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In 2014, the U.S. Supreme Court addressed software patentability in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. __, 134 S. Ct. 2347, 110 U.S.P.Q.2d 1976. The shockwaves of the Alice bombshell are still rippling through patent law. The U.S. Patent Office promptly issued “Interim Guidelines” for its examiners, and has been updating its guidelines annually in view of about 80 decisions to date from the U.S. Court of Appeals for the Federal Circuit (hears all appeals of patent cases from district courts) and the Patent Trial and Appeal Board (an administrative law body in the Patent Office). When and if final guidelines on patent-eligible subject matter under Alice are created, they will be included into the Patent Office’s Manual on Patent Examining Procedure.

This article discusses the current law regarding patent-eligible software, and concludes with how patent applications should be written to maximize the chance of presenting patent-eligible subject matter.

‘Alice’: Before and After

Before Alice, patent law had distinct inquiries for patentable subject matter. Under 35 U.S.C. 101, patent-eligible matter included machines, methods, compositions of matter and articles of manufacture, but not algorithms or laws of nature. An invention—an idea reduced to practice either actually or constructively, by filing a patent application—had to be patent-eligible, and if so, the next inquiry was whether the invention was patentable over the prior art under 35 U.S.C. 102 (novelty) and 35 U.S.C. 103 (non-obviousness).

Alice dragged prior art into the patent-eligibility inquiry, setting forth a two-step test. Step one determines whether the patent claim is directed to an abstract idea. If not, the claim is patent-eligible and patentability is determined under §102 and 103. Of course, every patent claim can be framed as being directed to an abstract idea: A chair is directed to the abstract idea of a seating support for a human posterior. Step two searches for an “inventive concept” that is more than an abstract idea, by comparing the claim to the prior art. “Abstract idea” and “inventive concept” are not clearly defined terms. The law is in flux, and the two-step test has vagueness, so clients need to understand that patentability of software inventions is more complicated than patentability of other inventions, because of the Alice patent-eligibility test.

Immediately after Alice, almost all challenged software patents were invalidated. Happily, federal courts and the PTAB have set forth five safe harbors, so a roadmap is emerging for how to write software patent applications to survive under Alice. The first and second safe harbors apply at step one, while the third to fifth safe harbors apply at step two.

The first safe harbor is when the claim is directed to a tangible thing other than a computer, i.e., the claim is not directed to an abstract idea.

The second safe harbor is available when the claim is directed to a computer or process performed on a computer, and encompasses inventions that are improvements to computer technology; such improvements are not abstract ideas.

The third safe harbor is for an invention tied to a particular machine or apparatus that is not a generic, general-purpose computer.

The fourth safe harbor is for an invention that transforms an article to a different state or thing. Transforming one kind of data to another kind of data is not protected in this safe harbor.

The fifth safe harbor is for an invention presenting an unconventional arrangement or improvement on previous technology, but not computer technology that enjoys the second safe harbor.

In practice, a software patent claim has to fit within the second or fifth safe harbors, or it is likely to be deemed patent-ineligible matter.

Second and Fifth Safe Harbors

The second safe harbor, improvements to computer technology, has protected inventions directed to Internet navigation, DDR Holdings v. Hotels.com, L.P., 773 F.3d 1245, 113 U.S.P.Q.2d 1097 (Fed. Cir. 2014); a self-referential database table that functioned differently from conventional database structures, Enfish v. Microsoft, 822 F.3d 1327, 118 U.S.P.Q.2d 1684 (Fed. Cir. 2016); a data filtering tool installed remote from end-users that provided benefits of a local computer filter and an Internet service provider filter, Bascom Global Internet Services v. AT&T Mobility, 827 F.3d 1341, 119 U.S.P.Q.2d 1236 (Fed. Cir. 2016); and network-based data filtering, Amdocs (Israel) v. Openet Telecom, 841 F.3d 1288, 120 U.S.P.Q.2d 1288 (Fed. Cir. 2016).

