Source: https://patentlyo.com/patent/software
Timestamp: 2019-04-25 06:42:54+00:00

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Although Bilski's claims were held unpatentably abstract, the Supreme Court has re-affirmed that the door to patent eligibility should remain broad and open.
The Supreme Court has issued its opinion in Bilski v. Kappos. In the decision, the Supreme Court affirmed that Bilski’s risk-management method was not the type of innovation that may be patented. However, rather than using the Federal Circuit's "machine-or-transformation test", the court simply relied on prior precedent to find the claimed method unpatentably abstract. Justice Kennedy authored the majority opinion. Justices Breyer and Stevens both wrote concurring opinions.
Business as Usual: In general, the opinion offers no clarity or aid for those tasked with determining whether a particular innovation falls within Section 101. The opinion provides no new lines to be avoided. Rather, the outcome from the decision might be best stated as "business as usual."
By refusing to state any particular rule or categorical exclusion, the Court has almost certainly pushed Section 101 patent eligibility to the background in most patent prosecution and litigation.
Business Methods: Section 101 does not categorically exclude business methods from patentability. Rather, the court noted that the prior-use defense found in Section 273(b)(1) of the Patent Act "explicitly contemplates the existence of at least some business method patents. . . . [B]y allowing this defense the statute itself acknowledges that there may be business method patents."
Software: Although the court expressly refused to rule on the patentability of software, it appears that software will largely remain patentable. At minimum, the decision would bar any categorical exclusion of software patents. The court neither endorsed nor rejected the Federal Circuit's past interpretations of Section 101 — Noting that "nothing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357."
Abstract Idea: The one thing that all nine justices agreed upon is that Bilski's method of hedging risk was not patentable because it is an abstract idea "just like the algorithms at issue in Benson and Flook."
The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.
It is unclear to me how patent office examiners will be able to apply the test for abstract ideas in any meaningful way. I suspect that they will not. Rather, the best advice for the USPTO is to focus on Section II-A of Justice Kennedy's opinion. There, the opinion recognizes that Section 101 patent eligibility is "only a threshold test." To be patentable, the invention must also "be novel, see §102, nonobvious, see §103, and fully and particularly described, see §112."
What is the test?: 35 USC 101 offers patent protection for "any new and useful process, machine, manufacture, or composition of matter." Here, the focus was on the definition of a "process" because Bilski's patent application was written to claim a method of hedging risk. Although the majority opinion refused to define the term process, it did write that the machine-or-transformation test developed by the Federal Circuit does not define what is (and is not) a patentable process. Rather, the Court held that the machine-or-transformation offers "a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible process." As a "clue," the machine-or-transformation test likely correlates with the existence of patentable subject matter. However, some patent claims that fail the test will still be patentable and other patent claims that pass the test will still be ineligible.
This litigation began in 2000 when E-Pass sued for infringement of its electronic credit card patent. Patent No. 5,276,311. The district court granted summary judgment of non-infringement, which was affirmed on appeal. The district court then found the case exceptional under 35 U.S.C. § 285 and awarded attorneys’ fees to the defendants. E-Pass appealed that judgment. In a counter-motion, PalmSource also asked for attorneys fees for the appeal – arguing that the appeal was frivolous as well. The Federal Circuit affirmed the trial court without opinion, but wrote an extensive opinion finding a frivolous appeal.
Frivolous Appeal: An appeal is frivolous if the appellant fails “to present cogent or clear arguments for reversal.” In addition, the court may award sanctions based on misconduct or misrepresentations to the appellate court.
Sanctions and attorney fees granted against E-Past and its counsel, jointly and severally.
In dissent, Judge Bryson saw serious misconduct, but would not have imposed sanctions.
Accepting that in those regards E-Pass’s briefs on appeal fell short of the standards we expect of counsel in this court, I nonetheless conclude that the shortfall is not so egregious as to call for the imposition of sanctions.
Scott Harris has been discussed several times on Patently-O. Harris is a former Fish & Richardson partner. Fish handles the most patent litigation of any firm in the country. In addition to being a patent attorney, Harris is an inventor. He has contracted with the plaintiffs firm Niro Scavone in several actions to enforce patents against Google and other companies. Harris is one of the named inventors of the Ferguson application and he handled the [futile] appeal.
