1. Patent Protection for Software and Business Methods: Is Alice Killing the Trolls?
June 2, 2015
Intro
TY Jim Williams and ACC for opportunity
Recently expanded into Pac Center
Very pleased welcome Bob Wasson
Charlie Moore
Senior Attorney
AHMRT, LLP
Bob Wasson
VP and Assoc. General Counsel
Hewlett-Packard Company

2. Roadmap The Alice Decision Patent Office Response – Uncertainty Rules
Post-Alice Prosecution and Drafting
U.S. Companies’ Response
Covered Business Methods
Litigation Effects
Legislative Fixes
Q&A

3. A reminder:
The opinions expressed are those of the presenters and do not necessarily reflect the views of AHMRT, LLP, its clients, Hewlett-Packard Company or any of its affiliates.

4. What can you patent after Alice?
“The idea was, when the Court took the case, that we would finally have an answer to the question whether software can be patented under U.S. law. To say we did not get an answer is to miss the depth of the non-answer we did get.”
- Prof. Robert Merges, Berkeley Center for Law & Technology
“A majority of the software patents being litigated right now, I think, are invalid under Alice.”
- Prof. Mark Lemley, Stanford University, Sept. 2014
Great anticipation last summer for the Alice decision
Finally get clarity on patentability of SW
But not exactly crystal clear
“I know it when I see it” - Justice Potter Stewart - threshold test for obscenity in Jacobellis v. Ohio

5. Judicial decisions
Gottschalk v. Benson (1972) (BCD number to binary – preempt formula)
Parker v. Flook
(1978) (alarm limits – insig. post solution activity)
Diamond v. Diehr
(1981) (curing rubber)
Bilski v. Kappos (2010)
(risk hedging)
Mayo v. Prometheus (2012)
(drug amount effectiveness)
Alice v. CLS Bank (2014)
(Intermediated settlement)
Ultramercial (Fed. Cir. 2014)
(view ads for content)
DDR Holdings (Fed. Cir. 2014)
Benson – Algorthim converts BCD to pure binary - Abstract Idea exception to patentable subject matter
Flook – smoothing algorithm to calculate alarm limits – implementation conventional – “insignificant post-solution activity”
Diehr – Transformative processing + Real World output
Bilski – Abstract idea; would preempt hedging as a business expedient.
Mayo - Medical diagnostic process – determine proper dosage using correlations between blood test results and patient health.
Ultramercial – Method for distributing products over Internet – viewing ads to receive content – Abstract idea
DDR – Retaining website visitors; creation of composite web page by that incorporates elements from host site and selected hyperlinked 3P site

6. Alice v. CLS Bank (2014) Alice Corporation
Australian company established by former McKinsey manager
11 U.S. patents
Alice patents broadly cover ways in which parties can contract electronically and anonymously with one another in real time and secure environment to:
Hedge known risks;
Invest in known risks for profit;
Lend/borrow from one another; and
Exchange value between one another
Approached CLS Bank in 2002
CLS filed DJ in 2007

7. Alice v. CLS Bank (2014) Method of Performing Electronic Escrow
Issue Simultaneous Instructions
Create Electronic Records
Track Multiple Transactions
Claim 33 of U.S. Patent No. 5,970,479:
33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

8. Computer-Implemented Escrow
Alice v. CLS Bank (2014)
Issue: Are computer-implemented inventions patent-eligible under 35 U.S.C. § 101?
Computer-Implemented Escrow
Parties stipulated claims are “computer- implemented”
Several claims do not recite a computer or any form of computer implementation
District Court: All claims are patent-ineligible
Federal Circuit: No majority opinion
Method and CRM claims are patent-ineligible; split on system claims, so lower court ruling maintained
Judge(s)
Test
Rise and Fall Together?
Method Claims
CRM Claims
System Claims
Lourie (Dyk, Prost, Reyna, Wallach)
Significantly more (consider “inventive concept”)
Yes
Ineligible
Rader (Moore)
Meaningful limitations to a specific application of an abstract idea No
Eligible
Linn (O’Malley)
Meaningful limitations (joined Rader on test)
Newman
Back to Basics

9. Are computer-implemented inventions patent-eligible?
Meaningful Limits:
Computer implementation must limit scope of claim and contribute to achieving intended result
Test:
(1) whether computer implementation claimed with sufficient particularity & specificity to ensure meaningful limits on claim scope; and
(2) computer implementation must be significant contributor to achieve intended result
Claims rise & fall together
Consider all combined claim elements as inventive concept
Additional Limitations:
Claim needs additional limitations that direct claim to specific practical application
Test: whether use of computer is integral to claimed invention or, alternatively, whether recited use of computer is “insignificant post-solution activity” tacked on to steps of business method
Consider claim as a whole
Claims rise & fall together
Specific Implementation:
Claim must be limited to a specific way of implementing an idea with a computer
Test: Claim must have inventive concept (elements) to ensure patent in practice amounts to significantly more than patent on the abstract idea
Conventional or obvious steps insufficient
General non-specific steps that do not significantly limit claims scope insufficient
Limiting to particular technological environment insufficient
Always patent eligible: Computer-implemented inventions always fall outside abstract idea exception
No principled reason to draw distinctions between hardware and software
Technological functions carried out by software could be implemented through computer hardware
Computer implementation, however minimal the effort, definitively separates technological implementation from idea itself
Always eligible
Limited eligibility
Always patent eligible: Computer-implemented inventions always fall outside abstract idea exception
Computer implementation, however minimal the effort, definitively separates technological implementation from idea itself
Additional Limitations: Claim needs additional limitations that direct claim to specific practical application
Use of computer must be integral to claimed invention
Meaningful Limits: Computer implementation must be claims with sufficient particularity and specificity to ensure meaningful limits on scope of claim and significantly contribute to achieving intended result
Specific Implementation:
Claim must be limited to a specific way of implementing an idea with a computer
Claim must have inventive concept (elements) to ensure patent in practice amounts to significantly more than patent on the abstract idea
Rader
Newman
Lourie+
Newman
Rader
Rader
Rader
Lourie+

