Last fall, I reported that the District Court for the Central District of California had used the Bilski abstract idea subject matter exclusion to invalidate the claims of Ultramercial’s U.S. Patent No. 7,346,545.  At that time I wasn’t 100% confident that the Federal Circuit wouldn’t agree.  Fortunately for holders of Internet-based inventions, Chief Judge Rader, joined by Lourie and O’Malley, in a well reasoned and common sense opinion, reversed and remanded in Ultramercial v. Hulu – Case No. 2010-1544.

As described in the decision, the claimed invention of the ‘545 patent is a “method for monetizing and distributing copyrighted products over the Internet.”  The court further observed that the ’545 patent seeks to remedy problems with prior art banner advertising, such as declining click-through rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product.  ’545 patent col. 2 ll. 14-18. 

The court found that the claimed invention was “a practical application of the general concept of advertising as currency and an improvement to prior art technology.”  The court concluded that the claimed invention is not “so manifestly abstract as to override the statutory language of section 101.” 

In its discussion, the Federal Circuit reinforced the notion that 35 U.S.C. Section 101 at least includes technical inventions:  “Moreover, title 35 does not list a single ineligible category, suggesting that any new, non-obvious, and fully disclosed technical advance is eligible for protection, subject to the following limited judicially created exceptions.”  The court also pointed out the claimed invention involved technical advances:  “[v]iewing the subject matter as a whole, the invention involves an extensive computer interface,” and that, “[b]y its terms, the claimed invention invokes computers and applications of computer technology.”  The notion that technical inventions in the software area fall within Section 101 was also put forth last year in Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859 (Fed. Cir. 2010).  In that case, the court noted that “inventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act.”

The court also takes time to dismiss the contention that the software programming necessary to facilitate the invention deserves no patent protection or amounts to abstract subject matter or, in the confusing terminology of machines and physical transformations, fails to satisfy the “particular machine” requirement.  In doing so, the court reaches back nearly 20 years to its discussion in In re Allapat, Fed. Cir. 1994, where it observed that “programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.”

The court notes that, in other words, a programmed computer contains circuitry unique to that computer.  That “new machine” could be claimed in terms of a complex array of hardware circuits, or more efficiently, in terms of the programming that facilitates a unique function.  The digital computer may be considered by some the greatest invention of the twentieth century, and both this court and the Patent Office have long acknowledged that “improvements thereof” through inter-changeable software or hardware enhancements deserve patent protection.  Far from abstract, advances in computer technology—both hardware and software—drive innovation in every area of scientific and technical endeavor.  

This notion, that a programmed computer is in itself a “particular machine”, refutes and rejects the notion that a claim to software in combination with a computer requires the computer itself to be “partricular” and not just a general purpose machine, in order to satisfy the “particular machine” requirement of the machine or transformation test.  Clearly this is good news for software patent claims. 

On the other hand, the decision makes clear that claims reciting only a mathematical algorithm or steps that can be performed by the human mind are more likely to be abstract.  The court distinguished the claims of Cybersource from the Ultramercial claims: “Unlike the claims in CyberSource, the claims here require, among other things, controlled interaction with a consumer via an Internet website, something far removed from purely mental steps.”

While the Ultramercial case advances the principle that complex software programs with technical features (as carried out on a computing infrastructure) are in the statutory bucket, it  does not address what is to done with non-technical software inventions, indeed if there is anything such as that, that apply or implement abstract ideas.  To be on the safe side in drafting claims, it would be advisable to focus on describing and claiming the technical aspects of any invention involving a financial or otherwise suspect abstract concept.

Those holding or seeking software patents should be encouraged by this sensible decision, and I am encouraged the opinion continues to bring a solid common sense approach back to analyzing the patentability of software inventions.  While the “abstract idea” exception is far from dead, it at least appears that software inventions that are arguably “technical” in nature will survive a challenge from Bilski, at least as far as the Federal Circuit is concerned.

 For your reference, the ’545 patent claims:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

a first step of receiving, from a content provider, media products that are covered by intellectual property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;

a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously pre-sented is less than the number of transac-tion cycles contracted by the sponsor of the sponsor message;

a third step of providing the media product for sale at an Internet website;

a fourth step of restricting general public access to said media product;

a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the con-sumer views the sponsor message;

a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;

a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;

an eighth step of, if the sponsor message is not an interactive message, allowing said con-sumer access to said media product after said step of facilitating the display of said sponsor message;

a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;

a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and

an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

With all the confusion about Section 101 and how it includes or excludes computer software inventions, or what level of disclosure constitutes “structure” for the purposes of 35 U.S.C. Section 112, it may help to take a quick step back and look at exactly what “software” is.  While Wikipedia is far from a perfect source to quote, I like its definition of software:  “Computer software, or just software, is a collection of computer programs and related data that provide the instructions for telling a computer what to do and how to do it. In other words, software is a conceptual entity which is a set of computer programs, procedures, and associated documentation concerned with the operation of a data processing system.” (http://en.wikipedia.org/wiki/Software)

In other words, “software” constitutes both a definition of specific electronic operations to be performed by an electronic computing system, and also, at its base level, actual instructions, in the form of electrical logic signals, to cause the computer to perform the electronic operations.  Generally, software can be divided into two categories:  low-level software that constitutes instructions in the form of digital logic elements that can be read by the computer, transformed into digital signals usable by the computer’s electronic circuits, and executed from a collection of possible machine operations.  Different combinations of these electronic operations can be used to accomplish a multitude of modern data processing results.

