By Dennis Crouch
The question of patentable subject matter is nominally grounded in the statute 35 U.S.C. § 101. That statute offers patent rights to anyone who “invents or discovers any new and useful process, machine, manufacture, or composition of matter.” However, very few section 101 cases actually refer to the statutory text. Rather, the focus is on the Supreme interpretative stance that the statute also prohibits patents on abstract ideas, products of nature, and natural phenomena. It is the definition of Abstract Idea that is at stake in Alice Corporation Pty. Ltd. v. CLS Bank Int’l. [TRANSCRIPT OF ORAL ARGUMENTS]
Alice Corp.’s patent covers a computerized escrow system and method that CLS Bank allegedly uses in the process of settling trillions of dollars in transactions each week. After Alice Corp., sued CLS Bank for infringement, CLS responsively argued that the patent claims are invalid as impermissibly encompassing an abstract idea.
In the background, the Supreme Court has decided three recent Section 101 cases: Bilski, Mayo, and Myriad. Arguing for CLS Bank, Mark Perry argued that these two cases determine the outcome here.
MR. PERRY: Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.
Rather, to be patent eligible, CLS Bank argues, the computer implementation must offer a “technological solution.”
MR. PERRY: We know from Benson, the Court’s seminal computer implementation case, that if you can do it by head and hand, then the computer doesn’t add anything inventive within the meaning of the 101 exception. That is the holding of Benson. And the Court reiterated that in Mayo. Flook said exactly the same thing. If you can do it with pencil and paper, then the computer is not offering anything that the patent laws are or should be concerned with.
It is only where the method will not work without a computer, which is not these claims, and where the computer itself is doing something that the patent law is willing to protect.
Justice Ginsburg asked why – if it is such a simple case – why the Federal Circuit struggled so:
JUSTICE GINSBURG: The Federal Circuit in this case split in many ways, and it had our decisions to deal with. You said, given Bilski and Mayo, this is an easy case. What is the instruction that escaped a good number of judges on the Federal Circuit? How would you state the rule?
MR. PERRY: Your Honor, I think there’s a significant element to the Federal Circuit that disagrees with Mayo and has been resistant in applying it. Chief Judge former Chief Judge Michel filed a brief in this Court essentially saying Mayo is a life sciences case, You should limit it to that because if you apply it to everything else, then these patents are no good. Mayo we submit is a technology-neutral, Industry-neutral, exception-neutral framework that can be used to answer all of these questions.
We should note here, that, although CLS Bank sees the Mayo test as exception-neutral, the respondent was not asked to explain why the test was not applied the most recent Section 101 case of Myriad.
The reference to Mayo/Flook is important – with the notion that to be patent eligible there must be a technological innovation rather than discovery of an abstract idea followed by routine technological implementation of that idea. The result of the Mayo/Flook approach is that patent eligibility is temporally dependent. In particular, innovations that were once patent eligible will later be not eligible once the implementing-technology becomes well known. Mr. Perry explains:
JUSTICE SOTOMAYOR: How about email and just word processing programs?
MR. PERRY: At a point in time in the past, I think both of those would have been technological advances that were patentable. . . . Because they would have provided a technological solution to a then unmet problem. Today, reciting, and do it on a word processor is no different than and do it on a typewriter or and do it on a calculator.
The inventive contribution component, which uses specifically the language of conventional and routine and well understood, will evolve with technology. That’s why it’s different than the abstract idea component.
Mr. Phillips responds somewhat weakly that there must be “significant limitations on the extent to which novelty has to be built into 101.
There is some potential that the decision will be rather small – deciding that an escrow-settlement method is an abstract idea and that the routine addition of computers to facilitate the method does not alter that original conclusion. This result would essentially parallel the results of Bilski v. Kappos and would potentially add nothing of substance to the law. Many of the questions followed this line of thinking and Alice’s attorney, Carter Phillips, repeatedly worked to explain how the technological aspect of the invention is much more complex that has been commonly caricaturized. CLS Bank argued the opposite.
JUSTICE GINSBURG: On the abstract idea, you know that the Bilski case held that hedging qualified as an abstract idea. So how is intermediate settlement a less abstract than hedging?
