August 2, 2014

The Alice Case

Alice Corp. Pty. Ltd. v. CLS Bank Int'l. (2014) is a landmark Supreme Court case that expands the assault on software patent scope for business methods.

In 2013, the Court of Appeals of the Federal Circuit (CAFC) determined that claims directed to a method for the exchange of financial instruments using a computer was not patentable subject matter under 35 U.S.C.§101, because the method was too abstract. However, the standard for "too abstract" was unclear, as evidenced by multiple conflicting opinions. Also unclear, was whether the method could be rehabilitated by embodying it in a computer apparatus, computer system or readable medium.

The Supreme Court determined that the method was too abstract because mitigation of risk using a computer is too abstract as determined by their previous decision in Bilski v. Kappos. (2010). A method that is too abstract is NOT rehabilitated by claiming it as an apparatus or system or article of manufacture configured to cause an apparatus to perform the method.

I believe this decision is problematic because it does not provide a useful standard and the reasoning is flawed.

This decision does not clarify the standard for use with other fact patterns. It merely states that the Supreme Court has already determined that computations to mitigate risk in financial transactions are too abstract. We still don't know what else is too abstract. This amounts to a warning that the Supreme Court knows what is too abstract when the Court sees it. The rest of us still have to guess.

The reasoning to support the assertion that mitigation of risk is too abstract is flawed. The two step reasoning is that A. the claims amount to a method to mitigate risk; and B. mitigating risk using a third party is old and has been done for centuries. If indeed the method has been used for centuries, then the method is unpatentable under 35 U.S.C. §102 as lacking novelty. A claim is unpatentable under 35 U.S.C. §101 no matter how novel it is because it overreaches, e.g., claims a law of nature or usurps all applications of a method so it is not limited to a particular commercial arena. Thus the novelty of the method is irrelevant to the analysis of whether the method is unpatentable under §101.

The Court has ignored many claim limitations to assert the claims amount to nothing more than a method to mitigate risk. The claims actually recite many limitations such as "credit records," "debit records," "shadow records," "start of day balance," "allow only some transactions," and "instruct transfer of end of day balance." Thus the Court has imposed a level of abstraction on the claims and then said the abstracted claims are too abstract. How is this different from abstracting a laser claim to "using a mirror to reflect light" while ignoring cavity size limitations. This goes against all standards for claim construction. Furthermore, Bilski was directed to claims to calculate risk. Both Bilski and Alice have to be blurred profoundly to characterize both as mitigating risk of a financial transaction using a third party.

The Court recognizes that such abstracting of claims can cause any claim to become too abstract and has noted "At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law". However, this caveat still leaves us with the know-it-when-we-see-it standard.

As practitioners, we are stuck with this decision. The know-it-when-we-see-it standard from Alice for a claim being too abstract could be applied to almost any financial transactions using a computer. Thus, claims in pending applications and in issued patents directed to business methods, no matter how novel, are liable to be challenged under the Alice rule.

I believe practitioners should continue to pursue software claims directed to processing data representing physical phenomena, and certainly to pursue software claims directed to software that manipulates physical phenomena. But, software clams for financial transactions are in danger

The Digitech Case

In Digitech Image Technologies, LLC v Electronics For Imaging, Inc . (2014) the CAFC ruled that a digital imaging processing system was too abstract and not patentable subject matter under 35 U.S.C. §101.

However, this decision does not mean that all software for digital imaging processing is non statutory subject matter under 35 U.S.C. §101. In this case, a method claim was directed to processing information and did not require the information to be represented in physical phenomena e.g., in a computer-readable medium or on a processor. Since it is standard practice to recite software methods as occurring on a processor or in a computer-readable medium, the claims produced by most practitioners are safe from this ruling. However, this ruling does imply that a process must apply to other statutory classes: composition of matter, article of manufacture or machine with changing states; and, a process is thus not on equal footing with the other statutory classes.