “The examiner knew that Cardinal had an invention, but the challenge was in making that clear under Alice.”

Cardinal filed an appeal with the Patent Office. An appeal may signal that the inventor and the PTO fundamentally disagree, but post-Alice, the appeal process can serve to help both sides. The Patent examiner can use the process to better understand the reasons why an applicant believes a patent should be allowed. In the case of Cardinal’s invention, the appeal process eventually lead to the granting of the patent.

Five Things Tech Companies Should Do Post-Alice

What we learned in securing the patent for Cardinal’s innovation—one of the few payment-technologies patents issued since Alice—can help other technologies companies to secure patent protection. Here are five tips:

1. File the appeal. Appeals are time consuming and expensive, but may be necessary. The appeal causes an increased attention by the PTO on the important reasons why your invention should be allowed. Think of the appeal as more of an education process between the PTO and you.

2. Triage any patent applications that have been rejected more than twice because of Alice. Your patent counsel can tell you which applications are candidates for review. Break the applications into categories: continued prosecution, appeal, and abandon. Yes, you likely will want to abandon some patents if the odds of achieving success are very limited.

3. Instruct your patent counsel to prepare more in-depth patent applications, including more technical discussions around implementation.

4. Prepare to have your inventors speak directly to the USPTO. The inventors are often the most successful at conveying the importance of their inventions. This is not lost on the patent examiners and will help convey that their inventions are more than the abstract ideas, which will likely be rejected under Alice.

5. Diversify your international patent filings to include China and Europe. Patents in those countries may be valuable if you cannot get a U.S. patent. Also, the requirements in those jurisdictions have historically been tougher than in the United States, so preparing a patent application for those countries will help you with your U.S. patent application.

Where We Go From Here

Alice has created new challenges for securing patents for innovations in software and business methods. Still, there is hope. The recent grant of patent number US 9,430,769 B2 to CardinalCommerce clearly demonstrates patent applications for new software inventions can be successful. Be prepared to spend more time with your patent attorneys working on deeper and more compelling arguments for allowance.

I expect that over the next year we will see a significant increase in the number of software and business method patents issued, not to the same levels as in the past, but a significant increase nonetheless. With proper tuning we can get our innovation engine running a bit more smoothly, in spite of the wrench that is Alice.

 

Kent Richardson is a partner at the Richardson Oliver Law Group and counsels clients on a variety of patent and business strategy matters including patent buying, selling, licensing, valuation, financial models, and prosecution. His past experience includes executive roles at Rambus, Sezmi, and Numerical Technologies. Kent provides legal counsel to CardinalCommerce.

 

Patents have long been a key component of the innovation engine driving the most dynamic sectors of our economy. But in 2014, the U.S. Supreme Court in a landmark patent case (Alice Corp. v. CLS Bank International) threw a wrench into the innovation engine.

At the time it was issued, the decision prompted many legal experts to predict chaos at the U.S. Patent and Trademark Office (USPTO) and to conclude that inventions in some technology sectors, including e-commerce and fin-tech, might be largely excluded from patent protection. Unfortunately, that is exactly what has happened. Post-Alice, the rejection rate for new payment technologies, for example, went above 90 percent.

The Alice decision also threatens existing patents. An analysis of Yahoo’s patent portfolio—previously touted as among the company’s most valuable assets—published in July by Seattle-based TurboPatent concluded most of the firm’s patents might not meet the tests established under Alice.

Without the ability to protect intellectual property, innovators are less likely to obtain the investment capital needed to fund the development of new products and services. And, without such innovation, we risk stalling the engine driving much of our economy.

Now, after two years of uncertainty, there is cause for hope. A patent issued August 30 to Cleveland-based CardinalCommerce looks to be a critical turning point—one that shows the way forward for securing software patents in a post-Alice world.

Understanding Alice

In the Alice decision, the Supreme Court found that an invention for facilitating financial transactions was patent ineligible because it was merely an abstract idea conventionally implemented on a computer. But the court failed to provide a definition of what it meant by “abstract idea.” Since the facts of the case were directed to a software-based business method, what software-based business methods could be patent eligible, and what were not, was suddenly very unclear.

The Patent Office was in the same predicament as the inventors and their patent attorneys. Having no definition for the concept of an “abstract idea,” the Patent Office seemed to be leaning in the early days after the decision to broadly applying and maintaining the rejection, to avoid mistakenly granting patents for patent ineligible subject matter.

