Subject Matter Eligibility post Alice: A Boon Or A Bane For Tech Companies?

Subject matter eligibility for patent protection is not a new creation.  Since 1790, the Patent Act has provided in one form or another that “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent.” [1]  It is further not unheard of for the Supreme Court to address subject matter eligibility.  Starting in the mid-1800s, the Supreme Court determined that certain subject matter should be excluded from patentability, regardless of its novelty and non-obviousness.[2]  By the mid-19th century, it had become accepted and known that abstract ideas, laws of nature, and natural phenomena were ineligible for patent protection based on judicial exceptions created by the Supreme Court.  However, the bar for subject matter eligibility was still fairly low, as was made clear in Diamond v. Chakrabarty where the Court quoted the Committee Reports accompanying the 1952 Patent Act, which asserted “anything under the sun that is made by man” is eligible subject matter.[3]

Around 2010, however, the Supreme Court issued several opinions (Bilski, Mayo, Myriad, and Alice (collectively the “101 Decisions”)) that brought subject matter eligibility analysis to the forefront, making it more difficult to determine patent subject matter eligibility both administratively and in litigation.[4]  Biotechnology, software arts, and business methods have been particularly affected by these decisions.

As with many Supreme Court decisions regarding patent law, the 101 Decisions addressed very specific patents that represented extreme situations.  As is common for the Supreme Court, the 101 Decisions provided little generalized guidance for less extreme scenarios.  Unfortunately, this translates to much uncertainty as the USPTO (United States Patent and Trademark Office) and federal courts struggle to apply the holdings consistently across a wide variety of matters.

Now that we have moved past the five-year anniversary of the Alice decision, the federal courts have had an opportunity to interpret and apply the 101 Decisions on the patent litigation front.  The USPTO has also had an opportunity to interpret and apply the 101 Decisions on the patent procurement side.  The big question is: has this focus and shift in subject matter eligibility analysis been a positive or a negative for technology companies?  Of course, as with any major paradigm shift, there are generally two sides to the coin.

The First Side of the Coin: A New Weapon for Tech Companies

On one side of the coin, the 101 Decisions have been positive in providing an avenue for tech companies to invalidate patents asserted against them by nonpracticing entities (NPEs).  This positive effect was discussed in the Hennepin Lawyer early last year.[5]  Briefly, NPEs, or “trolls” as they are often called, are entities that typically do not market their own products, but rather obtain ownership in patented technologies and then license those technologies to others.[6]  While being an NPE is not inherently “bad” and the licensing of patented technologies falls squarely within the rights of patent holders, many NPEs have made a practice of accumulating sizable patent portfolios that are often heavily concentrated in computer technology.  These NPEs then demand tech companies pay licensing fees for these technologies to avoid the risk of patent infringement litigation.[7] 

Many of the patent assets of these NPEs for computer technology were issued in the 1990s and were granted with extremely broad claims for processes that are essentially the recitation of an abstract idea, mathematical formula, or law of nature with the addition of requiring a computer to execute the process.[8]  Due to these overly broad patents and the low threshold requirements for subject matter eligibility, for many years NPEs have successfully obtained large settlements from tech companies who sought to avoid costly and uncertain litigation.  Even if a tech company decided to defend the lawsuit and won, the tech company was out significant funds for defending the costly litigation, as there was no mechanism available to the defending tech company for swiftly and cost-effectively invalidating a granted patent.[9]

Enter the Supreme Court and the 101 Decisions to the Tech Companies’ Aid?

