Go Ask Alice: The End of Computer-Implemented U.S. Patents?

GO ASK ALICE
The End of Computer-Implemented U.S. Patents?
Eric H. Weisblatt
eweisblatt@wileyrein.com
With apologies to Jefferson Airplane and Lewis Carroll

Patent Eligible Subject Matter
35 U.S.C. § 101: “Whoever invents or discovers any new and
useful process, machine, manufacture, or composition of matter,
or any new and useful improvement thereof, may obtain a patent
therefor, subject to the conditions and requirements of this title.”
Patentable subject matter includes “anything under the sun that is
made by man.” Diamond v. Chakrabarty, 447 U.S. 303 (1980)
[man-made, living micro-organism].
But….
2

Alice Corporation Pty. Ltd. v. CLS Bank
International, et al., 134 S. Ct. 2347 (2014)
Question Presented
Are claims directed to computer-implemented inventions—
including claims to systems and machines, processes, and items
of manufacture and claims to a system or method of doing
business—patent-eligible subject matter within the meaning of 35
U.S.C. § 101?
3

Alice - Decision
- Unanimous Decision 19 June 2014
- Answer: No
The “claims are drawn to an abstract idea of intermediated
settlement,” and that “the method claims, which merely
require generic computer implementation, fail to transform
that abstract idea into a patent-eligible invention.”
4

Alice - Claims
• Claims generally directed to a computerized method for
performing a “form of escrow” designed to mitigate the risk
that only one party to a financial transaction will perform its
contractual obligations at settlement.
• Claims recite computer-implemented methods of settling
financial transactions, as well as computer-readable media
capable of storing, and generic computer systems capable of
running, programming instructions for performing the claimed
method.
• The patents do not disclose or claim the specific programming
required to implement the claimed methods.
5

Alice – Representative Claim 33
A method of exchanging obligations as between parties, each party holding a credit record and a
debit record with an exchange institution, the credit records and debit records for exchange of
predetermined obligations, the method comprising the steps of:
(a)creating a shadow credit record and a shadow debit record for each stakeholder party to be held
independently by a supervisory institution from the exchange institutions;
(b)obtaining from each exchange institution a start-of-day balance for each shadow credit record
and shadow debit record;
(c)for every transaction resulting in an exchange obligation, the supervisory institution adjusting
each respective party’s shadow credit record or shadow debit record, allowing only these
transactions that do not result in the value of the shadow debit record being less than the value of
the shadow credit record at any time, each said adjustment taking place in chronological order, and
(d)at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to
exchange credits or debits to the credit record and debit record of the respective parties in
accordance with the adjustments of the said permitted transactions, the credits and debits being
irrevocable, time invariant obligations placed on the exchange institutions.
6

Alice – Prior History
District Court: All claims invalid as directed to ineligible subject
matter
En banc Federal Circuit:
•6 separate opinions, none endorsed by a majority.
•5-5 split as to whether the claims to computer-implemented
inventions were patentable (affirming the lower court’s decision
that they were not patent-eligible).
•No clear legal standard emerged whether and when computer-implemented
inventions are patentable.
7

The Alice Rationale
• § 101 is broad but not infinite
• Exceptions to § 101
– laws of nature
– natural phenomena
– abstract ideas
• Cannot permit the patenting of these exceptions because that
would pre-empt basic tools of scientific and technological
work
8

The Alice Two-Step Test
1. Are the claims directed to a patent-ineligible concept?
2. If so, what else is there in the claims?
Consider claim elements individually and as an ordered
combination to determine whether the additional elements
transform the nature of the claim into patent-eligible subject
matter. This is the search for an inventive concept – an
element or combination of elements sufficient to ensure that
the claims amount to significantly more than a patent upon
the ineligible concept itself.
9

The Alice Two-Step Test Applied
1. Claims drawn to the abstract idea of “intermediated settlement” = the use
of a third party to mitigate settlement risk
- fundamental economic practice
2. Method claims merely require generic, conventional computer
implementation and fail to transform that abstract idea into a patent-eligible
invention. The claims’ recitation of a computer amounts to a
mere instruction to implement the abstract idea on a computer and cannot
impact patent eligibility.
- routine, basic, conventional, generic computer functions insufficient
- no improvement to the functioning of the computer
- no improvement in any other technology or technical field
10

