IP-Blitz

Software Turns to the Supremes for Guidance

After the U.S. Court of Appeals for the Federal Circuit (CAFC) had two bites at the apple to set forth a useful analytical framework on the proper analysis regarding subject matter eligibility of software patents under 35 U.S.C. § 101 (panel and rehearing en banc decisions here), petitioners have taken their case to the great Supremes and they in turn granted the writ of certiorari earlier this month.

The CAFC’s May en banc decision was so conflicted with differing approaches at odds with U.S. Supreme Court (SCOTUS) and CAFC precedent that it left petitioners little choice but to petition the high court for some meaningful guidance.  It is particularly telling that the U.S. Patent and Trademark Office responded shortly after the May decision to make clear that despite the decision potentially spelling the end of software patents, “no change in examination procedure for evaluating subject matter eligibility” would be incorporated by its examining corps since consensus in the CAFC decision was lacking.

In Alice Corp. v. CLS Bank Intl., SCOTUS is presented with the following question: “Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this [Supreme] Court?”

The specific invention at issue in Alice Corp. relates to computers and hardware configured to run with software to collectively create a computerized trading platform that manages risk between two parties conducting a financial transaction.  The claims utilize variations of this concept through methods, apparatuses, and systems.  After stops at the district court and the CAFC, the methods, apparatus, and systems claims are presently regarded as ineligible subject matter under § 101.

Petitioners argue that CAFC Judge Lourie’s lead opinion in the en banc decision is inconsistent with SCOTUS precedent.  Specifically, Lourie analyzed § 101 by asking (1) whether the subject matter falls within the four classes of subject matter and, if so, (2) whether “the claim pose[s] any risk of preempting an abstract idea[.]”  Petitioners argue that in analyzing prong (2), Lourie picks and chooses portions of a claim in isolation to identify potentially abstract ideas that would prevent the claim as a whole from being eligible subject matter, thereby conflicting with SCOTUS precedent as to the proper § 101 analysis.

Citing CAFC Chief Judge Rader’s dissenting-in-part and concurring-in-part opinion for support, petitioners point out that § 101 is intentionally broad and thus devoid of any reference to software being foreclosed from patent protection.  Accordingly, petitioners argue that the proper analysis focuses on whether the “claim as a whole” as taught by SCOTUS in Diehr (and later confirmed in Bilski) is directed toward “an abstract idea.”  If the opposite were true, isolated portions of a claim that potentially recite an abstract idea would risk rendering the claim on the whole as ineligible subject matter.  Because a claim typically “can be stripped down . . . until at its core, something that could be characterized as an abstract idea is revealed,” Lourie’s standard from the lead opinion threatens to undermine eligibility of not just software but all claims that utilize one or more potentially abstract ideas (nearly every invention arguably builds upon some form of an abstract idea) even if the claims otherwise satisfy §§101, 102, 103, and 112.

In their Opposition Brief, respondents look to Mayo for support arguing that § 101 should be analyzed by “first identifying the abstract idea . . . and then asking, what else is there in the claims?” In other words, each element of a claim is analyzed in isolation as to its “abstractness” and all remaining features are similarly examined in isolation to determine whether the isolated features when combined are “sufficient to transform the nature of the claim.”  On its face, this approach appears to conflict with Diehr in that it “dissects the claims into . . . elements and ignore[s] the presence of the old elements in the analysis.”

Respondents also delve into constructing the inventive concept of petitioners’ claims citing Bilski for justification, which adds further tension to the § 101 analysis and the appropriateness of analyzing the merits of a claimed invention, including novelty and obviousness, in the context of subject matter eligibility.

Interested parties including the software community, practitioners in the field, and even the solicitor general hope SCOTUS will respond decisively to this intra-circuit split with some semblance of a decipherable analytical framework for subject matter eligibility of software patents. Such a decision will resolve the uncertainty in the industry and the concomitant impact such uncertainty caused.

The Benefits of an Intellectual Property Value Assessment

Every established company and start-up business should have an intellectual property value assessment performed by a patent attorney.  This assessment should be done by an attorney and firm that the company does not regularly use.  There are three primary reasons:

First, a company’s regular attorney must avoid offending anyone in management and must avoid being accused of wasting management’s time.

Second, a different pair of eyes will see property rights that could be overlooked without a fresh appraisal.

Third, it is not realistic to expect an attorney to find fault with his or her own work.

To be assured of a neutral appraisal, a company should consider a contract that prohibits the appraisal attorney from soliciting the company’s ongoing IP work.

Intellectual property is a higher percentage of the value of most companies today and with an IP assessment this value can become part of a private company’s pro forma balance sheet.  This increases the incentive for and value of an IP appraisal.