The claimed invention focuses on a “method of marketing a product” and a “paradigm for marketing software.” These claims focus on methods and structures for operating a business.
obtaining an exclusive right to market each of said plurality of products in return for said using.
Harris asked the court to consider a different test of patentable subject matter: “Does the claimed subject matter require that the product or process has more than a scintilla of interaction with the real world in a specific way?” The CAFC panel rejected that proposal primarily based on the precedential value of Bilski: “In light of this court’s clear statements that the “sole,” “definitive,” “applicable,” “governing,” and “proper” test for a process claim under § 101 is the Supreme Court’s machine-or-transformation test, see Bilski, passim, we are reluctant to consider Applicants’ proposed test.” The court went on to determine that the “scintilla” test would create too much ambiguity as well.
In a gentle Koan, the Court stated that it “need not resolve the particular class of statutory subject matter into which Applicants’ paradigm claims fall, [however], the claims must satisfy at least one category.” In fact, the court did attempt to resolve the particular class, but was unable to fit the paradigm claim into any of the four.
Applicants’ paradigm claims are not directed to processes, as “no act or series of acts” is required. Nuijten, 500 F.3d at 1355. Applicants do not argue otherwise. Applicants’ marketing company paradigm is also not a manufacture, because although a marketing company may own or produce tangible articles or commodities, it clearly cannot itself be an “‘article’ resulting from the process of manufacture.” Nuijten, 500 F.3d at 1356. Again, Applicants do not argue otherwise. And Applicants’ marketing company paradigm is certainly not a composition of matter. Applicants do not argue otherwise.
Ending in a flourish, the court found that in fact, the Ferguson paradigm claims are “drawn quite literally to the paradigmatic abstract idea.” (quoting Warmerdam).
Judge Newman offers a poignant concurring opinion.
In an earlier post, I introduced some data relating to patents that discuss Microsoft somewhere in the patent document. That post showed that almost 5% of newly issued patents refer to the software giant in some way. That data also showed a strong upward trend over time. The post received a few interesting comments as well as a few suggestions. [LINK] In response, I have added some additional data to the graphs. The first graph below shows the percent of patents that discuss Microsoft (in blue) and now also includes the percent of patents that are assigned to Microsoft (in red). Several years ago, Microsoft publicized their intention to obtain a large number of patents. That intention is becoming a reality, and Microsoft recently obtained its 10,000th patent. However, only about 20% of patents that discuss Microsoft are actually assigned to the company.
The next graph compares the patents discussing “Microsoft” with other products/companies. Here, I include patents that discuss “Microsoft” (blue), “UNIX” (green), “LINUX” (red), and “Apple” (tan). UNIX has seen some growth, but not much since the mid 1990’s. In the past couple of years, the number of LINUX patents have grown dramatically, but still pale in comparison to Microsoft patents. Although the absolute numbers for LINUX related patents are still small, they are surprisingly high based on the anti-patent lore of LINUX developers. Apple has remained steady over the years. Of course, my results for Apple should be tempered by the false positive results that actually refer to the fruit rather than the computer company or its products.
An issue in all these graphs is time lag. The time lag of issued patents may be easily seen by searching for patents that discuss “Google.” – The result is only 1342 patents but 4682 published applications.
I looked at all patents that include the word “Microsoft” somewhere within the patent document. These include patents assigned to the company as well as well as patents that simply refer to Microsoft in the specification or list of cited references. That almost 5% of new all patents refer to the software giant is a sign that the company’s technology serves as a creative platform for ongoing developments.
In Symbian Limited v. Comptroller General of Patents  EWCA Civ 1066, the UK Court of Appeal recently took a broader approach to patentability of software. UK patent attorney and author Paul Cole has written a short article for the Patently-O Patent Law Journal discussing the case and its impact. [Paul Cole Article]. The opinion cites John Duffy’s recent “Death of Google’s Patents” article also published on Patently-O.
The Patent and Trademark Office has now made clear that its newly developed position on patentable subject matter will invalidate many and perhaps most software patents, including pioneering patent claims to such innovators as Google, Inc.