Alice: The Law Of Intended Consequences - 1
Invalidated Under Alice:
Software Patents:
•I/P Engine, Inc. v. AOL Inc., 576 Fed. Appx. 982, 982 (Fed. Cir. 2014) (upholding
district court’s holding invalidating “patents related to a method for filtering Internet
search results that utilizes both content-based and collaborative filtering”)
•Digitech Image Techs., LLC v. Elecs. For Imaging, Inc., 758 F.3d 1344, 1349 (Fed.
Cir. 2014) (holding a “device profile” within a digital image processing system “is not
a tangible or physical thing and thus does not fall within any of the categories of
eligible subject matter”)
•Planet Bingo, LLC v. VKGS, LLC, No. 2013-1663, 2014 WL 4195188, at *1, 3 (Fed.
Cir. Aug. 26, 2014) (invalidating claims that “recite computer-aided methods and
systems for managing the game of bingo” because “the claims recite a generic
computer implementation of the covered abstract idea”)
11

• buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1351, 1355 (Fed. Cir. 2014) (upholding
district court’s invalidation of claims directed to “methods and machine-readable media
encoded to perform steps for guaranteeing a party's performance of its online transaction,”
noting that“[t]he claims in this case do not push or even test the boundaries of the Supreme
Court precedents”)
• DietGoal Innovation, LLC v. Bravo Media, LLC, No. 13 Civ. 8391 (PAE), 2014 WL
3582914, at *1, *14 (S.D.N.Y. July 8, 2014) (invalidating claims directed to “‘[a] system
and method for computerized visual behavior analysis, training, and planning,’ for the
purpose of modifying diet behavior” because it “do[es] no more than ‘simply instruct the
practitioner to implement the abstract idea . . . on a generic computer’”) (quoting Alice, 134
S.Ct. at 2359)
• Comcast IP Holdings I, LLC v. Sprint Commc’ns Co., No. 12-205-RGA, 2014 WL
3542055, at *3, *5 (D. Del. July 16, 2014) (invalidating a claim directed to a “telephony
network optimization method” because it “merely covers the application of what has for a
long time been conducted solely in the mind to modern, computerized, telephony
networks”)
12

• CMG Fin. Servs., Inc. v. Pacific Trust Bank, F.S.B., No. 11-10344 PSG, 2014
WL 4922349, at *17 (C.D. Cal. Aug. 29, 2014) (invalidating claims because they
“are directed at the abstract idea of a mortgagee paying down a mortgage early
when funds are available and borrowing funds as needed to reduce the overall
interest charged by the mortgage”)
• Loyalty Conversion Sys., Corp. v. Am. Airlines, Inc., No. 2:13-cv-655, 2014 WL
4364848, at *2-5 (E.D. Tex. Sept. 2, 2014) (invalidating patents claiming “a
method enabling a customer to convert loyalty award credits” and “a method in
which a computer provides one or more Web pages that can be used by clients to
convert non-negotiable loyalty award points,” explaining that the patents-at-issue
are “not fundamentally different from the kinds of commonplace financial
transactions that were the subjects of the Supreme Court’s recent decisions” in
Bilski and Alice)
13

• Walker Digital, LLC v. Google, Inc., No. 11-318, 2014 WL 4365245, at *6 (D.
Del. Sept. 3, 2014) invalidating patents under § 101 that “relate generally to
‘controlling the release of confidential or sensitive information of at least one of
the parties in establishing anonymous communications’”)
• Tuxis Techs., LLC v. Amazon.com, Inc., No. 13-1771, 2014 WL 4382446, at *1,
*5 (D. Del. Sept. 3, 2014) (invalidating a claim reciting a “method for providing
offers in real time . . . utizing an electronic communications device . . .” because
“[t]he computer performs nothing more than purely conventional steps that are
well-understood, routine, and previously known to the industry”)
• Eclipse IP LLC v. McKinley Equip. Corp., No. 14-cv-154, 2014 WL 4407592, at
*6-7 (C.D. Cal. Sept. 4, 2014) (invalidating a patent claiming a “method for
communications in connection with a computer-based notification system,” and
explaining that the Alice “analysis fits the [patent’s] claims precisely”)
14

• Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., No. 8:11-cv-2826, 2014
WL 4540319, at *5 (M.D. Fla. Sept. 11, 2014) (relying on Alice to invalidate a
method and a system of automated saving or automated charitable giving)
• Open Text S.A. v. Alfresco Software Ltd, No. 13–cv–04843–JD, 2014 WL
4684429, at *1 (N.D. Cal. Sep. 19, 2014) (“[T]he Court finds that the challenged
claims are directed to a very simple abstract marketing idea that uses generic
computer and Internet technology, and contain no additional inventive concept.”)
• McRO, Inc. v. Atlus U.S.A., No. SACV 13–1870–GW(FFMx), 2014 WL
4772196, at *8 (C.D. Cal. Sep. 22, 2014) (invalidating claims directed to
“automatically animating lip synchronization and facial expression of three-dimensional
characters”) 1
15
___________________________________________________________________
1 This is one of 16 cases involving McRO. The other cases have other defendants, but the patents and decision are the
same in each. 2014 WL 4772200, 2014 WL 4749601, 2014 WL 4750925, 2014 WL 4751841, 2014 WL 4752812, 2014 WL
4756056, 2014 WL 4756087, 2014 WL 4756253, 2014 WL 4758417, 2014 WL 4758745, 2014 WL 4760135, 2014 WL
4760615, 2014 WL 4760658, 2014 WL 4762341, 2014 WL 4762989

• Cogent Med., Inc. v. Elsevier Inc., Nos. C–13–4479–RMW, C–13–4483, C–13–
4486, 2014 WL 4966326, at *42 (N.D. Cal. Sep. 30, 2014) (invalidating patent
that “claims the abstract idea of maintaining and searching a library of
information”)
• Amdocs (Israel) Ltd. v. Openet Telecom, Inc., No. 1:10-cv-910, slip op., at 26
(E.D. Va. Oct. 24, 2014) (invalidating claims directed to correlating, generating,
compiling, and reporting network accounting records, finding that “Amdocs’s
asserted claims recite such conventional operation, in such a general way, that
even if the inventor had developed an actual working system, the patent claims
could foreclose fields of research beyond the actual invention”)
• Peter Wolf v. Capstone Photography, No. 2:13-cv-09573, slip op., at 17, 20
(C.D. Cal. Oct. 28, 2014) (invalidating patent claims that were directed to the
abstract idea of “providing event photographs organized by participant, as
applied using the internet,” and holding that “the independent claims do nothing
more than recite a series of conventional steps carried out using basic camera and
computer functions and mostly essential to placing searchable event photographs
online for inspection and ordering”)
16

• Enfish, LLC v. Microsoft Corp., No. 12-7360-MRP (C.D. Cal. Nov. 3, 2014)
Is the claim directed to abstract subject matter: Judge Pfaelzer explains that to
identify whether a claim is directed to an abstract idea, “the court must identify the
purpose of the claim – in other words, determine what the claimed invention is
trying to achieve – and ask whether that purpose is abstract.” Slip op. at 7. “Courts
should recite a claim’s purpose at a reasonably high level of generality. Step one is
a sort of ‘quick look’ test, the purpose of which is to identify a risk of preemption
and ineligibility.” Slip op. at 8. This is a difficult task, particularly with respect to
software claims. A useful tool is that fundamental, longstanding practices are
abstract and the “building blocks of future research and development.” Slip op. at
9.
Every asserted claim is directed to an abstract idea – “storing, organizing, and
retrieving memory in a logical table. Memory represents data or information. For
millennia, humans have used tables to store information.” Slip op. at 11. “When a
claim recites a computer generically, the Court should ignore this element in
defining the claim’s purpose.”
17

If the claim is directed to abstract subject matter, is there “an inventive concept
that appropriately limits the claim, such that the claim does not preempt a
significant amount of inventive activity.” “A claim cannot avoid [the] preemption
concern by limiting itself to a particular technological environment.” “[T]he court
must disregard well-understood, routine, conventional activity at step two.” Slip op. at
10.
Every claim recites conventional elements “Enfish’s asserted claims are unpatentable
because they apply longstanding concepts about storing information in tables to the
technological environment of computers.” Slip op. at 20.
18

