Has Alice Really Changed The §101 Standard for Patentability of Business Method Claims?
In the latest Supreme Court case on patentability under §35 U.S.C. 101, Alice Corp. Pty v. CLS Bank Int’l. (“Alice”), the Court addressed business method patent issues, finding that the claims at issue for mitigating settlement risks were drawn to an abstract idea and their generic computer implementation failed to transform the abstract idea into patent-eligible subject matter. 134 S. Ct. 2347 (2014). In its opinion, the Court re-applied the two-step test set forth in Mayo Collaborative Serv. v. Prometheus Lab., Inc., 566 U.S. 1289 (2012):
(i) whether the claims are directed to patent-ineligible matter (e.g., abstract idea); and
(ii) whether the claims contain an inventive concept (e.g., “additional features to ensure that the claim is more than a drafting effort designed to monopolize the abstract idea.”).
Alice described the steps of the analysis as “ . . . [first determining] whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask, ‘[w]hat else is there in the claims before us?’ . . . to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.” Alice, 134 S. Ct. at 2349.
While commentators have criticized Alice because it did not provide more detail and bright line clarity, the decision does accomplish at least the following: 1) it drives the final nail into the notion that generic computer implementation without more is not sufficiently transformative to confer patentability; and 2) it will be very likely that any future invalidity challenges for business method patents will include a §101 attack, as illustrated by some recent District Court and Patent and Trademark Appeals Board (PTAB) cases discussed below.
In two similar cases, Eclipse IP LLC v McKinley Equip. Corp., 2014 U.S. Dist. LEXIS 125529 (C.D. Cal. 2014) (“Eclipse”) and McRO, Inc. v. Codemasters, 2014 U.S. Dist. LEXIS 136361 (C.D. Cal. 2014) (“McRO”), Judge Wu of the District Court of Central California, presented his views and approach to §101 evaluations of business method patents. While the Judge was critical of Alice, nevertheless, he applied its framework. Eclipse, 2014 U.S. Dist. Lexis at *8 (stating that “so far, the two part test for identifying an abstract idea appears to be of limited utility . . . .” (quoting Alice, 134 S.Ct. at 2358)). The claims at issue in Eclipse were found to be invalid because the claimed transformative steps were broadly directed to implementation by a generic computer. Even though the patent holder argued that the method requires use of a “specifically programmed” computer system, the Court found this to be unconvincing as all computer-implemented inventions require some degree of special programming. Id. at 19.
In the McRO case, which involved automated lip synchronization animation patents, the Court delved deeper. In its first cut, it found that claims appeared to be tangible and not abstract when viewed “in isolation.” McRO, 2014 U.S. Dist. LEXIS at *24. The Court then, however, stated that, for §101 analysis, claims cannot be viewed in isolation. Rather, the conventional activity must be factored out when determining whether a patent contains an adequate inventive concept “because the inclusion of ‘well-understood, routine, conventional activity’ previously used in the field ‘is normally not sufficient to transform an unpatentable law of nature [or abstract idea] into a patent-eligible application . . . .’” Id. (citing Mayo, 132 S.Ct. at 1298). The Court then compared the prior art and declarations of experts to determine that the automated “rules” of the claims were “specified at the highest level of generality” and, as such, would encompass all the prior art. The claims were invalid because they were “an abstract idea while adding the words ‘apply it.’” Id. at *31 (citing Alice, 134 S. Ct. at 2358).
Interestingly, both Eclipse and McRO were 12(b)(6) motion to dismiss decisions issued early in the cases. In Eclipse, the Court itself noted that the record at issue for the motions was limited to the allegations of the complaint, issues of judicial notice, and “when the claim [in the complaint was based on the contents] of a document.” Eclipse, 2014 U.S. Dist. LEXIS at 3. The Court went well beyond the record typically considered for this type of motion, by veering into issues of fact, as it also acknowledged, (“one option is for the Court to deny the Motion as presenting an issue that turns on the facts”). McRO, 2014 U.S. Dist. LEXIS at *28.
For AIA patent trials, it appears that §101 claims have been asserted in all the petitions filed to date in the PTAB for covered business method patents. See e.g., Washington Inventory Services Int’l v. RGIS, LLC, CBM 2014-00158; Paper No. 1 (P.T.A.B. Jul. 14, 2014), Mitchell Int’l, Inc. v. Audatex North America, Inc., CBM 2014-00173; Paper No. 1 (P.T.A.B. Aug. 12, 2014), and Google, Inc. v. Simpleair, Inc., CBM 2014-00170; Paper No. 2 (P.T.A.B. Aug. 6, 2014). For example, in the final PTAB CBM decision, Salesforce.com, Inc. v. Virtualagility, Inc., CBM 2013-00024; Paper No. 47 (P.T.A.B. Sept. 16, 2014), the Board found Virtualagility’s patent to be directed generally to the creation and use of models to aid in processing management information by organizing and making the information readily accessible. First, the Board determined that the invention was directed to an abstract idea, stating that the method was a “disembodied concept that is not tied to a specific algorithm or specialized computer”. Id. at 22. Then, the Board considered the transformative step where the “relevant inquiry here is whether ‘additional substantive limitations . . . narrow, confine, or otherwise tie down the claim so that, in particular terms, it does not cover the full abstract idea itself.’” Id. (citing Accenture Global Servs., GmbH v. Guidewire Software, Inc., 728 F.3d. 1336, 1344-45 (Fed. Cir. 2013)). Although Virtualagility argued that the recited processor of the patent claims was a specialized computer programmed to execute a series of steps, the Board held that the model only required simple execution by the computer and, thus, was insufficient to transform the abstract idea. Id. at 23-24.
So at the end of the day, it is apparent that post-Alice, §101 will be a part of most business method patent invalidity challenges. And given its unequivocal confirmation that generic computer implementation will not be sufficient to cut the mustard for patentability, claims will need to be drafted with narrower and more defined technical features. Gibbons will continue to track and report on further developments in §101 jurisprudence in the future.