MR. PHILLIPS: … What we claim is a very specific way of dealing with a problem that came into being in the early 1970s of how to try to eliminate the risk of nonsettlement in these very massive multiparty problems in which you need to deal with difficulties that exist at different time zones simultaneously and to do it with a computer so that you not only take them on chronologically, deal with them sequentially, based on the kind software analysis that the patent specifically describes by function.
And it goes even further than that, and does something that no escrow agent and no … settler that I know of. It actually blocks specific transactions that, in the shadow account, would violate the terms of the settlement that would ultimately be implemented.
. . . [This is an invention that] you cannot, absolutely cannot [implement this system without a computer], because it is so complex and so many interrelated parts.
. . . I believe that if you analyze the claims and you don’t caricature them and you don’t strip them out of the limitations that are embedded in there, this is not some kind of an abstract concept. This is not some kind it’s not an abstract idea..
JUSTICE KAGAN: There is something that you’ve patented that has that is not just simple use a third party to do a settlement. . . . And what is that, putting the computer aside?
MR. PHILLIPS: It is well and again, it’s difficult to do that because you absolutely need the computer in order to implement this. But the key to the invention is the notion of being able simultaneously, dealing with it on a chronological basis to stop transactions that will otherwise interfere with the ability to settle on time and under the appropriate circumstances. And the only way you can do that in a realtime basis when you’re dealing with a global economy is to use a computer. It is necessary to the efficacy of this. So in that sense, I can’t I can’t disaggregate it the way in some sense you’re suggesting. It seems to me it’s bound up with in it’s bounds up with the whole notion of is this an abstract concept. . . .
MR. PERRY: On the abstract idea, Justice Ginsburg, you asked Mr. Phillips what’s the difference between hedging and this claim. There is no difference. This is hedging. It is hedging against credit default rather than price fluctuation, but it is simply hedging. . . . Mr. Phillips suggests, well, we have multilateral transactions, global things, chronological, time zones and so forth. None of those are claimed, Your Honor. Those are all recited in specification. The claims read on a single transaction involving two parties.
JUSTICE SCALIA: Why isn’t it why isn’t doing it through a computer not enough? I mean, was the cotton gin not an invention because it just means you’re doing through a machine what people used to do by hand? It’s not an invention. It’s the same old, same old. Why is a computer any different in that respect?
MR. PHILLIPS: At one level I agree with you completely. There is no difference between them.
This Court has, however, said on more than a few occasions, albeit in dicta, that coming up with an idea and then say, use a computer, is not sufficient. And what I’m trying to suggest to you is we don’t fall within that dicta. Now, if you don’t accept the dicta and you say use a computer is fine, then I think we’re done.
MR. PERRY: Of course, a patent that describes sufficiently how a computer does a new and useful thing, whether it’s data compression or any other technological solution to a business problem, a social problem, or a technological problem, would be within the realm of the of the patent laws. That is what the patent laws have always been for. . . . Those algorithms, those inventions are undoubtedly technological. And if they are used in a trading platform or a hedging system or something else, that wouldn’t disable them [as patent eligible].
The bigger version of the decision would more particularly address software patenting. Here, Alice suggests that the case is very much about the ongoing viability of software patents:
JUSTICE KENNEDY: You understand the government to say no software patents.
MR. PHILLIPS: That’s the way I interpret the government’s the government’s brief.
However, both CLS Bank and the Government argue otherwise. Mr. Perry states “this will not affect software patents. . . . [Rather,] we are talking about a group of patents … that’s way out at the tail end of the distribution.” Likewise, the Solicitor General Verrilli argued that “it’s just not correct to say that our approach would make software patenting ineligible. [In our proposed test] any software patent that improves the functioning of the computer technology is eligible. Any software patent that improves that is used to improve another technology is eligible.” In thinking about the consequences for patentees who already hold patents that may become ineligible, Mr. Perry suggested that their problems are minimal because “the patent holder would have the opportunity to institute a reexamination proceeding or some sort of administration process to address that issue.”
