May 16, 2016

How Federal Circuit Provides New Hope for Computer and Software-based Patents in Enfish, LLC v. Microsoft Corporation

In just its second opinion upholding claims under Alice v. CLS Bank, the Federal Circuit has interpreted Alice in a manner that could save a “substantial class” of inventions from the strikingly-high invalidity rate under the Supreme Court’s precedent. In particular, the Federal Circuit held that inventions directed to improving how computers operate are patent eligible under the first step of the Alice analysis — even if those improvements are software-based or run on a general purpose computer.

In Enfish, LLC v. Microsoft Corporation, the patents at issue described and claimed the use of a “self-referential” table in a database. The patents also explained how the use of self-referential tables provides several benefits over conventional tables, such as “faster searching of data,” “more effective storage” and “more flexibility in configuring the database.” Under the first step of the Alice analysis, the district court determined that the asserted claims were directed to an abstract idea: “storing, organizing, and retrieving memory in a logical table” or simply “the concept of organizing information using tabular forms.” The district court ultimately determined that the claims at issue failed to recite patent-eligible subject matter under Alice v. CLS Bank. The Federal Circuit reversed, and in doing so interpreted the Supreme Court’s test in a way that could save a significant number of inventions from failing section 101.

In particular, the Federal Circuit focused on the first step of the Supreme Court’s two-step, patent-eligibility test, in which the court must “first determine whether the claims at issue are directed to a patent-ineligible concept.” The Federal Circuit noted that the Supreme Court’s test “plainly contemplates that the first step of the inquiry in a meaningful one, i.e., that a substantial class of claims are not directed to a patent ineligible concept.” (italics in original). In other words, this first inquiry should be “a stage-one filter to claims, considered in light of the specification, based on whether their character as a whole is directed to excluded subject matter.” (citation omitted). By focusing on the “character as a whole,” the Federal Circuit provided an important clarification to that first step—that it “cannot simply ask whether the claims involve a patent-ineligible concept, because essentially every routinely patent-eligible claim involving physical products and actions involves a law of nature and/or natural phenomenon—as after all, they take place in the physical world.” (italics in original). Under this understanding of the step-one inquiry, the Federal Circuit held that, if “the focus of the claims is on the specific asserted improvement in computer capabilities” then it passes step one of Alice and is patent-eligible, in contrast to claims focused on “a process that qualifies as an ‘abstract idea’ for which computers are invoked merely as a tool.” 1

To reach this new interpretation of what qualifies as “an abstract idea within the meaning of Alice,” the Federal Circuit reached to principles articulated by the Supreme Court, specifically noting that the high court itself “has suggested that claims ‘purport[ing] to improve the functioning of the computer itself,’ or ‘improv[ing] an existing technological process’ might not succumb to the abstract idea exception.” While the Supreme Court made that statement during its discussion of step two of the Alice test, the Federal Circuit concluded that that principle should permeate both steps of Alice:

“We do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two. Indeed, some improvements in computer-related technology when appropriately claimed are undoubtedly not abstract, such as a chip architecture, an LED display, and the like. Nor do we think that claims directed to software, as opposed to hardware, are inherently abstract and therefore only properly analyzed at the second step of the Alice analysis. Software can make non-abstract improvements to computer technology just as hardware improvements can, and sometimes the improvements can be accomplished through either route. We thus see no reason to conclude that all claims directed to improvements in computer-related technology, including those directed to software, are abstract and necessarily analyzed at the second step of Alice, nor do we believe that Alice so directs. Therefore, we find it relevant to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea, even at the first step of the Alice analysis.”

The Federal Circuit went on to reconcile its new holding, which rejects the proposition that “the invention’s ability to run on a general-purpose computer dooms the claims,” with prior Federal Circuit precedent. In particular, the Federal Circuit classified its prior decisions invalidating claims under Alice into several groups: (1) claims that were “simply adding conventional computer components to well-known business practices,” (2) claims that “recited a purely conventional computer implementation of a mathematical formula” or (3) claims that “recited generalized steps to be performed on a computer using conventional computer activity.” Those types of claims, the Federal Circuit concluded, are distinct from the claims in Enfish because the Enfish claims “are directed to an improvement in the functioning of a computer.”

The Federal Circuit also emphasized that a claim will not necessarily fail section 101 if it lacks a “reference to ‘physical’ components.” On this point, the Federal Circuit turns the Supreme Court’s earlier rejection of the machine-or-transformation test in Biski v. Kappos on its head, using that case (which held that the claims at issue in that case failed section 101) to reject the notion of a “bright-line” test that would exclude any claim lacking a hardware component from patent eligibility. Such a result makes sense, concluded the court, since “[m]uch of the advancement made in computer technology consists of improvements to software that, by their very nature, may not be defined by particular physical features but rather by logical structures and processes.”

With these principles in mind, the Federal Circuit turned to the particular claims at issue and held that “they are directed to a specific improvement to the way computers operate, embodied in the self-referential table.” While the district court had embraced a more abstract articulation of the claims, the Federal Circuit noted that “describing the claims at such a high level of abstraction and untethered from the language of the claims all but ensures that the exception to § 101 swallow the rule.” In determining that the claims “are not simply directed to any form of string tabular data, but instead are specifically directed to a self-referential table for a computer database,” the Federal Circuit focused on the language of the claims themselves, as well as the specification, which articulated the specific improvements enabled by the use of a self-referential table.

In sum, the Federal Circuit in Enfish has expanded the scope of patent-eligible matter, provides improved clarity to the Supreme Court’s test, and places new boundaries on how courts determine whether claims are directed to an abstract idea. In this decision, the Federal Circuit has pushed back on courts’ tendency to oversimplify claims in post-Alice patent eligibility determinations. In light of Enfish, courts must avoid oversimplification and instead must account for specific claim limitations to determine whether the claims feature an improvement to computer functionality. At the same time, this case does not dispel all uncertainty for computer-based inventions, and future cases will still need to wrestle with the uncertain boundaries of both steps of the Alice inquiry. In the meantime, this case will likely have a significant impact on future challenges under section 101 in courts and in the PTO.

1 Yet even those claims could survive under step two of Alice if “there is some inventive concept in the application of the abstract idea.”

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