The fifth safe harbor, an unconventional arrangement or improvement, has protected inventions directed to improved lip syncing of animated characters, McRO v. Bandai Namco Games America, 837 F.3d 1299, 120 U.S.P.Q.2d 1091 (Fed. Cir. 2016); a particular graphical user interface for options trading paired with sending an order for execution, Trading Technologies Int’l v. CQG, 2016-1616 (Fed. Cir. Jan. 18, 2017); and selectivity in choosing which cardiac arrhythmia data set to transmit, Cardionet v. Infobionic, 1:15-cv-11803-IT (D. Mass. May 4, 2017).

Cases

Under Alice, many software inventions were found to be patent-ineligible: watching ads in exchange for free media viewing, Ultramercial v. Hulu, 772 F.3d 709 (Fed. Cir. 2014); converting a portion of future Social Security retirement payments to current benefits, Retirement Capital Access Management Co. v. U.S. Bancorp, 611 Fed. Appx. 1007 (Fed. Cir. 2015); anonymous loan shopping based on a borrower’s credit rating calculated by a third party, Mortgage Grader v. First Choice Loan Services, 811 F.3d 1314, 117 U.S.P.Q.2d 1693 (Fed. Cir. 2016); playing blackjack without a computer, In re Smith, 815 F.3d 816, 118 U.S.P.Q.2d 1245 (Fed. Cir. 2016); options quote risk monitoring and automatic quote updating for market makers, Chicago Bd. Options Exch. v. Int’l Sec. Exch., 640 Fed. Appx. 986 (Fed. Cir. 2016); coordinating loan applications using the Internet, LendingTree v. Zillow, 656 Fed. Appx. 991 (Fed. Cir. 2016); quoting and trading hindsight allocation instruments, In re Chorna, 656 Fed. Appx. 1016 (Fed. Cir. 2016); modeling and benchmarking private equity assets relative to an index, Capital Dynamics v. Cambridge Associates, 2016-1318 (Fed. Cir. Sept. 9, 2016); maintaining a property database, calculating property values and creating a graphical display, Ex parte Villena, 2015-000949 (PTAB Dec. 19, 2016); creating a graphical representation of the difference between a market index and a trader index, Ex parte Noviello, 2014-008557 (PTAB March 15, 2017); electronically certifying a potential borrower’s financial account data and providing a credit report, Clarilogic v. Formfree Holdings, 2016-1781 (Fed. Cir. March 15, 2017); computer that allows user to transfer right to view content to another user, Ex parte Clement, 2016-008227 (PTAB May 3, 2017); and providing financing for a customer to purchase a product (car) selected from an inventory maintained by a dealer, Credit Acceptance v. Westlake Services, 2016-2001 (Fed. Cir. June 9, 2017).

The unsettled state of the law is apparent from comparing the 2016 CBOE v. ISE invention deemed patent-ineligible (options quote monitoring and automatic quote updating) with the 2017 Trading Technologies invention deemed patent-eligible (options trading GUI and sending an order for execution). Since the CBOE automatically updated quote at a market can be executed as soon as an opposing order arrives, the quote is highly similar to the Trading Technologies order sent to a market for execution. The differences include (1) that the Federal Circuit seems more willing to find patent-eligibility as time passes, (2) that an order sent to a marketplace has to go somewhere while a marketplace quote stays at that marketplace (setting aside national best bid systems that display the quote outside the marketplace), and (3) the Trading Technologies GUI was apparently more unusual than the CBOE quote monitoring.

Drafting Tips

The fundamental Alice concern is to bar claims that preempt all ways of embodying an abstract idea. Here are suggestions for how to write a patent application to maximize the chance of presenting patent-eligible subject matter.

Clearly compare how the prior art works with how the invention works. Flowcharts are required. Flowcharts with multiple decision points make the software seem more technological, as opposed to an obvious business method implemented on a computer. Present multiple embodiments of the invention, and point out embodiments that are not part of the invention to show that the invention does not pre-empt an idea. Ensure that the software changes something outside of a single general-purpose computer (has “prescribed functionality” in Alice lingo), because software that manipulates data inside a single general-purpose computer struggles to be patent-eligible under Alice. Explain in detail what the advantages of the invention are, because a detailed description of advantages lends serious countenance to the invention. Finally, ensure that the claims have multiple features and specific details; this is the most difficult part of writing a patent application because the tension between broad claims that may be invalid over the prior art, versus narrow but allowable claims that are easy to design around, is exacerbated by concern that too-broad claims will pre-empt an abstract idea.