Software Patents: A Discussion Of Issues And Case Law

Friday, October 19, 2012 - 16:19

The Editor interviews Timothy E. DeMasi, a Partner in Weil's Patent Litigation Group in the New York Office.

Editor: Please tell us about your background and current practice.

DeMasi: I’ve been a partner in the Patent Litigation Group at Weil since 2002. My practice is exclusively patent litigation and focuses primarily on computer hardware and software technologies given my background in electrical engineering. I’ve represented plaintiffs and defendants, practicing entities and non-practicing entities. I also co-teach patent litigation at Columbia Law School.

Editor: Does the America Invents Act (the “AIA”) properly comprehend innovation in today’s technology space?

DeMasi: That’s a very big question. In broad terms, the AIA harmonizes U.S. and foreign law on the first-inventor-to-file principle, redefines prior art, and seeks to improve the quality of patent review, both before and after issuance, through third-party pre-issuance submissions, post-grant review, inter partes review and supplemental examination.

There are also a number of provisions that address specific issues identified by the patent community, such as false marking claims and joinder of multiple defendants in one suit. The AIA also eliminated the best mode defense and limited the use of evidence – notably, the failure to provide an opinion of counsel – to prove willfulness or inducement. So, it’s clear that the AIA made progress in certain areas.

The AIA does not, however, directly address one of the biggest issues percolating in the legal community right now – the question of whether and to what extent software inventions should be eligible for patent protection. This issue has even spilled over into the popular press, prompted largely by the smartphone wars, the Apple v. Samsung trial, and commentary by Judge Posner and others. Significantly, the Federal Circuit very recently ordered rehearing en banc in the CLS Bank v. Alice Corp. case on the issue of what test the court should adopt to determine whether computer-implemented (i.e., software) inventions are patent eligible.

Editor: Take us through the evolution of judicial treatment of the patentability of software patents. What is the latest thinking as a result of CLS Bank?

DeMasi: Starting with first principles, Section 101 of the Patent Act provides that any new and useful process, machine, manufacture or composition of matter is patentable. The Supreme Court has identified three exceptions to Section 101: laws of nature, physical phenomena and abstract ideas. The exception most relevant to software patents is abstract ideas.

In Gottschalk v. Benson (1972), the Supreme Court stated that while an abstract idea cannot be patented, the application of an abstract idea may be patentable. In that case, the Court held that a method of programming a general-purpose computer to convert binary-coded decimal numbers to pure binary was an abstract mathematical concept and, thus, ineligible for patent protection. According to the Court, merely implementing a mathematical concept on a computer is not a patentable application of that concept.

In Parker v. Flook (1978), the Court again held a method for calculating values – in this case, a method for calculating and updating values of alarm limits during a catalytic conversion of hydrocarbons – abstract and not eligible for patent protection. The Court noted that the prohibition against patenting abstract ideas cannot be circumvented by limiting the idea’s use to a particular technology.

In Diamond v. Diehr (1981), the Court held that a method of molding rubber into products using a mathematical formula that was completed by way of a computer was a patent-eligible application of a mathematical formula or abstract idea, noting that the invention should be considered as a whole.

More recently, the 2010 Bilski v. Kappos case involved a patent on how buyers and sellers of commodities in the energy market can hedge the risk of price changes. The Supreme Court found this subject matter to be patent ineligible because it involved the abstract concept of hedging risk and the use of that concept in energy markets.

Following Bilski, the Federal Circuit examined the patent eligibility of several business method patents, which some argue are a category of software patents more generally. Probably because the abstract idea test is itself fairly abstract, the cases went both ways, and it has sometimes been difficult to reconcile the opinions.

Earlier this year, the Supreme Court gave us its latest thoughts on patent eligibility in Mayo v. Prometheus. In this case, the Court examined methods that help doctors treating autoimmune disease to determine whether a dosage of thiopurine drugs is too high or too low. In determining that the methods were patent-ineligible laws of nature rather than patent-eligible applications of laws of nature, the Court first put aside the law of nature and determined that the rest of the claim did not include some inventive concept that warranted patent protection. In other words, the rest of the claim was well-understood, routine and conventional activity already employed by the scientific community. While the Court decided this case under the laws of nature exception, its reasoning appears to apply equally to the abstract idea exception.

