1. 2015 AIPLA IP Practice in Europe Committee June, 2015 Phil Swain Foley Hoag LLP Boston, MA - USA The Effect of Alice v CLS Bank on patent subject matter eligibility in the US Courts and the Patent Trial and Appeal Board 1 © AIPLA 2015

2. Disclaimer: The purpose of this presentation is to provide educational and informational content and is not intended to provide legal services or advice. The opinions, views and other statements expressed by the presenter are solely those of the presenter and do not necessarily represent those of AIPLA or of AIPPI-US. © AIPLA 2015 2

3. Supreme Court opinion: 573 U.S. ___, 134 S. Ct. 2347 (2014) (unanimous opinion by Justice Thomas) Federal Circuit opinion: 717 F.3d 1269 (Fed. Cir. 2013) ( en banc ) (seven opinions) District Court: 768 F. Supp. 2d 221 (D.D.C. 2011) (District Judge Rosemary M. Collyer) Alice Corp. Pty Ltd. v CLS Bank Intl An unlikely case for transforming US patent law © AIPLA 2015 3

4. Alice patents claimed methods and systems for “intermediated settlement of financial transactions” using a computer (in other words, an escrow arrangement) Trial court granted summary judgment of invalidity under section 101 of US patent code  Section 101 concerns categories of inventions are eligible for patent protection  Allows for patents on any new and useful “process, machine, manufacture or composition of matter” (since 1793)  Supreme Court decisions had established three board exceptions to broad categories: o laws of nature, physical phenomena, and abstract ideas (not eligible) The trial court judge decided Alice’s patents claimed the “abstract idea” of “intermediated settlement” and thus not eligible for patent protection Federal Circuit affirmed in split decision  seven different opinions, conflicting rationales among judges Alice v. CLS background facts © AIPLA 2015 4

5. Supreme Court agreed to accept case  over 50 amicus briefs filed  great hope for clarity on software and business method patent eligibility Oral argument was in March, 2014  Justices’ questions seemed to express some frustration with the invention(s) Decision handed down June 19, 2014 (Justice Clarence Thomas) Supreme Court accepted cert. in Alice © AIPLA 2015 5

6. Affirmed that Alice patents were invalid and not eligible subject matter  Revisited Supreme Court’s judge-made principle that “laws of nature,” “products of nature,” and “abstract ideas” cannot be patented. “Merely requiring generic computer implementation” of abstract idea failed to transform it into a patent-eligible invention Repeated two-part “abstract” idea analysis from 2012 Mayo decision Supreme Court decision in Alice © AIPLA 2015 6

7. First, is the claimed invention directed to an “abstract idea”?  such as a fundamental economic practice long prevalent in commerce o recognized that all inventions can ultimately be linked to abstract ideas Second, does the claimed invention contain a sufficiently “inventive concept” to transform the claimed abstract idea into patent-eligible application of that idea  to ensure the invention amounts to “significantly more” than a patent upon the ineligible concept itself o focus on “inventive concept[s]” and “significantly more” imports novelty and obviousness concepts into patent eligibility question (separate sections of the patent code) Supreme Court abstractness test in Alice © AIPLA 2015 7

8. More disputes over patent eligibility for all patents  in federal court litigation (through dispositive motions, and even jury trials?)  in Patent Office challenges Most patent claims are now subjected to an “inventive concept” test to be eligible for patent protection Especially the case for software, and business/financial patents  Fundamental or long prevalent economic practices combined with a generic computer cannot be patented Statistics on invalidation since Alice  6-1 invalid (Federal Circuit court of appeals)  53 – 21 invalid (trial courts) (72% invalidation rate) Implications of Alice decision 8 © AIPLA 2015

9. Shift in patent litigation trends in the last year  significant drop in patent litigation  first decline in five years Price Waterhouse reports 13% drop in patent lawsuits  attributed to Alice o Raised the bar for patentability and enforcement of software patents Lex Machina reports significant shift in defense strategy  20 patents invalidated based on section 101 in 2013  50 patents invalidated based on section 101 in 2014 Fewer weak cases are being brought  NPE’s face bigger challenges, including increased risk of having to reimburse defendant’s costs due to Alice Effect of Alice on US patent litigation © AIPLA 2015 9

10. New “forum” established AIA by patent reform statute of 2011  over 3,000 challenges filed with the PTAB so far Administrative procedure that allows expedited challenge to validity of granted patents  patents judged by three-judge panel (instead of jury) o Judges have technical expertise and patent experience  final decisions within one year after the review is instituted by the PTAB o average decision time is 176 days, much faster than courts  patents can be held invalid under preponderance of the evidence (instead of clear and convincing standard that applies in federal court) o and PTAB applies broader claim interpretation than federal courts  Most patent infringement cases stayed while PTAB proceeding pending Approximately 74% of challenged patent claims have been invalidated by final decision of the PTAB  but another analysis reads the invalidation rate as 24% Patents can be challenged under three procedures – Inter Partes Review, Post Grant Review, and Covered Business Method challenges  Only CBM allows subject matter eligibility challenges Patent Trial and Appeal Board has become a “death squad” for invalidating patents © AIPLA 2015 10

11. Challenges based on Alice especially effective at the PTAB Statistics on invalidation since Alice at Patent Trial and Appeal Board  24 unpatentable under section 101  2 not unpatentable under section o (claims may be unpatentable/invalid for other reasons) Effect of Alice in the Patent Trial and Appeal Board © AIPLA 2015 11

12. Use “two-step” analysis to determine patent eligibility Determine whether claim directed to a “judicial exception” (abstract idea, law of nature, or natural phenomenon)  Examples of abstract concepts o fundamental economic practices o methods of organizing human activities o mathematical relationships or formulas o “an idea of itself” Determine whether elements of the claims, considered individually and as a combination, include something “significantly more”  instructions to use computer for routine/conventional activities not enough  PTO has also provided examples claim sets to show what amounts to “significantly more” than an abstract idea PTO interim eligibility guidelines on examination of claims in view of Alice © AIPLA 2015 12

13. Legislative proposals  Revisions of section 101 utility requirement o claimed subject matter that provides a useful, concrete, and tangible result shall not be denied eligibility for a patent on the ground that it is directed to a law of nature, natural phenomenon, or abstract idea, and shall be evaluated in accordance with the other provisions of this title o delete section 101, or renumber it (so it falls after 102 and 103) New test case  Bar, industry, and Patent Office solution  Find invention without novelty, obviousness, or other patentability (disclosure requirement) problems o As with Chakrabarty/Diehr inventions in 1970’s  Force PTAB/Federal Circuit/Supreme Court to reconsider Alice (and other recent Supreme Court subject matter decisions) o Bilski, Mayo Solutions to Alice Problems © AIPLA 2015 13

14. Thank you for your attention 14 © AIPLA 2015