Patent System Benefits From Supreme Court Guidance In Alice v. CLS Bank

Friday, October 17, 2014 - 12:05

The Editor interviews David W. Long, a Partner in Kelley Drye’s Washington, DC office.

Editor: Provide a brief description of your practice.

Long: I started out as an engineer rocket scientist before going into law. My 20-year patent practice focuses primarily on litigation in district and appellate courts, as well as proceedings in the U.S. Patent and Trademark Office (“Patent Office”). I’ve also enjoyed policy work through leadership responsibilities at various bar organizations, and I was honored by a White House invitation to comment on patent law reform. Lately I’ve been focusing on developments with standard-essential patents, the subject of my blog, Essential Patent Blog.

Editor: Please summarize the issues considered by the U.S. Supreme Court in Alice Corp v. CLS Bank (Alice).

Long: This case primarily impacts software- or computer-implemented inventions. Alice dealt with a patent on a generic computer implementing a conventional business practice of using a third-party intermediary (clearing house or escrow agent) to mitigate the “settlement risk” that a party cannot fulfill its obligation in a transaction. Each side’s consideration is exchanged once the intermediary receives the required consideration from both sides. The issue presented was whether someone could patent using generic computer components to implement “the abstract idea of intermediate settlement” that is a long-standing “fundamental practice” and “building block of the modern economy.” The Court said no.

Editor: How does Alice contribute to the evolution of the Court’s approach to software patents?

Long: The short answer is: incrementally. There’s nothing earth shattering about Alice. The Court applied prior decisions to a new set of facts, resulting in incremental guidance on this nuance issue. The bigger impact of Alice is that it resolved a stalemate in the Federal Circuit appeals court that is tasked with developing patent law. Here, the Federal Circuit judges agreed that the patent claims were invalid, but they disagreed as to why and, thus, gave no guidance to practitioners. Stalemates and attendant uncertainty often happen in these gray mushy areas, so it’s significant that the Supreme Court decision breaks the stalemate to keep progress flowing.

Editor: Has certain technology become so ubiquitous that it is considered a building block of innovation and therefore is exempt from patentability under Section 101?

Long: The Court’s decision was based on generic computer technologies being “ubiquitous.” The Court reasoned that computers and generic computer devices have been around for a long time and are now building blocks used to invent other things. Further, the Alice patent didn’t even add a technological improvement to an otherwise common computer function. So, in recognizing that ubiquitous technology was being applied to an ancient idea, the Court decided not to allow the patent. This raises the following question: Is there a point in time when technology becomes so well-known that it can no longer be patented because it’s a fundamental building block for current and future innovation? We patent attorneys conventionally address this concern by referring to other well-defined statutory provisions that preclude patenting things that were known or would have been obvious. But has the Supreme Court endorsed a “super-obviousness” analysis on the mushier issue of what can be patented? We’ll see where the courts go with this.

Editor: Of course, that begs the question of why they got the patent in the first place.

Long: It’s a good question, and the Patent Office is revisiting if and how it should change the examination proceedings to avoid patents that the Court will find ineligible. It’s likely that the Alice patent got through because well-intentioned people at the Patent Office have only so many resources. Patents are routinely granted that later are found invalid on a variety of grounds, so nothing special here.

The Patent Office does have an enhanced procedure for examining business-method patents. Notably, Justice Sotomayor expressed her opinion that such patents shouldn’t be allowed at all. And it’s easy to say, for example, one should not patent the concept of “buying low, selling high” and use a computer to do it. But not all cases are that easy. In the end, I would say that the Alice patent just got through the system, and the Court later found the patent invalid, as occurs with many patents.

Editor: Traditional methods claims have required a proof that one single actor performed or directed the performance of every step in the method. Was new ground broken, given that Alice involved a third-party actor?

Long: The Court’s handling of the validity claim in Alice did not break new ground, but your question raises an interesting point about trends. Right now, we’re seeing a lot of development in case law on multiple-actor cases, meaning cases where someone other than the defendant does some part of the alleged infringement. However, these cases focus on whether the patent is infringed and not whether it’s invalid. In fact, a recent Supreme Court decision, Limelight v. Akamai, dealt with the issue of multiple actors in the context of patent infringement. Based on trends, I expect that whatever creative arguments may ensue based on multiple actors, they likely will focus on the infringement side, not on validity.

Editor: Will the definition of underlying concepts, such as “abstract ideas,” evolve as a result of Alice?

