Patent eligibility of software invention in the United States

December 2013 | PROFESSIONAL INSIGHT | INTELLECTUAL PROPERTY

Financier Worldwide Magazine

During an interview in 1995, Steve Jobs was quoted as saying “I think everyone in this country should learn to program a computer.” You may not share his somewhat extreme view but you do not have to be Steve Jobs or Bill Gates to recognise the importance of computer programs in the world today. Software is used in just about everything. Software is needed to operate and drive things you see or touch. Software can change the same computer into something else to perform completely different tasks. Without software, a computer is just a box.

The advent of software affected the world of intellectual property. IP issues involving software patents are not something new. US courts have been struggling with software IP issues since the early 1970s. And the struggle is far from over, especially in the patent eligibility of software invention. Difficulties involving the patent eligibility of software invention were highlighted in the split decision in CLS Bank Int’l v. Alice Corp. by the US Court of Appeals for the Federal Circuit last May.

The question to the Circuit Court in CLS Bank Int’l was simple: whether certain claims to a computerised method, a computer-readable medium containing computer instructions, and a computer system implementing those instructions were patent eligible. The ultimate ruling by the Circuit Court was also simple: no. But its reasoning and analysis were divisive and confusing, and the court’s decision threw the patent eligibility of software invention into murky water. In the much awaited decision in CLS Bank Int’l, the Circuit Court failed to provide a clear guidance on the patent eligibility of software invention. The end result may be a hopeless confusion among software industries and patent practitioners.

Interest in the case shown by industries, practitioners and organisations is illustrated by the number of amicus briefs submitted to the Circuit Court by third parties. In CLS Bank Int’l, Alice Corp. sought patent protection on claims directed to a method of exchanging obligations between parties, with each party holding a credit record and a debit record with an exchange institution, and exchanges being governed by predetermined obligations. Simply put, the claimed method facilitates a previously arranged exchange between two parties requiring the use of ‘shadow’ records maintained by a third-party ‘supervisory institution’. Another set of claims were directed to a computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party. And the last set of claims was directed to a data processing system to enable the exchange of an obligation between parties. Seven of the 10 judges concluded that Alice Corp.’s method and computer readable storage medium claims are not patent eligible, and half of the 10 judges found Alice Corp.’s data processing system claims patent ineligible.

In the majority opinion by five judges, the Circuit Court wrote “What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application”. The majority held that when patent eligibility issues arise, the same analysis should apply regardless of claim format. We must ask “Does the claim, in practical effect, place an abstract idea at risk of preemption? And, if so, do the limitations of the claim, including any computer-based limitations, add ‘enough’ beyond the abstract idea itself to limit the claim to a narrower, patent-eligible application of that idea?” The majority pointed out cases cautioned against overly formalistic approaches to patent eligibility and urged a flexible, claim-by-claim approach. The majority, finding a part of Alice Corp.’s claims directed to an abstract idea, analysed the balance of the claim adds “significantly more”. Holding that none of the claim limitations added anything of substance to the claim, the majority held that Alice Corp.’s claims are not patent eligible.

In one of the dissenting opinions, one judge remarked that the majority decision means “the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents”.

Many believe that the majority decision in CLS Bank Int’l is inconsistent with the Supreme Court precedent. Regardless of whether you agree or disagree with the outcome of the Circuit Court, there is no doubt that the decision has been controversial and raised more concerns in the field. Alice Corp. filed a petition for writ of certiorari with the US Supreme Court, asking the high court to hear the case. The US Supreme Court might decide to hear yet another software patent eligibility case and make the murky water a bit clearer.

Naoki Yoshida is a partner at Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P. He can be contacted on +813 3431 6943 or by email: naoki.yoshida@finnegan.com.

Naoki Yoshida

Finnegan, Henderson, Farabow, Garrett & Dunner, L.L.P.