Biotechnology Patents:
•Genetic Techs. Ltd. v. Lab. Corp. of Am. Holdings, No. 12-1736-LPS-CJB, 2014
WL 4379587, at *10-11 (D. Del. Sept. 3, 2014) (invalidating a claim related to “the
correlation between a particular genetic variation and sprinting, strength or power
performance,” finding it claimed a natural process, and “because claim 1 does not
confine its reach to a particular inventive application of the recited natural
correlation, there is a danger that future innovation based on the correlation will be
stifled”)
•Genetic Techs. Ltd. v. Bristol-Myers Squibb, Nos. 12-394-LPS, 12-396-LPS, slip
op., at 13, 15 (D. Del. Oct. 30, 2014) (invalidating claim related to “amplifying
genomic DNA” and “analyzing the amplified DNA” because “[t]he asserted claim
recites a series of steps to manifest the natural law - that is, to detect the natural
correlations between coding and noncoding sequence”) (emphasis in original)
19

Sustained Validity Under Alice:
•AutoForm Eng’g GMBH v. Eng’g Tech. Assocs., Inc., No. 10–14141, 2014 WL
4385855, *1, *3-4 (E.D. Mich. Sep. 05, 2014) (sustaining validity of patent directed to
“a method for creating addendum zones of tools for the manufacture of formed sheet
metal parts” because “[w]hile the patent may include or rely on some basic concepts in
the design of sheet metal forming tools, the patents also include numerous limitations
that narrow the scope”)
•Helios Software, LLC v. SpectorSoft Corp., No. 12–081–LPS, 2014 WL 4796111, at
*16-17 (D. Del. Sep. 18, 2014) (sustaining validity of patents that “relate to remotely
monitoring data associated with an Internet session and . . . controlling computer
network access” because “even if the asserted claims were drawn to abstract ideas, the
claims would remain patentable because they satisfy the machine-or-transformation
test” where the computer played a significant role in the “real-time data capture and
transmission and reception” of information)
20

• California Institute of Technology v. Hughes Communications Inc., No. 13-7245-
MRP (C.D. Calif. Nov. 3, 2014) [Judge Pfaelzer]
The court offered broad themes that “underlie both steps of the § 101 inquiry and
clarify the types of inventions that courts should find patentable.” Slip. op. at 22.
1. The concern is preemption; impede innovation rather than incentivize it. Courts
need to be wary not to overstate this concern.
2. Computer software is patentable.
3. Mathematical formulas cannot be patented. But an algorithm, a series of steps for
accomplishing a goal, is not a mathematical formula. Algorithms or mathematical
formulae combined with other elements may transform an abstract idea into
patentable subject matter.
4. A claim is more likely drawn to an abstract idea if it stands for a fundamental
practice with a long history.
21

CIT’s patent claims are directed to the abstract idea of encoding and decoding data for
the purpose of achieving error detection. However, the claims contain elements that
provide an inventive concept. “When claims provide a specific computing solution for
a computing problem, these claims should generally be patentable, even if their novel
elements are mathematical algorithms.” Slip op. at 26.
“Despite being generally directed to abstract concepts, the asserted claims contain
meaningful limitations that represent sufficiently inventive concepts, such as the
irregular repetition of bits and the use of linear transform operations. Although many
of these limitations are mathematical algorithms, these algorithms are narrowly
defined, and they are tied to a specific error correction process. These limitations are
not necessary or obvious tools for achieving error correction. The continuing
eligibility of this patent will not preclude the use of other effective error correction
techniques.” Slip op. at 28. “The [patent] creates an algorithmic solution for a
computing problem – the corruption of data during transmission.” Slip op. at 29.
22

Alice Determination was Premature:
•Data Distrib. Techs., LLC v. BRER Affiliates, Inc., 2014 WL 4162765, *11-12
(D.N.J. Aug. 19, 2014) (finding that “[i]t is clear, at step one, that the [patent-at-issue]
is directed to an abstract idea, specifically the abstract idea of maintaining a database
and updating users about new information,” but that step two of Alice is “[t]he difficult
issue, and the one that the Court cannot fully address before claim construction”)
•Card Verification Solutions, LLC v. Citigroup Inc., 2014 WL 4922524, *3-5 (N.D. Ill.
Sep. 29, 2014) (finding that “a method of passing along confidential information
through a trusted, third-party intermediary to ensure both that a consumer can complete
the transaction and that the necessary confidential information remains secure” was
abstract, but waiting until after claim construction to determine if the claims pass step
two of Alice, because “the claims may be sufficiently limited by the plausible
transformation that occurs when the randomly-generated tag is added to the piece of
confidential information”)
23