High-level software is software that can be used, by compilation or by interpretation using a computer itself, to produce the low-level software needed to program/cause the computer to perform desired electronic operations.  A computer, suitably programmed, can read high-level software to produce the low-level software and in turn electronic operations required to cause a computer to perform electronic computer operations.

High-level software itself if often represented by a flowchart, which itself typically describes a sequence of desired computer operations, at the electronic level, to perform a given computerized process.  In some cases, a flowchart can represent exactly the precise, lowest level electronic operations performed by a processor, such as peforming add functions, shift functions, load functions, bus functions, etc…   Such a flowchart would also serve as an exact specification for the construction of a fully hardware electronic device, i.e., one in which no software was involved, but rather all functionality was built into the electrical architecture/design of the electronic device.

Higher level flowcharts by nature and perhaps by definition, define less precisely exactly how a particular processor will perform the desired sequence of electronic operations, and as such omits the details of such operations.  However, the ultimate result or functionality to be achieved by whatever exact sequence is chosen is defined.  Where such “high level functionality” is novel, it could meet the test of non-obviousness. 

Interestingly, cases such as In re Aoyama, discussed in a previous posting, suggest that some such software inventions can be described too generally to constitute “structure” under 35 U.S.C.  § 112 ¶ 6, and as such claims directed to such functionality in a means plus function format are unpatentable as indefinite under 35 U.S.C. § 112 ¶ 2.  This begs the question, what constitutes “structure” in a software environment.  Certainly, if the software is low-level, in that it exactly describes an exact electronic process, i.e., sequence of computer operations to be peformed, it must constitute an acceptable level of structure or else it is not possible to achieve a means plus function claim for a software invention.  When the description of functionality is at such a high level that a multitude of different low-level software-specified processes are possible for achieving the defined functionality, it can be said that constraints on “equivalents” under 35 U.S.C.  § 112 ¶ 6 can only be applied at the high level of the software description, since there is no low-level definition.  If the high-level description is a series of high level functions or steps, then one could argue that the specific means to achieve each function or step is unconstrained, and that the only constraint on equivalents is whether the high level functionality, i.e, the high level functions or steps, are equivalent. 

The majority in In re Aoyama seems to be suggesting that where a software process is claimed under 35 U.S.C. § 112 ¶ 6, a machine-specific implementation must be provided, i.e., an implementation that describes with particularlity how the low level electronic operations available in a particular type of computer are used to perform the claimed operation.  This description would provide the most definitive description of software structure possible to describe, and therefore would have to pass muster or software description ever could.

In the end, software practicioners need to be aware that the safest grounding for a software case is in the actual electronic operations performed by a computer in response to the software.  The more examples of how high-level software can be implemented by low-level code, the more bullet proof a software application will be from the perspective of 35 U.S.C. § 112.  While one would think that actual source code (and the compiler or interpreter to be used) or object code may be overkill in this day and age, when it is available, submission of such code in an appendix may be the easiest way to always provide at least one very specific implementation in low-level software that is unassailably as structural as one can achieve.

My thanks to Justin McCarthy for this guest post:

On July 29, 2011, The Federal Circuit decided The Association for Molecular Pathology v. Myriad Genetics, 2010-1406 (Fed. Cir. July 29, 2011).  While this case deals with the patentability of gene fragments and methods of use, the case does present interesting questions surrounding the patentability of software.   Myriad was brought by a number of medical organizations, researchers, genetic counselors, and patients as a declatory judgment proceeding against a number of patents that Myriad had secured which protect both the isolated gene fragment BRCA1 and BRCA2 as well as methods for using those gene fragments to detect certain breast and ovarian cancers.  Myriad, at 8-9.   The court’s decision has two parts, both having implications for the software patent landscape.

Part I – The method claims:

The patent included claims drawn both to the gene fragments themselves as well as methods for using the gene fragments.  The court’s decision on the method claims was the only part of the decision that was unanimous.  The decision on the patentability of the gene fragments was split 2-1.

The challenged method claims recite:

1. (‘999 patent) A method for detecting a germline alteration in a BRCA1 gene, said alteration selected from the group consisting of the alterations set forth in Tables 12A, 14, 18 or 19 in a human which comprises analyzing a sequence of a BRCA1 gene or BRCA1 RNA from a human sample or analyzing a sequence of BRCA1 cDNA made from mRNA from said human sample with the proviso that said germline alteration is not a deletion of 4 nucleotides corresponding to base numbers 4184-4187 of SEQ ID NO:1.

1. (‘001 patent) A method for screening a tumor sample from a human subject for a somatic alteration in a BRCA1 gene in said tumor which comprises [] comparing a first sequence selected from the group consisting of a BRCA1 gene from said tumor sample, BRCA1 RNA from said tumor sample and BRCA1 cDNA made from mRNA from said tumor sample with a second sequence selected from the group consisting of BRCA1 gene from a nontumor sample of said subject, BRCA1 RNA from said nontumor sample and BRCA1 cDNA made from mRNA from said nontumor sample, wherein a difference in the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said tumor sample from the sequence of the BRCA1 gene, BRCA1 RNA or BRCA1 cDNA from said nontumor sample indicates a somatic alteration in the BRCA1 gene in said tumor sample.