Justice Breyer indicated the importance of creating a rule that works:
JUSTICE BREYER: There is a risk that you will take business in the United States or large segments and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer. . . . And if you go the other way and say never, then what you do is you rule out real inventions with computers. . . . [The amicus briefs provide] a number of suggestions as to how to go between Scylla and Charybdis. . . . I need to know what in your opinion is the best way of sailing between these two serious arms.
MR. PHILLIPS: Well, Justice Breyer, I guess I would suggest to you that you might want to deal with the problem you know as opposed to the problems you don’t know at this stage. I mean, we have had business method patents and software patents in existence for well over a decade and they’re obviously quite significant in number. And and we know what the system is we have. And Congress looked at that system, right, and didn’t say no to business methods patents, didn’t say no to software patents, instead said the solution to this problem is to get it out of the judicial process and create an administrative process, but leave the substantive standards intact.
So my suggestion to you would be follow that same advice, a liberal interpretation of 101 and not a caricature of the claims, analyze the claims as written, and therefore say that the solution is 102 and 103 and use the administrative process.
. . . . So on the one hand, you’ve got a problem that it seems to me Congress to some extent has said is okay and we’ve got a solution and that solution’s playing through. On the other hand, if this Court were to say much more categorically either that there’s no such thing as business method patents or adopt the Solicitor General’s interpretation, which is to say that there cannot be software unless the software somehow actually improves the computer, as opposed to software improving every other device or any other mechanism that might be out there.
What we know is that this would inherently declare and in one fell swoop hundreds of thousands of patents invalid, and the consequences of that it seems to me are utterly unknowable. And before the Court goes down that path, I would think it would think long and hard about whether isn’t that a judgment that Congress ought to make. And It seems to me in that sense you’re essentially where the Court was in Chakrabarty, where everybody was saying you’ve got to act in one way or the other or the world comes to an end, and the courts have said, we’ll apply 101 directly. . . .
MR. PERRY: That path between Scylla and Charybdis was charted in Bilski and Mayo. Bilski holds that a fundamental economic principle is an abstract idea and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case. If Bilski and Mayo stand, Alice’s patents fail.
The Government test is a bit difficult to fully discern and even General Verrili had some trouble explaining:
JUSTICE BREYER: I think you say a computer improvement that, in fact, leads to an improvement in harvesting cotton is an improvement through a computer of technology, so it qualifies. But then I think you were going to say, or I got this also from the brief, a computer improvement that leads to an improvement in the methods of selling bonds over the telephone is not an improvement in technology reached by the computer. Am I right about the distinction you’re making?
GENERAL VERRILLI: I don’t think there’s a yes or no answer to that question. [But,] that is generally the line we’re drawing.
JUSTICE GINSBURG: I have a question about how do you identify an abstract concept. A natural phenomenon, a mathematical formula, those are easy to identify, but there has been some confusion on what qualifies as an abstract concept.
GENERAL VERRILLI: We would define abstract an abstract concept as a claim that is not directed to a concrete innovation in technology, science, or the industrial arts. So it’s the it’s abstract in the sense that it is not a concrete innovation in the traditional realm of patent law.
Although seemingly not relevant to the present case, Alice took some pains to explain why their patent includes no software code:
MR. PHILLIPS: what we did here is what the Patent and Trademark Office encourages us to do and encourages all software patent writers to do, which is to identify the functions that you want to be provided for with the software and leave it then to the software writers, who I gather are, you know, quite capable of converting these functions into very specific code. . . .
It doesn’t actually, obviously, put in the code, but that’s what the PTO says don’t do. Don’t put in the code because nobody understands code, so but put in the functions, and we know and we know that someone skilled in the art will be able to put in the code. And if they aren’t, if they can’t do that, then it’s not enabled and that’s a 112 problem.
This discussion of functionality may foreshadow the upcoming Nautilus case. On that point, Justice Sotomayor asked whether Alice is “trying to revive the patenting of a function?” Mr. Phillips did not directly respond.
In the end, Alice Corp’s case of technological innovation is slight. Mr. Phillips agreed with Justice Kennedy that it would be “fairly easy” for a “second year college class in engineering” to draft the claimed software – giving the court additional fodder for rejecting this case merely with a string citation to Bilski, Flook, and Benson.