• Genetic Techs. Ltd. v. GlaxoSmithKline, LLC, No. 12-299 (Aug. 22, 2014 M.D.
N.C.) (“careful [claim] construction will be facilitated by a broader and more
developed factual context”)
Total Score
Invalid under § 101 20
Valid under § 101 3
“Wait and see” 2
24

When And Where To Launch An Alice
Challenge
• USPTO
– “Transitional Program for Covered Business Method Patents”
• sued for infringement or charged with infringement
• patent claims a method or corresponding apparatus for performing data
processing or other operations used in the practice, administration, or
management of a financial product or service
• patent does not claim a “technological invention” = claimed subject matter
recites a technical feature that is novel, unobvious, and solves a technical
problem using a technical solution
– Stay of litigation is discretionary
– USPTO Decision: 18 months from filing of petition
25

When And Where To Launch An Alice
Challenge
• District Court
– Rule 12(b) or (c) motion
• filed instead of answer so very early in case
• failure to state a claim
• motion for judgment on the pleadings
• subject matter eligibility analysis is a pure question of law and “must
precede the obviousness inquiry. To fail to address at the very outset
whether claims meet the strictures of § 101 is to put the cart before the
horse.… [c]lear advantages to addressing § 101’s requirements at the
outset of litigation. Patent eligibility issues can often be resolved without
lengthy claim construction, and an early determination that the subject
matter… is patent ineligible can spare both litigants and courts years of
needless litigation.” I/P Engine v. AOL, Inc., 2014 WL 3973501 (Fed. Cir.
Aug. 25, 2014) Circuit Judge Moyer (concurring)
26

Successful Rule 12 § 101 Challenges Becoming “The Norm”
- Eclipse IP LLC: granted; no relevant claim construction issues; invalid
- Loyalty Conversion: granted; no relevant claim construction issues; invalid
- CMG Financial: granted; using patentee’s proposed constructions or “any
reasonable construction”; invalid
- McRO: granted; no relevant claim construction issues; invalid
- Genetic Techs.: granted; using patentee’s proposed construction; invalid
v. Lab. Corp.
- Genetic Techs.: granted; under “only plausible construction; invalid
v. BMS
- Peter Wolf: granted; basic character of claimed subject matter readily
ascertainable; invalid
- Open Text: granted; no relevant claim construction issues; invalid
27

Successful Rule 12 § 101 Challenges Becoming “The Norm”
- Cogent: granted; claim construction not needed to understand basic
character of the claimed subject matter; invalid
- Tuxis: granted; “only plausible reading”; invalid
An early dismissal of the case destroys the leverage for settlement often relied upon by
a “non-practicing entity.”
28

Ultramercial
• Federal Circuit; 14 November 2014; 2010-
1544
• Delivery of online video content with
advertising
• Invalid under § 101
• Twice found not invalid under § 101 before
Alice by Federal Circuit (Judges Lurie, O’Malley
and Chief Judge Rader)
29

Ultramercial - 2
• Judges Lurie, O’Malley, and Mayer find claims
directed to patent ineligible abstract idea
under Alice doctrine
• Affirmed motion to dismiss without “rarely”
appropriate language from previous decisions
• No formal claim construction needed –
decision reached “without purporting to
construe the claims”.
30

Ultramercial - 3
• Judge Mayer’s concurrence is most intriguing :
• § 101 eligibility is a threshold issue,
jurisdictional in nature [Rule 12 challenges
should be the rule not the exception]
• Forceful attack on patent “trolls”
– Scourge of meritless infringement claims
– Vague, overbroad business method patents
– Extortion to extract nuisance value settlements
31

Ultramercial - 4
• No presumption that issued claims are
directed to patent eligible subject matter
• “PTO has for many years applied an
insufficiently rigorous subject matter eligibility
standard, [so] no presumption of eligibility
should attach when assessing whether claims
meet demands of § 101”
• PTO inept examination trumps statutory presumption
of validity?
32

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