20. (‘282 patent) A method for screening potential cancer therapeutics which comprises: growing a trans-formed eukaryotic host cell containing an altered BRCA1 gene causing cancer in the presence of a compound suspected of being a cancer therapeutic, growing said transformed eukaryotic host cell in the absence of said compound, determining the rate of growth of said host cell in the presence of said compound and the rate of growth of said host cell in the absence of said compound and comparing the growth rate of said host cells, wherein a slower rate of growth of said host cell in the presence of said compound is indicative of a cancer therapeutic.

The court held all but claim 20 invalid under 35 U.S.C. 101 as directed to abstract ideas and therefore not patent eligible.  The court found that claims 1 and 2 recited nothing more than abstract mental steps necessary to compare two different nucleotide sequences.  The court summarized the claims as “look at the first position in a first sequence; determine the nucleotide sequence at that first position; look at the first position in a second sequence; determine the nucleotide sequence at that first position; determine if the nucleotide at the first position in the first sequence and the first position in the second sequence are the same or different, wherein the latter indicates an alteration; and repeat for the next position.” Myriad, at 50.

The court stated that while the application of a formula or abstract idea in a process may describe patentable subject matter, the claims at issue did not describe applying the step of comparing two nucleotide sequences in a process, rather the comparison was the process. 

The court also briefly distinguished Prometheus Labs., Inc. v. Mayo Collaborative Servs., 628 F.3d 1347, 1350 (Fed. Cir. 2010), cert. granted 2011 WL 973139 (June 20, 2011), which upheld a claim including the steps of  “(a) “administering” a thiopurine drug to a subject, and/or (b) “determining” the drug’s metabolites levels in the subject, wherein the measured metabolite levels are compared with predetermined levels to optimize drug dosage.” Myriad, at 52.  The court stated that in addition to the “administering” step being transformative, that the “determining step” was both transformative and central to the purpose of the claims.  Because the determining step could not be determined merely by inspection, the determining step required a transformation, i.e. the metabolites must be extracted and analyzed from a bodily sample.  The court held that the method claims in the instant case were capable of being performed by mere inspection and thus were not transformative. Id.

The court did hold that claim 20 was valid stating: “the claim recites a method that comprises the steps of (1) ‘growing’ host cells transformed with an altered BRCA1 gene in the presence or absence of a potential cancer therapeutic, (2) ‘determining’ the growth rate of the host cells with or without the potential therapeutic, and (3) ‘comparing’ the growth rate of the host cells. The claim thus includes more than the abstract mental step of looking at two numbers and ‘comparing’ two host cells’ growth rates. The claim includes the steps of ‘growing’ transformed cells in the presence or absence of a potential cancer therapeutic, an inherently transformative step involving the manipulation of the cells and their growth medium. The claim also includes the step of ‘determining’ the cells’ growth rates, a step that also necessarily involves physical manipulation of the cells.” Id. at 53.

The impact of this case is likely to be important to software patents as many such patents commonly contain method claims which rely on analyzing and comparing data.  To avoid invalidation after Myriad, practitioners’ should consider adding transformative limitations which attempt to remove the method from physically being able to be performed by a human mind.  For example, practitioners’ may consider adding limitations relating to the computer system as a whole, such as using calculated information to control a peripheral device or another computing device; transforming data from one form to another using a processor; receiving input (preferably reciting the source of the input – e.g. a network, a keyboard, or the like); or any other tangible connection that ties into the software method.  This will leave an argument that the method cannot be performed simply by a human mind and that some tangible step (such as physically sending electrons to a device) is necessary.  Such a connection should be as substantial as practically possible as a court may find such connections to be merely post-solution activity or data gathering steps which will not save the claim.  However, at least it leaves the litigators an argument for why the claim is not so abstract as to be unpatentable. 

Bottom line, practitioners’ may be better off with a slightly narrower claim with more specific limitations that concretely tie the method to a particular machine, rather than a broad method claim which could literally be performed by a human mind.

Part II the Gene Fragment Claims

The gene fragment claims are only applicable to computer software patents in the sense that the arguments used by the Federal Circuit to uphold the validity of Myriad’s gene fragment claims undercut the very reasoning that the Federal Circuit used weeks later to invalidate a patent drawn to a machine readable medium in Cybersource Corp. v. Retail Decisions, Inc., App. No. 2009-1358 (Fed. Cir. Aug 16, 2011).  In Cybersource, the court addressed both method and machine-readable medium claims.  The court first held that the method claims were invalid under 35 U.S.C. 101 as drawn to an abstract idea.  Continuing with the machine-readable medium claim, the court held that “[r]egardless of what statutory category . . . a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.  Here, it is clear that the invention underlying both claims 2 and 3 is a method . . . “ Id. at 17.  So in essence, the court ignored the structural limitations that are inherent when discussing a machine readable medium (e.g. the physical re-arrangement of electrons on a medium) to look at what the machine-readable medium does as opposed to what it is.