The Alice decision set up a two-step process to determine whether an invention is something that can be patented. First, it must be determined if there is an abstract idea being claimed by the patent. Next, we have to see if “something extra” has been added to the abstract idea that embodies an “inventive concept.”

To say that interpreting these requirements has been complicated and has caused substantial confusion is to wholly understate the scope of the challenge. It sounds simple to differentiate an abstract idea from a concrete one, but try it. Is an adder abstract or concrete? It sounds abstract but most technologists would say it is was a very concrete piece of hardware. Examined in this light, most people quickly come to the conclusion that there is a spectrum on which ideas fall. Some ideas feel much more concrete than others, but a bright line does not exist.

The Story of Cardinal’s Patent

CardinalCommerce has been in the business of authenticating online credit card payments since the early days of e-commerce and has been a pioneer in technologies that enable authentication of online transactions, increasing sales, eliminating fraud and false positives. With over 64 patents, Cardinal’s intellectual property portfolio reflects a rich history of continuous invention and significant experience working with patent authorities globally.

Key to securing the patent issued August 30 was to detail how the technology worked and why it was important. In this case, Cardinal allows retailers to bundle groups of authentications into lighter-weight processes when the transactions match specific criteria, decreasing the load on e-commerce servers and allowing more transactions to be authenticated more quickly. As e-commerce expands, this becomes particularly important during surges in online buying, such as the Christmas holidays.

Alice was particularly painful for this patent application because the USPTO had already allowed the patent. Then, the Alice decision came down, and the allowed application was pulled back. What followed was two years of communications with the Patent Office as Cardinal and the patent examiners struggled to interpret the Alice decision. Pat Roche, a partner at Fay Sharpe and the patent attorney responsible for prosecuting the patent application, explains it this way: “The examiner knew that Cardinal had an invention, but the challenge was in making that clear under Alice.”

Cardinal filed an appeal with the Patent Office. An appeal may signal that the inventor and the PTO fundamentally disagree, but post-Alice, the appeal process can serve to help both sides. The Patent examiner can use the process to better understand the reasons why an applicant believes a patent should be allowed. In the case of Cardinal’s invention, the appeal process eventually lead to the granting of the patent.

Five Things Tech Companies Should Do Post-Alice

What we learned in securing the patent for Cardinal’s innovation—one of the few payment-technologies patents issued since Alice—can help other technologies companies to secure patent protection. Here are five tips:

1. File the appeal. Appeals are time consuming and expensive, but may be necessary. The appeal causes an increased attention by the PTO on the important reasons why your invention should be allowed. Think of the appeal as more of an education process between the PTO and you.

2. Triage any patent applications that have been rejected more than twice because of Alice. Your patent counsel can tell you which applications are candidates for review. Break the applications into categories: continued prosecution, appeal, and abandon. Yes, you likely will want to abandon some patents if the odds of achieving success are very limited.

3. Instruct your patent counsel to prepare more in-depth patent applications, including more technical discussions around implementation.

4. Prepare to have your inventors speak directly to the USPTO. The inventors are often the most successful at conveying the importance of their inventions. This is not lost on the patent examiners and will help convey that their inventions are more than the abstract ideas, which will likely be rejected under Alice.

5. Diversify your international patent filings to include China and Europe. Patents in those countries may be valuable if you cannot get a U.S. patent. Also, the requirements in those jurisdictions have historically been tougher than in the United States, so preparing a patent application for those countries will help you with your U.S. patent application.

Where We Go From Here

Alice has created new challenges for securing patents for innovations in software and business methods. Still, there is hope. The recent grant of patent number US 9,430,769 B2 to CardinalCommerce clearly demonstrates patent applications for new software inventions can be successful. Be prepared to spend more time with your patent attorneys working on deeper and more compelling arguments for allowance.

I expect that over the next year we will see a significant increase in the number of software and business method patents issued, not to the same levels as in the past, but a significant increase nonetheless. With proper tuning we can get our innovation engine running a bit more smoothly, in spite of the wrench that is Alice.

 

Kent Richardson is a partner at the Richardson Oliver Law Group and counsels clients on a variety of patent and business strategy matters including patent buying, selling, licensing, valuation, financial models, and prosecution. His past experience includes executive roles at Rambus, Sezmi, and Numerical Technologies. Kent provides legal counsel to CardinalCommerce.