Invariably there are areas of IP that are overlooked.  For example, few companies regularly register copyrights in the copyrightable materials they produce or others produce for the company.   A company’s website is often not protected.  This is an asset of considerable value, which is vulnerable without a copyright registration. While copyrightable material can be protected after the fact of infringement, the remedies available are severely limited.   A company employee can be trained in a matter of hours to recognize copyrightable material, make sure contracts with third parties assign their copyrightable content to the company, and prepare and file copyright applications on all significant copyrightable property.  An electronically filed copyright application can be filed in minutes for a $30 filing fee.  Other examples of unprotected IP assets are legion.  An IP appraisal will expose many of these areas and propose solutions.

An IP appraisal that adds to a company’s pro forma balance sheet requires close cooperation with an existing or specialized CPA knowledgeable about intellectual property valuation.

An effective IP appraisal requires close cooperation by company personnel.  This is best obtained by giving a high-level employee authority to request research and records from the company’s departments.  That employee can also decide when the IP appraisal raises questions that require a strategic decision by the company’s management committee or a body with equivalent decision-making power.

The initial IP assessment requires a significant allocation of personnel time and attorney’s fees.  To avoid nasty surprises, the assessment should be done in two phases.  The first phase will identify existing protected assets and all areas where IP assets are not protected.  At that point it should be possible to ask the appraisal attorney to perform the assessment and deliver the complete report and recommendations for a fixed fee. Once the initial assessment report is complete it should be updated at least annually, but the incremental cost should be modest.  To the extent the appraisal recommends additional IP protection – as an example, for patent applications — the cost typically can be fixed in an advance retainer agreement. The company can then decide on a case-by-case basis whether the cost is justified by the value of the protected intellectual property.

The Curse of the Storage Mediums That Didn’t Foreclose Signals

If you thought you understood patent eligibility of software patents after Alice Corp., think again. Those who draft software patents should be sure to include “non-transitory” when referring to storage mediums in both the specification and the claims.

In a precedential Patent Trial and Appeal Board (PTAB) opinion decided in August, Ex Parte Mewherter, IBM claimed the concept of software that converted a slide from a slide show application into a raster image with a title in a nonpresentation application.  The Examiner deemed claims directed toward this software embedded in a computer readable storage medium patent ineligible because the claimed storage medium could encompass transitory media.  Specifically, IBM was claiming a machine-readable storage medium and during prosecution and appeal argued that its storage medium was for permanently storing information (i.e. non-transitory) as opposed to a machine-readable medium that could include transitory media such as signals.  The Examiner would have bought this, were it not for the fact that the claims did not specifically include a non-transitory limitation and the specification did not expressly define “machine-readable storage medium” as excluding transitory media such as signals.

The PTAB agreed with the Examiner, finding the claim at issue patent ineligible because (1) the common understanding of the claimed storage limitation did not necessarily exclude signals or other transitory media; and (2) the specification failed to define “storage medium” as excluding signals/non-transitory media. Accordingly, the broadest reasonable claim construction of IBM’s storage medium could include signals or transitory media.  This was the nail in IBM’s proverbial coffin.

Transitory media and signals have long been a thorn in the side of applicants looking to claim machine-readable storage mediums (which in recent years has increased for software applicants seeking to satisfy the machine-or-transformation test post-Bilski).  Software applicants have few options but to affirmatively disclaim transitory media in their disclosure by adding the non-transitory limitation into the claims as well as the specification.  For example, if “storage medium” is described in the specification, Mewherter makes fairly clear that transitory media (i.e. signals) must be excluded to avoid patent eligibility rejections notwithstanding the fact that this has little to do with the substance or pioneering nature of an invention.  Since signals are fairly pervasive in modern technology, practitioners should proceed cautiously in making sure these limitations are included in applications as filed.

If you are confused by this rule, you are in good company.  The U.S. Court of Appeals for the Federal Circuit (CAFC) set forth this transitory media axiom in In re Nuijten where it established that signals encoded in any particular manner were ineligible subject matter even if the invention was just the sort society seeks to encourage with a patent system and even if the signal was tangible.  Why? Because the signal was transitory as opposed to being non-transitory as required by the CAFC (i.e. not by statute).

Nuijten and Mewherter leave on the table the question: If IBM had claimed a storage medium with a more pioneering invention such as Chakrabarty’s oil eating organisms or Edison’s incandescent lightbulb, would the PTAB have found a way to look past Nuijten to find eligibility?

Regardless, in Mewherter, if there had been express language in the specification or claims that excluded transitory media, the PTAB concedes that the invention would likely be eligible.  Accordingly, IBM has heeded the PTAB’s advice and amended its claims, meaning, an answer insofar as these facts is not far off.

Until then, the larger question as to the sensibility of this transitory versus non-transitory distinction remains.