The Need for a Reliable Test of Software Patentability

The U.S. Patent and Trademark Office and the courts have long struggled with whether or not software should be patentable. While patent laws exist to encourage invention, monopolization of ideas—the building blocks of further invention—would be bad.

Recently, the U.S. Court of Appeals for the Federal Circuit faced the issue of software patent eligibility while sitting en banc for CLS Bank International v. Alice Corporation Pty. Ltd.1 While an equally divided court affirmed the district court’s holding that the claims in question were ineligible subject matter, the en banc decision consisted of several different concurrences and dissents with no single majority. The need to delineate what is unpatentable as an abstract idea is evident from these opinions.

The petitioner presented the issue as follows: “What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible ‘abstract idea’; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise ineligible abstract idea?”2

The patent claims at issue include a method and system for deter- mining if both parties to a financial transaction, such as through a stock exchange, have sufficient means in their accounts to complete the transaction. The method or system uses a neutral, such as an escrow agent, who starts with an existing account balance for each of the trans- action parties and keeps a running count of each party’s balance by debiting and crediting the balances during this period. An attempted transaction between the parties is only allowed if the parties have sufficient account balances. When it is time to settle, the neutral sends a message to the exchange stating whether or not to allow the transaction.

In Judge Alan Lourie’s concurring opinion, the approach was to determine the underlying abstract idea and then see whether the rest of the claim added anything to it or not (and thus monopolized the idea). The idea was determined to be “reducing settlement risk through intermediation.” Given that conclusion, anyone who implemented it would use a computer to gather credit record data, consisting of credit and debit transactions, and allow only transactions in which there was sufficient credit. The opinion further stated that a computer, even if required by the claims, “is just a calculator capable of performing mental steps faster than a human could.”3 It is well accepted that mere mental steps are not patentable.

Unfortunately, determining the “idea” is not easy, and in doing so, one must dissect the patent claim. Long ago the Supreme Court said that it is “inappropriate to dissect the claims into old and new elements and then to ignore the presence of the old elements in the analysis.”4

Moreover, the court’s “idea” analysis is about novelty and nonobviousness, two completely different prongs of the test of patentability. Relying on this type of reasoning to determine patent-eligible subject matter will only make the struggle worse. When the Supreme Court heard oral argument on March 31, 2014, Justice Antonin Scalia wondered why implementing the method on a computer was not enough to show that the invention was patentable subject matter and indicated that the issue seemed to be the novelty of the program.

Since computer use has grown astronomically, and computers improve calculations and processing, the question of patentable subject matter arises often. In 1979 and 1980, the Supreme Court found that use of computer programs in a process did not automatically preclude patenting. For instance, if the process had a physical outcome—e.g., curing rubber—it could be patented. Similarly, the fact that the patent claim included a formula or idea did not preclude patenting.5

In a process patent, one cannot break up the process to see what was done before in order to determine if the only new aspect is an idea or mental step. One must look at the whole process to determine patent-eligible subject matter. In spite of its novelty, Einstein could not have patented the mere equation E=mc2. However, designing a nuclear reactor that creates a certain energy output, in which E=mc2 is used to determine an amount of radioactive mass to use could be patentable subject matter.

While some software patents may limit others practicing in the same field, limitation is what the patent system is about. Investment is encouraged by providing protection against competition for a limited time. Moreover, necessity being the mother of invention, when a patent that makes it difficult for others to operate is granted, the others are forced to innovate around the patent.6

As reliance on computers keeps growing, more of our best and brightest will move into software. Therefore, the need to protect invention and spur further invention in that area will only increase. The need to better understand the line between unpatentable mental steps and patentable software will also increase in importance.

1 CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F. 3d 1269 (Fed. Cir. 2013) (en banc).
2 CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F. 3d 1269 (Fed. Cir. 2013) (en banc), petition for cert. filed, 2013 WL 4768483, at *2 (U.S. Sept. 4, 2013) (No. 13-298).
3 CLS Bank Int’l, 717 F. 3d at 1286.
4 Diamond v. Diehr, 450 U.S. 175, 188 (1981).
5 Id. at 184-85.
6 See, e.g., R.D. Katznelson & J. Howells, Inventing-around Edison’s incandescent lamp patent: evidence of patents’ role in stimulating downstream development (May 26, 2012), available at https://www.law.northwestern.edu/research-faculty/searlecenter/workingpapers/documents/Katznelson_Howells_Inventing_around_Edisons_patent_V17.pdf

This article was written by David L. Hoffman, Esq. and was originally published in the July/ August 2014 issue of Los Angeles Lawyer. The full issue can be found at the following link: http://www.lacba.org/Files/LAL/Vol37No5/3171.pdf .

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