Posts Tagged ‘software’

After Bilski: Another business method patent overturned

Wednesday, March 14th, 2012

A special thanks to Daniel Parrish for the following post:

The Federal Circuit recently rejected a patent held by American Master Lease LLC for methods of creating an investment structure to take advantage of an IRS tax-deferment exemption.  Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012).  The court ruled that the investment structure’s ties to the physical world such as deeds, contracts and real property, like the commodities and money in Bilski v. Kappos, did not transform the abstract method into a patentable process.  130 S.Ct. 3218.  Furthermore, the court ruled that adding a limitation requiring the use of a computer did not “play a significant part in permitting the claimed method to be performed,” citing the recent Dealertrack decision, recently reviewed in this blogDealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012).

For those following business method patents, being comfortable with some uncertainty regarding statutory subject matter is a prerequisite, yet the Supreme Court provided some insight in 2010, when we learned three things in Bilski:

[1] the test for whether a business method is statutory subject matter is not solely the “machine or transformation” test, wherein the method is either tied to a particular machine or transforms a particular article into a different state or thing.  This test is a “useful clue” in determining patentability.

[2] business methods are indeed statutory subject matter.  This is clear because 35 U.S.C. § 273(b)(1) provides a prior user defense for “method[s] of doing or conducting business.”  As a matter of statutory interpretation, declaring all business methods unpatentable would render the above provision useless.  Thus, there must be some category of business methods that are patentable.

[3] Methods of hedging risk of price changes in the energy commodities market are not patentable under 35 U.S.C. § 101, even when a specific mathematical formula has physical ties to the real world.

If some business methods that fail the “machine or transformation” test are still patentable, what is the correct test to apply?   The US Supreme Court has yet to provide this test, but a look at history may provide some insight.  The Fort Properties decision summarizes the seminal Supreme Court precedents drawing the line between patent eligible processes and abstract ideas.  These are graphically represented below:

Bilski v. Kappos, 130 S.Ct. 3218; Diamond v. Diehr, 450 U.S. 175 (1981); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972).

The Fort Properties decision also outlines recent Federal Circuit decisions on patents involving methods and computer limitations.  These are graphically represented below:

Fort Properties, Inc. v. American Master Lease LLC, No. 2009–1242, 2012 WL 603969 (Fed. Cir. Feb. 27, 2012); Dealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439, (Fed. Cir. Jan. 20, 2012); Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323, 1328 (Fed. Cir. 2011); Cybersource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1369 (Fed. Cir. 2011).

Although it is always difficult to predict what, if any, specific test the Supreme Court may enact, we can make a few generalizations.  Inventions in existing statutory categories that incorporate non-statutory subject matter as part of the invention are likely to still be patentable.  As business method patents are relatively new, we do not yet have “classic” business method patent categories.  We do know that business method patents must do more than recite a computer limitation.  A business method with ties to the “real world” must be significant to the invention, not merely using a computer to generate deedshares or to execute a calculation.  The more that the claimed invention requires a computer (as opposed to incidentally using a computer) the more likely it will qualify as statutory subject matter.

Further speculation is, well, just that.  Future cases may clarify matters or add to the uncertainty.  Here’s hoping for a more concrete statutory test for business method patents!

Eolas and the Future of the Internet

Friday, February 17th, 2012

We all know Al Gore invented the Internet, but who owns it and more importantly, who can collect royalties?  Last week, a U.S. District Court in Texas took the first step in eliminating one possible “owner” when a jury invalidated two software patents.  Although the grounds for invalidation in Eolas Technologies Inc. v. Adobe Systems, Inc. are somewhat elementary (public knowledge prior to invention), this case provides an interesting look into the history of Internet protocols and the ramifications of providing patent protection to the outputs of universal open standards.

A key factor to the Internet’s growth is that software developers worldwide used the same protocols or standards (TCP/IP, HTML, HTTP, etc.), thus enabling a “universal” language.  Whereas resource abundance typically results in reduced value, high user adoption rates had the paradoxical effect of increasing a protocol’s value.  The only catch was that developers demanded free standards.  On the face of it, this provides a conundrum to an inventor seeking patent protection, because they would typically rely on either excluding others from using the technology or charging licensing fees.  So, how would an inventor monetize a protocol without charging a penny?

One early strategy was to patent the outputs of these protocols, and then demand royalties.  For example, in the Eolas patents, the claimed invention recites “interactive web elements,” which could be read to include instances of a website responding to something a user does.  Common examples include streaming media content, auto-complete search terms, and image rotation.  If this patent were upheld, nearly every large Internet firm (including Google, Amazon, & Yahoo!) would have to pay royalties to Eolas.  Furthermore, some believe this would have a chilling effect on the future development of the Internet itself, wherein developers would deviate from the universal standards to avoid paying royalty costs.  This could undo much of the “universal” nature of the Internet and have the unintended consequence of reducing access to archived webpages.  On the other hand, the patent system exists to provide inventors with an incentive to invent, thus “promot[ing] the Progress of Science and the useful Arts.”  U.S. Const. art. I, § 8, cl. 8.  If an output from a standard protocol is truly novel and non-obvious, the inventor of that process should not be barred from seeking patent protection.

Although we can never be certain that this will not lead to the doomsday scenario of “killing the Internet,” the question remains: Are the outputs of open standards patentable and if so, where is the line in the sand?  We may have to wait for a definitive answer, either for an Eolas appeal or potentially in a future case.  Either way, this is sure to be a hotly contested arena.


For additional reading on the latest Eolas trial, Wired Magazine’s Joe Mullin wrote a series of articles, including:

For a more pro-Eolas view, a fellow blogger Patrick Anderson wrote a couple of posts, including:

A 2004 article in IEEE also provides a historical perspective, outlining Eolas v. Microsoft.


This post contributed by Daniel Parrish.