The Myriad panel had three separate opinions.  The opinion from Judge Lourie took an approach that is inconsistent with the Cybersource court to save the gene fragment claims.  Namely, Judge Lourie ignored the functional similarities between the function of an isolated gene fragment and the function of that same gene fragment as a part of the full gene in the human body and focused instead on the structural differences between the gene in the human body and the patented fragment.  Judge Lourie found that in nature, isolated DNA fragments are covalently bonded to other such molecules.  When cleaved to form the claimed fragment, those bonds are broken forming an isolated DNA molecule that is a “distinct” entity. Myriad, 43-4.  Dismissing arguments from the Plaintiffs’ that despite any change in the chemical makeup of this molecule, the serve the same purpose – they both store the same set of information (e.g. to encode for protein production), the court stated: “[w]e disagree, as it is the distinctive nature of DNA molecules as isolated compositions of matter that determines their patent eligibility rather than their physiological use or benefit.”  

Judge Lourie here is clearly going to great lengths to uphold the patentability of the gene fragment, going into extreme detail regarding slight changes in chemical composition (one wonders why these small changes aren’t an obvious variation of the gene found in nature – but I digress) and ignoring altogether the function and purpose of the gene fragments.  This is contrary to the court’s reasoning in the Cybersource case where they only looked at the function of the product as opposed to its structure.  

Judge Moore’s opinion further highlights the structural differences between natural DNA and the patented fragments, but qualifies it saying that the structural differences are not enough without some new utility.  And what was Judge Moore’s unique utility for the gene fragments? Nothing more than the fragment’s diagnostic abilities, something Judge Moore points out, cannot be inherently done by the body.  However, as with the chemical structure, this seems to be a thin distinction, and certainly the machine readable medium in Cybersource achieves some “new” utility – namely it causes a computer to perform the method steps. 

In some ways the structure of the machine readable medium claim may be to blame for the Cybersource decision as it is a hybrid claim type in that it recites both structure and method limitations.  However, this is by necessity, as the actual structure of the machine readable medium is a series of electrons arranged in a certain fashion and such an arrangement is indescribable. Rather than claim a machine-readable medium comprising: one, zero, one, one, zero, one (etc…), the claim is written in terms of its result – i.e. what the machine-readable medium does, rather than what it is.  This may give the false impression that a machine-readable medium claim is a method claim wrapped in a product shell.  Perhaps if practitioners’ began describing how the machine readable medium is created (e.g. including the instructions AND including compiling steps, etc…) rather than simply what it does, these claims would find a more favorable reception.

Regardless, it is clear that the court is viewing these two technologies differently and appears to be applying a more lenient standard to biotechnology cases than computer science cases.  It will be interesting to see how this plays out as Cybersource is likely headed to further review.

11. A system for supply chain management com-prising:

reverse logistics means for generating transfer data; and

 The majority then found, agreeing with the Board, that “[t]here is no structure or algorithm for generating transfer data disclosed in the discussion of Figure 8 at Specification paragraphs 0088-93. These paragraphs do discuss generating shipping data, but again without disclosing any structure or algorithm for doing so.”  According to the majority, the Board properly recognized that while Figure 8 provides a high level process flow, “it does not describe any structure.”  Accordingly, the majority agreed with the Board’s conclusion that Figure 8 “fails to describe, even at a high level, how a computer could be programmed to produce the structure that provides the results described in the boxes.”  Finally, the majority found that “[b]ecause the means-plus-function limitation of claims 11 and 21 lacked sufficient disclosure of structure under 35 U.S.C. § 112 ¶ 6, these claims are unpatentable as indefinite under 35 U.S.C. § 112 ¶ 2. 

The majority further states that “For means-plus-function limitations where the disclosed structure is a computer programmed to implement an algorithm, the patent must disclose enough of an algorithm to provide the necessary structure under 35 U.S.C. § 112 ¶ 6.” 

As aptly pointed out by the dissenting Judge Newman, Figure 8 and the corresponding portion of the Applicants’ specification discuss at length the computer operation corresponding to the claimed function of generating transfer data.  As such, it is difficult to understand the majority’s insistence that the disclosure did not describe sufficient structure or disclosure to satisfy  35 U.S.C. § 112 ¶ 6, particularly since the specification specifies that the functionality described in the flow charts:

 ”can be implemented in hardware, software, or a suitable combination of hardware and software, and each of which can be one or more software systems operating on separate general purpose processing platforms. As used herein, a hardware system can include discrete semiconductor devices, an applica-tion-specific integrated circuit, a field programma-ble gate array or other suitable devices. A software system can include one or more objects, agents, threads, lines of code, subroutines, separate soft-ware applications, user-readable (source) code, ma-chine-readable (object) code, two or more lines of code in corresponding software applications, data-bases, or other suitable software architectures. “

One question raised by In re Aoyama is whether or not the disclosure supports any structural claim that requires “generating transfer data”, or whether it is only means plus function claims that the disclosure is inadequate to support.  Logically speaking, it would seem that if Figure 8 and the specification do not disclose enough structure to support a means plus function claim element, it would not likely comply with 112 (2) either. 

