Uncertainty Looms Over Software Patents

Date: June 17, 2015

Following last year’s Supreme Court decision in Alice v. CLS Bank, the United States Patent and Trademark Office continues its struggle for clarity and consistency in establishing patent eligibility for software related patents. Meanwhile, the future of technological innovation hangs in limbo, as patents for software related inventions are being deemed ineligible at an excessive rate. 

The 2014 Supreme Court decision in Alice v. CLS Bank created a large amount of uncertainty around the proper method of determining patent eligibility for software related inventions. In the ruling, the court unanimously agreed that Alice Corporation’s patents were ineligible under Title 35 of the United States Code, §101, which sets forth that subject matter such as a naturally occurring article, a scientific principle, or an abstract idea is not eligible for patent protection.

Alice Corporation owned four patents pertaining to electronic methods of financial trading and performing financial transactions. The patents designated a third party function that could be executed by a general purpose computer and would serve as an intermediary between two trading parties. However, the Alice Corporation patents did not recite specifications, code or a description of the explicit function of the computer used for the process. In 2002, CLS Bank began using similar technology, at which point Alice representatives notified the company of potential patent infringement.

Despite owning patents directed to the electronic escrow process, Alice Corporation never produced physical systems to execute the function, and did not use the system for commercial purposes. On the contrary, CLS Bank successfully developed a system that it used to support the function described in Alice’s patents. In 2007, lawsuits ensued on behalf of CLS Bank claiming that the four patents owned by Alice were invalid. The Federal Circuit court ruled in favor of CLS, granting that the escrow function described in Alice’s patents were based on basic, fundamental concepts of business and finance, ultimately rendering them abstract ideas and making them ineligible for patent. After many subsequent appellate hearings, Alice petitioned the Supreme Court for a Writ of Certiorari, leading to the ruling that stands today.

Implications of The Supreme Court Ruling

In the wake of the judgment, the United States Patent and Trademark Office (USPTO), as well as federal and district courts, have struggled to create comprehensive and consistent guidance for determining what is properly patentable in the software realm. The resulting uncertainty has lead to numerous claims being rejected, adversely affecting the valuation of patents, if not rendering them valueless altogether.

The ambiguity of the Alice decision has created disarray within the software sector. When USPTO examiners cannot dedicate ample resources to complex patent claims, such as those involving software, information within claims can easily be misconstrued and deemed ineligible. Critics maintain that the USPTO does not have such resources, especially given that more than half of all pending patent claims are software and information systems based.

In an effort to provide additional guidance and some measure of consistent treatment, the USPTO published a “Subject Matter Eligibility Test for Products and Processes”, outlining a two-step analysis process for examiners to use when assessing software patent eligibility. However, reports indicate that examiners and legal authorities are improperly utilizing the tool, instead clouding explicit guidance with personal interpretation. Examiners continue to reject software related patent claims citing 35 U.S.C 101, effectively dismissing potentially valuable software innovation at its earliest stage of development.  The future of software innovation remains threatened in the hands of USPTO examiners and judges until unequivocal clarity in the review process can be instituted. 

Questions about intellectual property and your business? Contact the attorneys at Whiteford Taylor Preston.