In a series of cases including In re Nuijten, In re Comiskey and In re Bilski, the Patent and Trademark Office has argued in favor of imposing new restrictions on the scope of patentable subject matter set forth by Congress in § 101 of the Patent Act. In the most recent of these three—the currently pending en banc Bilski appeal—the Office takes the position that process inventions generally are unpatentable unless they “result in a physical transformation of an article” or are “tied to a particular machine.” Perhaps, the agency has conceded, some “new, unforeseen technology” might warrant an “exception” to this formalistic test, but in the agency’s view, no such technology has yet emerged so there is no reason currently to use a more inclusive standard.
The Bilski en banc hearing attracted enormous attention, and yet there has remained a sense among many patent practitioners that the PTO’s attempts to curtail section 101 would affect only a few atypical patent claims. The vast bulk of patents on software, business and information technology are thought by some not to be threatened because those innovations are typically implemented on a machine—namely, a computer—and the tie to a machine would provide security against the agency’s contractions of § 101. Even if that view were right, the contraction of patent eligibility would be very troubling because the patent system is supposed to be designed to encourage the atypical, the unusual and the innovative. But that view is wrong.
The logic of the PTO’s positions in Nuijten, Comiskey and Bilski has always threatened to destabilize whole fields of patenting, most especially in the field of software patents. If the PTO’s test is followed, the crucial question for the vitality of patents on computer implemented inventions is whether a general purpose computer qualifies as a “particular” machine within the meaning of the agency’s test. In two recent decisions announced after the oral arguments in the Bilski case, Ex parte Langemyr (May 28, 2008) and Ex parte Wasynczuk (June 2, 2008), the PTO Board of Patent Appeals and Interferences has now supplied an answer to that question: A general purpose computer is not a particular machine, and thus innovative software processes are unpatentable if they are tied only to a general purpose computer.
In Ex Parte Bilski, an en banc Federal Circuit plans to reconsider the scope of patentable subject matter as it relates to business methods and so called mental methods. Perhaps more importantly to the patent system as a whole, the court is considering the proper procedures going forward for determining whether a particular invention falls within the scope of 35 USC 101.
In its en banc decision, the CAFC invited non-party amici briefs, which were due April 7. (Scroll down to find the briefs). In reading through the briefs, the first aspect that caught my attention was a common theme that institutional strengths and weaknesses of the PTO and Courts should help dictate the ultimate subject matter rule.
Prof Morris: Through its examiners, the PTO has expertise in determining the technical questions of novelty, nonobviousness, and indefiniteness. On the other hand, examiners do not have the expertise to decide “philosophical and abstract” issues of statutory subject matter.
Prof Collins: A test that excludes “human cognition” elements is administrable.
EFF: Proposed three-step process provides a more “efficient and meaningful” way to administer the Section 101 threshold.
AIPLA: Section 112 should guard claim scope rather than Section 101.
Prof Lemley: We cannot predict the next area of innovation, and arbitrary limits on patent scope reduces incentives in those potential areas. “Bad patents” should be dealt with using the true tools of the Patent Act: Sections 102, 103, and 112. “Mental methods” should be allowed if they fall within the other requirements of patentability.
Regulatory Data Corp (Prof Duffy): Even under a narrow definition, applied economics is now part of the “useful arts.” Statutory subject matter should only limit claims directed to abstract ideas, physical phenomena, or principles of nature.
AIPLA: We should continue to follow Diehr, State Street, & AT&T.
RMC: Business methods should be patentable.
American Express: Patenting of business and information management processes encourages the development of those useful societal tools.
Accenture: Business methods should be patentable regardless of any physicality limitations. Congress has deemed that business methods should be patentable via 35 USC 273.
Koninklijke Philips: The court should be wary of relying upon precedent that focused on traditional manufacturing methods. Rather, the court should look at the broad definition of process required by Congress in 35 U.S.C. 100(b).
Prof Sarnoff: The court should return to the precedent of Flook. The inventive concept of a patent cannot be an abstract idea (such as hedging risk). Likewise, an information processing method must include significant post-solution activity. State Street is unconstitutionally over-broad.
End Software patents: Software should not be patentable even when loaded on a computer. Rather, to be patentable, there must be significant additional (non-information processing) physical activity.
American Civil Liberties Union: Patents mental processes would violate the first amendment.
EFF: There must be a technological component of a patentable invention.
Computer & Communications Industry Association: The CAFC should shed its “patentee-centric approach” and insted try to meet the needs of the modern world. In particular, the court should consider the systemic policy implications of its decisions. The policy implications of broader patent coverage is more litigation & rent seeking.
