September 22, 2014

Post-Alice Federal Circuit Finds Software-Related Patent Not Patent Eligible; Tips on Business Method Patents in New Landscape

In its first precedential decision regarding a business-related invention since the Supreme Court's 2014 Alice v. CLS Bank decision, the Federal Circuit held claims invalid for lack of patent eligibility under Section 101 of the patent statute. Through application of the Supreme Court's two-step framework, the court noted in buySAFE, Inc. v. Google, Inc. that the claimed subject matter fell within the abstract idea exclusion under its precedent. The decision reiterates that, at least in general, computer-implemented business method claims must include elements directed toward more than simply conventional computing functionality.

The Story of buySAFE

U.S. Patent No. 7,644,019, owned by buySAFE, relates to a guaranty service for online transactions. After bringing an action against Google for infringement, the Federal Circuit affirmed the district court's holding that the claims at issue were directed to an abstract idea, and were therefore invalid as unpatentable. The court described the asserted claims in buySAFE's patent as being directed toward the creation of a familiar commercial arrangement using computers and networks. The court determined that the subject matter of buySAFE's asserted claims fell squarely within the abstract idea exclusion defined by the Supreme Court's interpretation of 35 U.S.C. § 101. The Federal Circuit relied on the Supreme Court's two-step framework for identifying patent claims that fall outside section 101, as articulated in Mayo Collaborative Services v. Prometheus Laboratories, Inc. and more recently in Alice concerning computer-related technology. In the first step, the inquiry is whether a claim is directed to a patent-ineligible concept, i.e., a law of nature, natural phenomena or an abstract idea. If the answer to this first step is "yes," then the second step is considered. In the second step, the inquiry is whether the remaining elements of the claim (individually and as an ordered combination), beyond those directed to the abstract idea, include an "inventive concept." If the answer is "no," the claim is considered patent ineligible.

In buySAFE, the Federal Circuit determined that the asserted claims were directed toward abstract concepts, namely, computer-aided methods guaranteeing a party's performance in an online commercial transaction. Thus, the first step was satisfied. The court then moved on to step two and concurred with the district court's conclusion that the claims were patent ineligible because, in effect, the remaining steps were directed to "a well-known and widely understood concept" applied using "conventional computer technology" without requiring "specific programming" or "any particular machine." Consequently, the Federal Circuit held the asserted claims at issue invalid, noting that the claims "do not push or even test the boundaries of the Supreme Court precedents under section 101." In the course of its analysis, the Federal Circuit noted that the claims' invocation of computers added no inventive concept and the computer functionality recited in the claim was "generic" and "quite limited." The court ultimately held that, given the Supreme Court authority regarding general computer implementation of abstract concepts involving well-known economic practices, it was thus "a straightforward matter to conclude that buySAFE's asserted claims are invalid."

Takeaways and Helpful Tips From buySAFE

The decisions in Mayo and Alice highlight that, for claims involving technologies susceptible to being deemed directed to abstract ideas (e.g., technologies involving software), claims should be drafted (or interpreted) to emphasize the existence of "additional elements" that supply an "inventive concept." This is so that the claim may be found to be directed to something "significantly more than" the ineligible subject matter. The importance of this is further highlighted by the lack of guidance given for determining how to define the bounds of the patent-ineligible concept (e.g., the abstract idea) in step one of the two-step inquiry.

Two additional points may be inferred from the buySAFE holding:

  1. Patents and patent applications that invoke computer functionality to perform well-known economic and financial transactions will necessarily have to include advanced technical or computing features that transform the well-known economic practice to embody a novel and non-obvious inventive concept. For example, in buySAFE, perhaps inclusion of an advanced algorithm residing within a computer uniquely configured to execute that particular algorithm would have been sufficient to find the asserted claims patent eligible. In addition, including software commands that identify third-party guarantors based on credit score, net-worth, and value of the relevant commercial transaction may have provided the requisite "inventive concept" to satisfy step two of the two-step inquiry.

  2. Corporations or financial institutions that have patents which include claims that invoke a computer to perform prior art economic transactions should perform a comprehensive review of their portfolio to ensure the claimed subject matter includes an "inventive concept." Given the recent buySAFE decision and Supreme Court precedent regarding patent claims directed to financial and economic transactions, owners of "business method" patents should be reluctant to assert those patents against alleged infringers without first conducting the comprehensive review recommended above. In particular, the crux of such a review should be a determination whether the patented claims would likely survive the two-step inquiry if challenged in litigation, or through a post-grant proceeding at the Patent Trial and Appeal Board (PTAB). If a review reveals that certain claims are likely directed to patent-ineligible subject matter, options such as claim amendments for pending applications or filing a reissue application for patented cases should be strategic considerations to maintain the integrity of existing portfolios.

The body of case law post-Alice is still very much evolving, and it will be important for practitioners to continue to carefully watch what the courts, PTAB and patent examiners do over the course of the next several months and years. In particular, it will be important to see what types of business/software-related claims the courts eventually deem to be patent eligible under Section 101.

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