If one seeks to avoid having software patent claims found inadequate under 112(2) or 112(6), it would appear that the safest bet is to include object or source code to support the claimed functionality.  With object or source code, the application would describe at least one highly particular implementation that would, for any given compiler or interpreter, define a specific software structure.  On the other hand, anything short of what might be considered a specific machine-implemented process may be found inadquate.







In the previous post my guest blogger Greg Stark discussed the Federal Circuit’s recent decision in Cybersource Corp v. Retail Decisions, Inc. Greg’s take on on the case is an academic one, one that assumes the the case fits into a logical framework of legal jurisprudence that logical minds can digest and use for sorting inventions, and in particular software inventions, into Section 101 eligible and ineligible categories.

Unfortunately, if we didn’t all know already that the Federal Circuit and Supreme Court were stuck in an endless loop of a hopelessly contradictory algorithm (one part bizarre, one part incomprehensible, and one part schizoid)  for deciding the Section 101 issue for software, we were painfully reminded again by the Cybersource decision.  It seems that no one is ever going to simply acknowledge that the Supreme Court’s Benson and Flook decisions are largely if not entirely contradictory to the Diehr decision.  For example, in my estimation it is quite reasonable to say that the invention in the ’154  patent constituted an improvement to an automated verification system for use in verifying credit card transactions.  If we assume for the sake of argument that such verification systems constitute patent eligible “machines”, then it stands to reason that the application of an otherwise abstract idea to the improvement of the operation of such a machine is patent eligible under the standard laid down in Diehr.  In Diehr, an abstract mathematical algorithm was applied to making a rubber mold work better.   Accordingly, had the Diehr Court decided the Cybersource decision, using my assumption that an automated credit card verification system is patent eligible, it would have most likely found that the “invention” was an improved credit card verification system, and therefore patent eligible notwithstanding that the point of novelty is found in an abstract idea.  In fact, I thought one of the key points in Diehr was to avoid dissecting claimed subject matter into novel and old portions, and focusing on the novel part for patent eligibility.  Obviously, if that had been done in Diehr, it would have resulted in rejection of the patent for failure to claim patent eligible subject matter.

Perhaps the Federal Circuit considered an automated credit card verification system as falling outside the type of technology or machines eligible for protection, but on this point they would definitely be flying in the face of common sense.  For instance, take a look at the definition for USPTO Patent Class 705:

“This is the generic class for apparatus and corresponding methods for performing data processing operations, in which there is a significant change in the data or for performing calculation operations wherein the apparatus or method is uniquely designed for or utilized in the practice, administration, or management of an enterprise, or in the processing of financial data.”

Granted, the US patent classification system has no bearing on patent eligibility, but it represents the commonly held view that apparatus to perform data processing operations in support of the administration of an enterprise, or the processing of financial data, is real technology, not a mere abstraction.

Will someone please reset the Federal Circuit program running the Section 101 subject matter eligibility test?

ttp://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1358.pdf

My thanks to Greg Stark, Schwegman, Lundberg & Woessner P.A., for this brief of the Cybersource decision.

From Greg:

The Federal Circuit put a warning shot across the bow of patent attorneys that focus on patenting software related inventions. In the case of Cybersource Corp v. Retail Decisions, Inc. the Federal Circuit held that a computer-readable medium claim (Beauregard claim) that merely recites an unpatentable method is also non-statutory subject matter. In other words, the Federal Circuit held that merely putting method steps on a computer-readable medium (CRM) cannot make the method statutory subject matter.

The method claim found unpatentable recites:

3. A method for verifying the validity of a credit card transaction over the Internet comprising the steps of:
a) obtaining information about other transac-tions that have utilized an Internet address that is identified with the [ ] credit card transaction;
b) constructing a map of credit card numbers based upon the other transactions and;
c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.

The unpatentable computer readable medium claim read as follows:

program instructions for detecting fraud in a credit card transaction between a consumer and a mer-chant over the Internet, wherein execution of the program instructions by one or more processors of a computer system causes the one or more processors to carry out the steps of:
a) obtaining credit card information relating to the transactions from the consumer; and
b) verifying the credit card information based upon values of plurality of parameters, incombination with information that identi-fies the consumer, and that may provide an indication whether the credit card transac-tion is fraudulent,
wherein each value among the plurality of pa-rameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the mer-chant with a quantifiable indication of whether the credit card transaction is fraudulent,
wherein execution of the program instructions by one or more processors of a computer system causes that one or more processors to carry out the further steps of;
[a] obtaining information about other transactions that have utilized an Internet address that is identified with the credit card transaction;
[b] constructing a map of credit card numbers based upon the other trans-actions; and
[c] utilizing the map of credit card num-bers to determine if the credit card transaction is valid.

The Federal Circuit analogized this case to In re Abele to support disposing of the CRM claim as non-statutory subject matter. The court states that “[r]egardless of what statutory category a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.” Thus, the Federal Circuit considered this CRM claim to be nothing more than a claim to a process, which they considered analogous to the method claim that was already determined to be unpatentable subject matter.