More recently, in the CLS Bank case, the Federal Circuit considered a patent on computerized trading in which a trusted third party settled obligations between a first and a second party to eliminate settlement risk. To its credit, the CLS court acknowledged that the abstractness of the abstract idea test has become a serious problem, and that the dividing line between abstract ideas and the patent-eligible application of those ideas is elusive. The court, however, did not clarify the test, but instead created what is essentially a presumption of patent eligibility – the subject matter is patentable unless it is manifestly evident that it is directed to a patent-ineligible abstract idea. Applying this rule, the Federal Circuit upheld the patent, finding that “the asserted claims appear to cover the practical application of a business concept in a specific way.” In a forceful dissent, Judge Prost criticized the majority’s new rule, accused the majority of not applying the test laid out in Prometheus, and characterized the basic idea of "credit intermediation" as dating back to the Roman Empire.

Within the last few weeks, the Federal Circuit has vacated the CLS Bank opinion, and ordered rehearing en banc on the issue of “What test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible ‘abstract idea.’”

Editor: What are some of the issues unique to software patents?

DeMasi: There are several theories out there on what makes software patents unique. One popular theory is that, unlike patents on more traditional technologies, software patents are awarded on small, incremental additions to prior inventions, thereby creating a “thicket” of overlapping patents that allegedly impedes rather than promotes innovation. I’m not convinced that software patents are any more incremental than many other types of patents I’ve seen, but if this theory is true, one could argue that the provisions in the AIA that seek to improve the quality of both pre-issuance and post-issuance patent review will help. I’m skeptical.

Another theory is that, unlike more traditional patents, software patents by their very nature are more abstract, and can therefore be more easily applied to technologies beyond those that the inventor originally contemplated. If that theory is right, then one could see how the Federal Circuit’s en banc decision in CLS Bank could have an impact. The difficulty, however, of defining a patent-ineligible abstract idea and distinguishing it from a patent-eligible application of an abstract idea is about the only thing that is clear.

Editor: What is the Federal Circuit’s current view of software patents?

While a number of commentators have questioned whether software inventions should be eligible for patent protection at all, various judges on the Federal Circuit, including Chief Judge Rader, have expressed the opinion that computer software and hardware advances deserve patent protection because they drive innovation in every area of scientific and technical endeavor.

And while the Federal Circuit has expressed a willingness to apply the abstract idea test to invalidate business method patents, there is a real question as to whether they are willing to apply the abstract idea test to software patents more generally, including those that appear more “technical.”

Also, if the Federal Circuit does perceive problems with software patents generally, will they address those problems using Section 101 or some other provision of the Patent Act, such as written description, functional claiming, obviousness or even claim construction? Query whether the Federal Circuit has already started addressing what it considers to be problems with software patents in its recent decisions, including those on damages, nexus for injunctive relief, and nexus for commercial success.

Editor: Are the R&D efforts and legitimate business interests of small, independent inventors under threat in the current patent environment?

DeMasi: The Supreme Court has acknowledged that the patent system is a double-edged sword that can both promote innovation by rewarding inventors and impede progress by granting patents that are not justified by the statutory design. Individual inventors are often concerned about both protecting their inventions and building their businesses. Offensively, there are now a number of lawyers and companies in the industry that will assist individual inventors in enforcing their rights against perceived infringers. Defensively, increasing the quality of patents that are issued by the Patent Office and keeping the costs of patent litigation down are keys to protecting individual inventors.  

Editor: Given that competitors in the technology space will continue to develop and release new products, what is the likely direction of patent protections in this area?

DeMasi: The large players in this space are aligned on certain issues, and obviously at odds on others. Part of this dynamic is attributable to how fluid and multidimensional the patent landscape is these days, with practicing and non-practicing entities purchasing patents and with the major competitors engaged in far-ranging patent wars. Certainly, there are examples from the past of other industries entering into patent wars, which often play themselves out to an end because everyone becomes battle weary and no longer wants to allocate so much money and so many resources away from actual innovation. How the current patent wars will play out is anyone’s guess.

Please email the interviewee at  tim.demasi@weil.com with questions about this interview.