Starting with Bilski in 2010 and culminating with Alice in 2014, the Supreme Court has issued the 101 Decisions, concerning the validity of process patents involving biotechnology, business methods, and computer software technology.[10]  The major question at hand in the 101 Decisions was whether the claims of the granted patents were patent eligible subject matter and, if so, were the claims directed to a judicial exception and therefore invalid?The Alice decision in particular has led to increased focus and scrutiny of the validity of computer software technology patents.[11]  The Federal Circuit and district courts apply what has become known as the Alice/Mayo two-step test.  Essentially, the Alice/Mayo test is used to determine if a granted patent is invalid because the claims are directed to a judicial exception.  The judicial exception for computer software technology is primarily the abstract idea.[12]

In contrast to much of its past jurisprudence, the Federal Circuit has avoided formulation of a rules-based definition for “abstract idea.”  Instead, it has developed the body of law by contrasting claims of a particular patent to patentability decisions in prior cases and determining whether the current claims are comparable to those where patentability was denied or those where it was affirmed.[13]  The Federal Circuit’s departure from its traditional rules-based approach has left the patent bar struggling to reconcile some arguably inconsistent holdings.  Hopefully, more guidance will provide increased certainty in the future.  Regardless, to date the tech companies have found an advantage over NPEs under the Alice/Mayo construct.

The Flip Side of the Coin: Obtaining and Asserting Patent Rights by Tech Companies

With any paradigm shift, there are generally two sides to the coin.  The flip side of the coin here is the ability of tech companies to acquire patent rights in their own computer software technology.  After all, the 101 Decisions that have vexed NPEs in recent years apply equally to tech companies.  Moreover, the 101 Decisions have caused the USPTO to revise its approach to determining subject matter eligibility, particularly for computer software technology.  These developments have caused tech companies increased uncertainty both in obtaining patent protection and in deciding whether to enforce their own patent rights.

Asserting a Granted Patent in Infringement Litigation Post-Alice

The 101 Decisions left the Federal Circuit and district courts with the daunting task of attempting to interpret and apply what is little more than an ambiguous two-part test: 1) are the claims patent-eligible subject matter; 2A) are the claims directed to a judicial exception; 2B) do the claims involve an inventive concept that results in significantly more than the judicial exception.  With little additional definitions or clarification to go on, as mentioned above, the Federal Circuit has developed a vast body of caselaw based on the Alice/Mayo two-step test, invalidating many computer software technology patents along the way.[14] 

Based on the number of decisions the Federal Circuit has issued regarding subject matter eligibility, one might assume that the validity of an issued patent has become clearer and more predictable over time.  However, this has not been the case.  Thus far, the Federal Circuit has failed to provide a clear definition of “abstract idea,” what “directed to” means, and what qualifies as “significantly more.”[15]  Instead, the Federal Circuit continues to decide abstract ideas on an ad hoc basis, comparing the patent claims of the patent in question to the claims of previously decided cases.[16]  With each new case, given the volume of cases already decided, the comparison approach becomes more unwieldy.  Not surprisingly, this has resulted in a number of conflicting holdings.[17]  This very troubling development has not gone unnoticed by the judiciary.  In one recent dissent, Judge Richard Linn asserted that the current test “is indeterminate and often leads to arbitrary results.”[18]  Judge S. Jay Plager went even further, characterizing the current state of the law as “incoherent” and lamenting that determining patent eligibility with any certainty is “near impossible.”[19] 

One thing that is certain, however, is that many of the computer software technology patents considered by the Federal Circuit have been invalidated as a result of the 101 Decisions.[20]  Therefore, while the high rate of invalidity findings of NPE’s patents has been a welcome boon for tech companies, the uncertainty regarding the validity of their own patents has been an unwelcome consequence.  The approach the Federal Circuit has taken thus far has become so unpredictable that some in Congress have begun discussing legislation to remedy the matter.  For its part, the USPTO has issued new guidance that adds to the Alice/Mayo test and diverges from the Federal Circuit approach.[21]  However, the Federal Circuit has made clear that federal courts are in no way bound by the USPTO’s guidance.[22]  It remains to be seen whether the Federal Circuit will be able to provide clarity to the patent-eligibility test.