What about the fact that operations stored on a CRM can only be executed on a computer, one might ask. The opinion does not directly address this, but does make the following related arguments. The first concerning related argument is stated as, “Cybersource has not met its burden to demonstrate that claim 2 is ‘truly drawn to a specific’ computer readable medium, rather than to the underlying method of credit card fraud detection.” What is a specific computer readable medium? At least in theory, any CRM with unique instructions stored on it would have been considered a “specific computer readable medium,” at least prior to this opinion.  Judge Dyk continues with the following statement regarding the CRM claim, “the incidental use of a computer to perform the mental process of claim 3 does not impose a sufficiently meaningful limit on the claim’s scope.” While it is undeniable that the claims at issue in this matter are broad, reciting operations in a CRM format means that all of the operations must be performed by a computer. The fact that the operations must be performed on a computer seems to make it more than “incidental use” of a computer.

It will be interesting to watch this case to see if the patent owner requests a rehearing en banc. Unfortunately, despite the opinion’s statement that “it is clear from the emphasized text that claim 2 recites nothing more than a computer readable medium containing program instructions for executing the method of claim 3,” the CRM actually contains at least one additional element. The additional recitation in the CRM claim reads as follows:

verifying the credit card information based upon values of plurality of parameters, in combination with information that identifies the consumer, and that may provide an indication whether the credit card transaction is fraudulent,

wherein each value among the plurality of parameters is weighted in the verifying step according to an importance, as determined by the merchant, of that value to the credit card transaction, so as to provide the merchant with a quantifiable indication of whether the credit card transaction is fraudulent,…

Interestingly, at least the highlighted portion of the additional recitation in the CRM appears to be claiming a tangible result that would be produced by a computer performing these operations (e.g., scoring a transaction – quantifiable indication). The fact that this panel of the Federal Circuit appears to ignore this portion of the CRM claim provides any future panel an easy out for overturning this decision. Because the CRM claim does not literally recite only the unpatentable method steps, this case is unlikely to provide any clear guidance to the patent community.

Obviously, this decision from the Federal Circuit is concerning for patent attorney’s attempting to draft valid claims to software implemented inventions. The decision highlights the need to include independent claims from as many different statutory classes as possible (e.g., method, system, and CRM). Additionally, the decision emphasizes the importance of drafting method claims that recite statutory subject matter (ideally methods that satisfy the machine or transformation test). At a minimum, the Federal Circuit has made the difficult job of claiming software implemented inventions more difficult and less predictable.

ttp://www.cafc.uscourts.gov/images/stories/opinions-orders/09-1358.pdf

Greg Stark and Suneel Arora of Schwegman, Lundberg & Woessner, P.A., together with law student Ryan Sharp, recently wrote an informative article for William Mitchell’s Cybaris IP review, entitled, “Can Beauregard Claims Show You The Money?”  It has been 15 years since In Re Beauregard.  The article answers some interesting questions, including:  1)are people still using these claims?;  are they being litigated?;  and, are they effective?  The article also comments on the impact of  last year’s Finjen v. Secure Computing case.

A link to a video interview about the article is:  http://web.wmitchell.edu/cybaris/index.php/2011/07/13/can-beauregard-claims-show-you-the-money/

The link to the article is:   http://web.wmitchell.edu/cybaris/wp-content/uploads/2011/07/Formatted-Sharp-Article1.pdf

This post, from Greg Stark, Schwegman, Lundberg & Woessner, P.A., addresses some of the issues raised by the recent publicity offensive Google has launched against Apple and Microsoft.

August 4, 2011:

Patent Disputes continue in the Mobile OS and Application Space – Does any of this “Progress the Useful Arts” (Drive Innovation)?

News outlets and blogs have been filled with hyperbole regarding the offensive use of patents (or potential offensive use of patents) in the smartphone wars between Apple, Google, Microsoft, and RIM. The latest volley getting noticed came from Google’s David Drummond who is accusing various organizations, including Microsoft and Apple, of wagging a patent war against Android. This particular post received a great deal of attention when Microsoft released an email indicating that they invited Google to join the group bidding for the Novell patent portfolio. I highlight this exchange only to emphasize the amount of hand waving and misinformation that is being put forth on this issue.

Mr. Drummond does start to get at the real issue, innovation and whether the US patent system (or any patent system) drives or hinders innovation. Mr. Drummond claims to be on the side of the patent system harming innovation (at least when used against Android). As a patent professional, I believe (somewhat self-servingly) in the benefits of the patent system. However, it is admittedly difficult to determine whether the system actually drives innovation.

There can be little dispute that Google is a fast-follower in the mobile operating system business, and until recently Android did not appear to break much new ground. It is also certain that the strong competition from Android has forced Apple, Microsoft, RIM, and others to work harder on multiple fronts. Hopefully, the increased competition has been good for innovation, only time will tell.

What role are patents playing in the smartphone wars? Well if you believe the media patents are being used as the offensive weapon of choice to slow or tax the growth a new entrants, such as Google’s Android. As a fast-follower, it is hard to feel bad for a large well funded organization like Google, when a pioneering competitor attempts to use valid legal methods to maintain its position in the marketplace.  For example, Apple may be attempting to hinder the growth of the Android operating system by asserting its patent portfolio against Google and handset manufacturers, such as Samsung. However, Apple is merely asserting presumably valid intellectual property covering its own mobile operating system and smartphone.