IBM: There is no sound policy for allowing business method patents.
American Institute of CPAs: Tax methods should not be patentable because they preempt free use of the tax laws. (Of course, the same could be said of CPAs charging corporations for their service).
SAP: A process should both (1) have a concrete, useful, and tangible result and (2) be “sufficiently machine-like” in order to avoid preempting work-arounds. However, software processes should be patentable.
Prof Collins: The court should add a “human cognition” exception to Section 101. Steps involving human cognition should receive no consideration in judging patentability.
Red Hat: Software patents put a huge kink in the open source software movement.
Financial Services Industry: State Street and its progeny are unduly broad. A token inclusion of a ‘machine’ in a claim would not render that claim patentable subject matter.
Dell & Microsoft: A patentable invention must operate on “something physical.” To be patentable, software should be tied to a computer and cause some physical transformation (such as movement of electrons). And, following Comiskey, a patent should not be granted under 103 if the inventor merely combined well known computer hardware with inventive but otherwise unpatentable software.
Yahoo! and Prof Merges: A strict “technology” requirement is too inflexible. State Street taught us that such a strict requirement does not fit well with “onrushing technology.” The Yahoo!/Merges test: a patent eligible process must itself be “stable, predictable, and reproducible” and its result must be “useful, concrete, and tangible.” Bilski’s claims would not be eligible because they do not define a “stable” process.
Intellectual Property Owners Association: A process that is either implemented by a machine or that transforms matter into another state is patentable subject matter. IPO favorably cites the Flook limitations on on information processing.
Business Software Alliance: Courts should err on the side of patentable subject matter because Sections 102, 103, and 112 make-up any slack. Software should be patentable. However, Bilski’s invention is not patentable because it is an abstract idea.
Washington State IP Law Assn: The CAFC should re-write State Street to be consistent with Supreme Court precedent.
Prof Morris: Subject matter questions should be avoided. Rather the PTO and courts should look to the substantive rules of 102, 103, and 112 to decide the issue. Section 101 jurisprudence has been both haphazard and unfair.
I signed Professor Lemley’s brief along with twenty-one other law professors. The theory behind the brief follows the IPO brief that I helped draft in the Metabolite case.
Transnational patent law is a hot topic, and one the Supreme Court cannot ignore. The issue de jour involves the question of unauthorized export of patented software. AT&T holds the speech compression patent that is infringed by Microsoft Windows. (RE 32,580). Microsoft exports the software code from Redmond to various international locations. Once abroad, the code is then copied and installed in computers that are then sold abroad. As the invention is claimed, the code alone does not infringe. Rather, infringement would only occur once the code is combined with the computer hardware.
Under traditional notions of patent law, Microsoft’s actions are not infringement because the code alone does not infringe the patent, and (for the purposes of this case) the code is not combined with the hardware within the U.S.
Here, however, traditional notions of territoriality have been supplanted by statute. Under 35 U.S.C. 271(f), supply of only a portion of a component of a patented invention from the U.S. can be infringement.
Microsoft, of course, wants to avoid infringing the U.S. patent for its activity abroad and gives two separate reasons why its activity of exporting software do not fall within the parameters of 271(f). (I) Software code is an intangible string of information not a “component” as required by the statute. (II) Because copies of the code were used to create the infringing software/hardware combination, no physical particle that Microsoft exported actually became part of the finished product. According to Microsoft, this means that nothing in the infringing combination was actually supplied from the U.S. as required by the statute. I term these two arguments the tangibility requirement and the molecular conservation requirement.
Microsoft and its supporters have now filed their merits briefs to the Supreme Court, and my reading of their arguments is that there is strong support for molecular conservation, but only weak support for tangibility. The Bush Administration supports this distinction in its brief filed jointly by the DOJ and PTO.
On tangibility, the Government argues that software can certainly be a component, and that the statute is not limited to “only tangible components” as Microsoft suggests. Although not cited by the Government, Section 271(c) provides a statutorily distinct way of limiting components. In referring to infringement through importation, that clause identifies only components of certain types of inventions such as machines and compositions.