Obtaining a Patent for Computer Software Technology Post-Alice

All hope for clarity and predictability, however, is not lost, particularly on the administrative side of things.  Recently, the USPTO has taken significant steps to provide meaningful guidance to those seeking patent protection for computer software technology.  This is largely thanks to Director Andrei Iancu and his focus on clarifying subject matter eligibility, specifically in regard to abstract ideas.[23] 

In 2014, the USPTO issued its first guidance on patent subject matter eligibility post-Alice.[24]  The guidance, however, did little more than reiterate the Alice/Mayo holdings.  Following its initial guidance, the USPTO essentially adopted the Federal Circuit approach of using an ad hoc case-by-case comparison to determine patent eligibility.[25]  And, in an effort to make the approach work, it updated and issued new guidance and examples pertaining to patentability based on the Federal Circuit’s decisions.[26]  Unfortunately, this marked a five-year stint during which the USPTO encountered the same difficulties as the federal courts.  This approach also caused subject matter eligibility concerns to creep into technological areas that had not originally been affected by the 101 Decisions.[27]  This resulted in less certainty accompanied by a significant increase in the issuance of Section 101 rejections, particularly for patent applications in computer software technology.[28] 

To its credit, the USPTO recognized that the approach applied by the federal courts was unworkable when applied to patent application examination.[29]  And, in January 2019, the USPTO released a new set of guidelines diverging from the Federal Circuit’s approach modifying the Alice/Mayo two-part test.  The 2019 Guidelines sought to provide much needed clarity, predictability, and consistency to the determination of patentable subject matter.  Significantly, the 2019 Guidance succeeds by narrowly identifying groupings of what qualifies as an abstract idea and indicating that if the claims do not fall into one of the identified groupings, then they likely are not an abstract idea.  Likewise, if the USPTO determines that the claims recite an abstract idea, the new guidance involves a further determination of whether the claims incorporate the abstract idea into a practical application.  If so, the claims will be found patent eligible.[30]

While the guidance is relatively new, positive results have already become apparent.  In the first six months after the 2019 Guidance, Section 101 rejections have decreased and allowance rates have increased in all technology areas affected by the 101 Decisions.[31]  While allowance rates and Section 101 rejection rates are not back to pre-101 Decision rates, it is clear that the USPTO is well on its way to providing clarity and predictable guidance to tech companies seeking to obtain patent protection for computer software technology.

Conclusion

The 101 Decisions have significantly disrupted the status quo of computer software technology patent procurement and enforcement.  On one side, the 101 Decisions have undoubtedly provided a much-needed sword for tech companies in defending patent litigation lawsuits brought by NPEs.  On the other side, the 101 Decisions have brought significant uncertainty to tech companies’ ability to acquire patent rights for their own computer software technology.  Although the USPTO has made significant progress in clarifying patentability requirements for computer software technology to overcome the 101 Decisions, it still has work to do.  And despite recent improvements at the USPTO, uncertainty continues to linger in the courts.

Soon enough, all patents issued in the 1990s will expire.  When this happens, the value of the sword wielded against NPEs will be gone.  But tech companies will be left with uncertainty and unpredictability in acquiring their own patent rights.  Was the sword provided by the 101 Decisions really worth the benefit to tech companies?  Time will tell.  But given what has transpired over the last six years, it seems that the tech companies might have been better off with the status quo of predictability and certainty rather than the sword.

By Erin E. Block & Eric Chadwick

Erin Block  is an associate in DeWitt’s Intellectual Property Practice Group. She assists clients with all facets of intellectual property law, particularly patent prosecution, litigation, opinion letters, trademarks and copyrights. In this capacity, Erin helps to prepare domestic and international patent applications and handles the prosecution of those applications through to issuance.

Eric Chadwick's practice includes representing clients in various technology and commercial disputes throughout the U.S.  He focuses primarily on intellectual property litigation.   He works with his clients to achieve goal-oriented litigation.  Additionally, Eric has taken ten cases to verdict, in matters ranging from life-saving medical devices to farming technology.Prior to entering private practice, Eric served as law clerk to the Honorable Peder B. Hong in Minnesota’s First Judicial District.