Getting back to the question of driving innovation, did the ability for Apple to receive a limited Government sanctioned monopoly (e.g., a patent) drive early innovation in Apple’s mobile operating system? On some level I am sure that the protections afforded by patent did drive some of the innovation, but it is very difficult to measure. At a minimum one can reasonably assume that companies like Apple and Google obtain patents to assist in obtaining a return on investments in research and development.  Can anyone blame Apple, a company that was hugely influential in driving the multi-touch display smart-phone boom, for defending its turf against what they perceive to be a copy-cat technology?

Defending patents as driving innovation becomes much more difficult when an organization like Lodsys, LLC sues individual smartphone application developers. Lodsys appears to be a typical non-practicing entity (commonly referred to as a Patent Troll) with a business model of developing (or more likely purchasing) a portfolio of patents and then attempting to collect loyalties from potential infringers. Lodsys is hard to defend as a driver of innovation primarily because they do not produce a product, much less a product that would be protected by the patents they are asserting. Additionally, Lodsys does not do or presumably drive any additional innovation to develop new technology.

The primary argument made in favor of organizations like Lodsys is that they help individual inventors and small companies to protect their innovations, and more easily receive value for those innovations even when they are unable, for any one of a number of reasons, to successfully bring their innovations to market. Thus, encouraging individual inventors or small companies to continue to innovate (or so the argument goes). The patents being asserted by Lodsys do appear, to a degree, to fit into this argument (of course records indicate that the inventor on the Lodsys patents first assigned the rights to these patents back in 2005 long after his initial innovation). Additionally, Mr. Abelow, the inventor on the patents being asserted by Lodsys, was probably not encouraged to develop the technology protected by these patents simply to have an organization like Lodsys stop others from allegedly using his invention.

According to Engadget, in at least one of the suits, Lodsys is asserting that application developers using in-app upgrade purchases, a feature of iOS from Apple, are infringing one or more of the patents. A quick review of the patents at issue does not immediately reveal how Lodsys intends to support this claim. However, the patent claims use very broad language and the patents have a fairly early priority date (1994). The issue these patents raise for small organizations, like smartphone application developers, is that it is difficult to judge what the patent may actually cover without engaging expensive legal counsel.  Without conducting fairly extensive claim construction based on the patent’s specification and file history, the exact boundaries of the claims are unknown.

Generally, the downside to an organization such as Lodsys for filing questionable law suits (assuming, solely for the sake of argument, that the asserted patents do not actually cover the accused activities), has been minimal. The Federal Courts have historically been surprisingly tolerant of questionable patent assertions. However, a recent Federal Circuit decision may ultimately force organizations such as Lodsys to think twice about making questionable assertions.

In Eon-Net v. Flagstar Bancorp, the Federal Circuit showed some indication that they are looking to reign in frivolous law suits. The Federal Circuit upheld a lower court decision to sanction and fine Eon-Net for bringing a baseless infringement suit against Flagstar. As a result of Eon-Net’s misconduct, the patentee-plaintiff was slapped with Rule 11 sanctions totaling over $140,000 for failure to perform a reasonable pre-filing investigation. The district court also awarded Flagstar over $489,000 in attorney fees and costs. While this is a welcome outcome for a particularly egregious case, to get to this point Flagstar had to be willing to put up close to $500,000 and risk losing much more!

In the end, I believe patents can assist in progressing the useful arts (e.g., driving innovation), by providing the incentive of a limited monopoly.

Recently, James Bessen, a Lecturer in Law at the Boston University School of Law, published the article entitled “A Generation of Software Patents.” (Boston University School of Law Working Paper No. 11-31, June 21, 2011).  The article implies that software patents are of little value to software startups.  My guest blogger, Peter Leal, has studied this article in detail and has found some surprising and fundamental flaws both in its assumptions and its conclusions.

From Peter Leal:

Surprising Flaws Found in Boston University Paper on Software Patents

Peter R. Leal[1]

A new paper[2] from Boston University reports that most “software firms” account for relatively little of the activity in software patenting.[3]  The paper also implies that software patents are of little value to software startups.[4]  Both of these conclusions appear specious or irrelevant.

The comments below use the paper’s own definition of “software patents.”  This is not an endorsement of the definition as being the correct definition of “software patents.”

The Paper’s Conclusion that “Software Firms” Account for Relatively Little of the Activity in Software Patenting

When determining patent activity of companies in a particular industry, one searches the USPTO assignment records to determine patents and/or patent applications that are owned by the companies that make up that industry.  To obtain a true picture, the patent applications for inventions those companies make must be assigned to those companies in the USPTO records.  If for some contractual reason many, or most, of the inventions made by companies in a particular industry are assigned to firms outside that industry, the person determining the patent activity by simply counting patents assigned to companies within the industry will get a false reading.  That’s what happened with the BU paper.  The paper’s assumption that all, or even most, patent applications for inventions made by “software firms” are owned by those firms is a false assumption.  The paper goes to great lengths to analyze the patent activity of “software firms” that it defines[5] as “software publishing and software services firms,”[6] without addressing the above fact.  For this reason, the conclusion the paper draws about the number of patents assigned to “software firms” is flawed.