On molecular conservation, the Government correctly notes that the statute requires that the exported components be the same components that are combined in the infringing manner. “Conduct that merely induces the combination of foreign-made components does not violate Section 271(f).” The statute, according to the Gov’t, leaves foreign manufacturers “free to manufacture and assemble copies of the identical components overseas” so long as none of the components actually assembled were made within the US. Applying their argument to this case, we know that the software was copied and only those copies were combined with hardware in a would-be infringing manner.
A group of electronics companies led by Amazon filed a colorful brief that also supports the requirement of molecular conservation.
No matter where their unique arrangement was invented or dictated, if each molecule in the machine was supplied from outside the U.S., then no component was supplied from the U.S. In the present case, Microsoft did not supply even a single molecule of the foreign machines at issue.
Amazon also raises the slippery slope issue. According to the brief, if Microsoft is liable here, then the Court would open the door to infringement for export of blueprints or a CAD/CAM design scheme. That result, the brief argues, goes against congressional intent. As an aside, Amazon cited Wikipedia but did not include it in its list of “authorities.” Although they do not cite it, the Pellegrini case holds that plans or instructions for a patented item cannot serve as components under 271(f).
[A]s a matter of grammar that the phrase “such components” refers back to the components that have been “supplied” from United States. Thus, the plain language of the statute requires that inducing an extraterritorial combination constitutes an act of infringement if and only if the combined components are in fact the same components that were “supplied in or from” the United States.
For the professors, supplying exact copies does not meet the requirement. Most of the briefs come-up with some hypothetical metaphor to explain their situation — a guy memorizing some code and flying on an airplane, a hard-copy print out of some code that runs a fuel-injection system, CAD/CAM instructions, blueprints, etc. The idea apparently is that if we allow copies of software to be considered components, then these situations necessarily also provide for infringement actions. More accurately, however, they are just poor hypotheticals.
Software as Patentable Subject Matter: The anti-patent activist group SFLC led by Dan Ravicher and Eben Moglen also filed a brief that may be the dark-horse of this debate. Their brief asks the Court to take a fresh look at the patentability of software.
Software can not be a “component of a patented invention” under 35 U.S.C. § 271(f) because software is not patentable subject matter under 35 U.S.C. § 101. As such, the Federal Circuit’s holding to the contrary in this case is erroneous and should be reversed.
It would be odd for the Court to decide the 101 issue in this case after dismissing LabCorp earlier this year. However, I expect at least one concurring opinion supporting the ideas in this brief.
Impact in Biotech: Although not yet a viable industry, this could have a potentially large impact on biotechnology patent issues. Like software, DNA code (or other biologics) could be shipped from the U.S. to be copied abroad and incorporated into an organism in an infringing manner. Even more abstract, the export may merely involve transmitting a sequence listing that would be used to reproduce the sequence abroad. Any decision on software should consider the potential impact on these areas as well.
Statutory Construction Excludes Methods?: Shell compares the use of the term “component” in 271(f) its use in 271(c) — the section addressing importation. In 271(c), Congress explicitly limited components to “component[s] of a patented machine, manufacture, combination, or composition,” but also included a provision excluding importation of materials used in a patented process. Shell’s argument: because 271(f) does not include the provision discussing materials used in a patented process, it cannot cover processes. Of course, the unstated counter-argument to shell is that components discussed in 271(c) are specifically limited to components of machines, while 271(f) components are not so limited — indicating that “component” in 271(f) should receive a broader interpretation.
International Law: All of the transnational patent issues have an impact on international law issues. FICPI, a Swiss-based organization of patent folks filed its brief asking the the U.S. to keep its patents territorial and avoid stomping on the toes of others (as “young nations” are bound to do). FICPI’s implication that the Supreme Court is bound by the Paris Convention is plainly wrong. The Paris Convention is not U.S. law. However, their point is well-taken, if 271(f) covers software, it thwarts the efforts of other countries to eliminate software patents.
NTP v. Research in Motion, (271(f) “component” would rarely if ever apply to method claims).
Union Carbide v. Shell Oil (Fed. Cir. 2005) (271(f) “component” applies to method claims).
Bayer v. Housey Pharms, 340 F.3d 1367 (Fed. Cir. 2003) (271(g) “component” does not apply to importation of ‘intangible information’).
I will be updating this page as more briefs are filed.
I will be talking about cross-border liability at Santa Clara University’s 25th Annual Computer & High Technology Law Journal Symposium on January 26 in San Jose. Information here.

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