Long: There has been incremental development on what is an unpatentable abstract idea, and that development should continue. So far, the Court has addressed patent eligibility in cases that involved well-known, or old, abstract ideas: Bilski was about financial hedging, and Alice was about third-party intermediaries to settle a financial contract. The really interesting question is: what do the courts do when someone develops a wholly new abstract idea? When someone first intuited, for example, that 2+2=4 and 2*2=4 and 22=4, this was a completely new insight. While it may have contributed greatly to society to know, it is still a fundamental building block that could not be patented from day one. If it were patented, you couldn’t build a car or anything else without paying a license fee every time that fundamental mathematical relationship was used. So we may see interesting developments in the way courts handle generic computer implementation of new abstract ideas, though such case law development will be a marathon, not a sprint.

Editor: What is the significance of the Court’s identifying “preemption” as the animating principle of its Section 101 analysis?

Long: Preemption goes to the idea of keeping freely available the basic building blocks used to innovate, such as keeping basic mathematical relationships available, as mentioned above. In Alice, the Court made this same point about using the age-old business practice of having a third-party intermediary that is implemented using “ubiquitous” generic computers, which is how anyone would implement that technology today now that we have computers. It all comes down to allowing people to freely use today's basic building blocks to make better things for tomorrow.

Editor: Has the Alice Court sent a message about the need for courts and the Patent Office to delve deeper into the subject matter of patents and take Section 101 exceptions seriously?

Long: It is appropriate that only incremental guidance came from Alice, especially because the issues are mushy. I’ve based my career on patent law. I love it, and I don’t want to see too much backlash in over-applying or stretching the Court’s incremental guidance to the point of stifling innovation. Remember, Alice’s bigger accomplishment was in settling the “why” on the issue of whether the patent was invalid given the inconclusive Federal Circuit stalemate. Almost any answer would be better than the hopelessly unsettled state the Federal Circuit left us in. So the message should be to go forward, but to do so showing the same incremental judicial restraint demonstrated by the Supreme Court itself.

Editor: What are the implications for existing patents?

Long: Some patents will have this issue, but that’s par for the course since any patent might be challenged on any number of grounds, such as prior art or definiteness. The news is that Alice gave us helpful tools that practitioners can use in evaluating patents, and we will see development in this area near term. Already, we’re seeing that more district courts are invalidating patents on this ground at the motion-to-dismiss stage, which is very early in the litigation process compared to the practice before Alice.

Editor: What is the impact of Alice on patent trolls, or non-practicing entities (“NPEs”) that are legitimately engaged in innovation?

Long: First, I prefer not to use the term patent troll. It’s pejorative, and it doesn’t advance the ball toward understanding the problem. I regularly speak on this issue and focus more on the behavior or type of perfect-storm situation that points to the small subset of patent owners that may abuse the patent system. The term “NPE” for non-practicing entity is incomplete. I prefer the term “non-innovating, non-practicing, patent-monetization entity” (or “NINPPME,” if you will). It’s a mouthful, but is more aligned with the type business models that tend toward problematic behavior. Being a NINPPME does not make one bad by default, but that business model is more inclined toward bad behavior than other business models.

“Good” NPEs are constantly innovating. For instance, universities have brilliant people who do a great job of innovating; however, you don’t want them actually making your car. Other people are better suited to take that innovation and actually bend metal and do what’s necessary to place a finished product into the public’s hands. So you certainly don’t want to discourage innovators solely because they are not making or “practicing” their invention. You want to reward them to continue their innovations. A “good” NPE should not have to worry about Alice any more than any other entity; like others, they should carefully draft patent claims and enforce patents with Alice in mind to seek licensing fees commensurate with the merits of their invention.

While the issue is not as prevalent as some complain, the unfortunate reality is that some NINPPMEs are asserting questionable patents and using the cost of litigation – rather than merits of the invention – to leverage settlement. Generic computer-implemented patents – e.g., use a computer to do a well-known thing – tend to be broad and vague and, therefore, more prone to Alice-type patent eligibility issues. Although such patents probably are invalid under traditional prior-art challenges, the Alice decision provides another tool to challenge those patents and potentially do so at an earlier stage in the case, such as a motion to dismiss, thus reducing litigation cost. So Alice’s incremental guidance and push through the Federal Circuit stalemate may provide some relief against problematic NINPPMEs playing around the fringes.

Editor: Please give us some final thoughts.

Long: While the U.S. patent system has been under attack by certain opportunists, it remains, without a doubt, the greatest system for innovation that the world has ever seen. Like all systems, it needs to be tweaked as new issues come along, whether they pertain to computer-implemented inventions or something we can’t yet imagine. Alice was right in addressing the issues incrementally and not losing sight of, or doing harm to, our great system for innovation. In continuing to improve our patent system, use a scalpel, not a cleaver. 

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