            To illustrate the above, the North American Industry Classification System for Computer Software[7] lists firms in the “software services firms” category as:[8]

Applications software programming services, custom computer

Computer program or software development, custom

Computer programming services, custom

Computer software analysis and design services, custom

Computer software programming services, custom

Computer software support services, custom

Software analysis and design services, custom computer

Software programming services, custom computer

Computer software consulting services or consultants

Web (i.e., internet) page design services, custom

In most, or perhaps even the vast majority, of the above service firms, the service is a custom service and the firm develops custom code for a client.  Because the client pays for the code, the service contract between the service firm and the client usually provides that inventions made developing the code are assigned to the client. This means that to the extent there are software inventions made and software patent applications filed, they would be assigned to the client who more likely than not is outside the software services firm category (otherwise the client would probably do the job itself). 

Consequently, less than all, and perhaps relatively few, software patents for software inventions made by “software service firms” (a category that comprises a major portion of the paper’s definition of “software firms”) are actually assigned to them.  The very nature of their work usually results in software inventions they make being assigned away.  The BU paper doesn’t account for this, resulting in a flawed set of numbers and a flawed conclusion.

Furthermore, as to “software publishing firms,” which is the second category of firms in the definition of “software firms,” the conclusion reached by the paper fails to consider whether these firms are likely to make inventions.  The basic tenet of patent law is that only inventions can be patented.  A corollary to this is that most inventions are made through research, and through the development of products (R&D).  Software publishing firms employ some of the most talented and creative people in the country who provide software services that are critical to the nation’s competitiveness.  But many, if not most, of these firms do little or no R&D.  It’s not in their business plan to do so.  Given that patents are granted only for inventions, and that most inventions are made by firms that do R&D, one would expect fewer software inventions (and therefore less software patenting) from the category “software publishing firms” than from firms that primarily develop products.  To see this, consider the North American Industry Classification System for Computer Software[9] description of the function of “software publishing” firms:[10]

Establishments in this industry carry out operations necessary for producing and distributing computer software, such as designing, providing documentation, assisting in installation, and providing support services to software purchasers. These establishments may design, develop, and publish, or publish only.[11]

From the above NAICS quotation, some software publishers do perform R&D, but R&D is certainly not the focus of all, or even most, of these firms.  Many of these firms, as seen from the above NAICS quotation, perform distributing software, providing documentation, assisting in installation, and providing support services.  From a careful inspection of these functions, the conclusion is that although the work of these firms is critical to the country, one would not expect to find a major number of software inventions (and, concomitantly, software patents) arising from this category of firms.  So the paper’s conclusion is, again, flawed.

The Paper’s Conclusion that Software Patents are of Little Value to Software Startups.

This conclusion in the paper is also flawed, for at least three reasons. 

The first reason is that the paper states[12] that only 24% of venture backed startups had any patents within four years of receiving funding, apparently concluding that this indicates a lower patent propensity for startups.  However except for possibly one or two inventions that form the basis for a startup, time would have to be allowed for most startups to conceive and reduce inventions to practice before patent applications would be filed.  This, and an understanding of the backlog at the USPTO, would lead one to conclude that even 24% of startups having their patent applications examined and issued within four years illustrates a good rate of patent activity for startups.  Most of their patent applications would be expected to be pending and not yet issued during that four year period.  The opposite conclusion reached by the paper is not justified by the facts.   

The second reason is that the paper states[13] that it has been reported that there is a positive correlation between patent applications and the probability of a startup achieving financing, IPO, and acquisition.  The paper then makes a distinction between issued patents and pending patent applications, apparently concluding that this distinction somehow dilutes the positive correlation.[14]  Again, in view of the time needed to make inventions and to file patent applications on, them, and in view of the backlog at the USPTO, financing, IPO, and acquisition of a startup usually occurs within the period of time that a patent application would be pending in the backlog and not yet issued.  Hence the distinction the paper makes here is irrelevant. 

The third reason is that the paper itself acknowledges that 67% of software startups backed by venture capital held patents.[15]  However, the paper then suggests that the increase in patenting over the last decade for venture-backed software startups might have more to do with the changing behavior of venture capitalists rather than changing benefits for software startups.[16]  However, the better reasoned conclusion would appear to be that venture capitalists, who are among the most seasoned business people in the world, understand that software patents are valuable to software startups.  Consequently they tend to select for financing primarily startups that have software patent applications for their software inventions.  This is by definition a benefit for software startups, contrary to the paper’s opposite suggestion.

Conclusion

The paper’s conclusion that “software firms,” account for relatively little of the activity in software patenting appears to be irrelevant to any conclusion about the value of software patents.  The software inventions that “software services firms” (that comprise a large part of the definition of “software firms”) make are usually assigned to their clients, who are often outside that industry.  In addition, one would not expect a large number of inventions to be made by “software publishing firms.”  Many software publishing firms perform distributing software, providing documentation, assisting in installation, and providing support services.  One would not expect inventions to be made in these functions.

The paper’s conclusion that software patents are of little value to software startups is contradicted by the fact that 67% of venture backed software startups file patent applications.  The fact that software startups that obtain venture backing are primarily those that file software patent applications means that venture capitalists, who are some of the most seasoned business people in the world, see value in software patents for software startups. 

Good news and bad news for Amazon. While the EPO’s Board of Appeals struck down Amazon’s EPO application for “1-click” online ordering on the basis of lack of inventive step, the good news is that the Board did not object to the case based on subject matter eligibility. EPO Board Decision: T1244-07 Decision OneClick