10. Alice v. CLS Bank (2014) Holding: Two-part test:
Are the claims directed to a patent-ineligible concept?
Is there an inventive concept in the claim? i.e., an element or combination of elements that in practice amounts to significantly more than a patent upon the ineligible concept itself.

11. Alice v. CLS Bank (2014) Part 1: Test for Abstract Ideas
Examples of abstract ideas – fundamental economic practices (Bilski), certain methods of organizing human activities, “an idea of itself”, mathematical relationships and formulas (Benson, Flook)
No clear standard provided – “we need not labor to delimit the precise contours of the ‘abstract ideas’ category”
Application of the Test
Claims recite an abstract idea – no meaningful distinction between risk hedging in Bilski and intermediated settlement in this case.

12. Part 2: Significantly More
Alice v. CLS Bank (2014)
Part 2:
Part 2: Significantly More
Insufficient
May Be Sufficient
Appending conventional steps at a high level of generality (Mayo)
Stating the idea + “apply it” (Mayo)
Mere recitation of a generic computer (Benson)
Merely limiting to a “particular technological environment” (Flook)
Improvements to an existing technology or technical field (Diehr)
Improvements to the functioning of the computer itself
Application of the Test
Alice’s claims are unpatentable, as they simply recite the concept of intermediated settlement as performed by a generic computer

13. DDR Holdings v. Hotels. com (Fed. Cir
DDR Holdings v. Hotels.com (Fed. Cir. 2014) Post Alice: Software and even E-Commerce patents are viable
Patent addressed problem of retaining website visitors
Held – Patent eligible subject matter
The claims “do not merely recite the performance of some business practice known from the pre-Internet world along with the requirement to perform it on the Internet. Instead, the claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.”
“The claims “do not broadly and generically claim ‘use of the Internet’ to perform an abstract business practice (with insignificant added activity…the claims at issue here specify how interactions with the Internet are manipulated to yield a desired result—a result that overrides the routine and conventional sequence of events ordinarily triggered by the click of a hyperlink.”
“It is also clear that he claims at issue do not attempt to preempt every application of the idea of increasing sales by making two web pages look the same, or of any other variant suggested by NLG. Rather, they recite a specific way to automate the creation of a composite web page by an “outsource provider” that incorporates elements from multiple sources in order to solve a problem faced by websites on the Internet.”
Visitor selecting hyperlink on host site not taken immediately to hyperlinked third party site; instead taken to “hybrid” page that combines look and feel elements from both host site and third party site

14. DDR Holdings v. Hotels.com (Fed. Cir. 2014)
Claim 19 of U.S. Patent No. 7,818,399:
19. A system useful in an outsource provider serving web pages offering commercial opportunities, the system comprising:
(a) a computer store containing data, for each of a plurality of first web pages, defining a plurality of visually perceptible elements, which visually perceptible elements correspond to the plurality of first web pages;
(i) wherein each of the first web pages belongs to one of a plurality of web page owners;
(ii) wherein each of the first web pages displays at least one active link associated with a commerce object associated with a buying opportunity of a selected one of a plurality of merchants; and
(iii) wherein the selected merchant, the outsource provider, and the owner of the first web page displaying the associated link are each third parties with respect to one other;
(b) a computer server at the outsource provider, which computer server is coupled to the com- puter store and programmed to:
(i) receive from the web browser of a computer user a signal indicating activation of one of the links displayed by one of the first web pages;
(ii) automatically identify as the source page the one of the first web pages on which the link has been activated;
(iii) in response to identification of the source page, automatically retrieve the stored data corresponding to the source page; and
(iv) using the data retrieved, automatically generate and transmit to the web browser a second web page that displays:
(A) information associated with the commerce object associated with the link that has been activated, and
(B) the plurality of visually perceptible elements visually corresponding to the source page.

15. Patent Office Response
In Fall 2014 up to 75% rejection rate based on Alice in ecommerce-related Art Units
Other art units (e.g., automobiles) see 5-7% rejection rates
Examiner’s afraid to allow applications, as they face high scrutiny
Applicants and Examiners are both searching to figure out (1) what is abstract under Alice, and (2) how much “something more” it takes to render subject matter eligible under 101
Both sides are confused, have higher work burden

16. Post-Alice Prosecution
Use Alice 2 part frame work
Part 1 - Argue claim as whole (all elements) not abstract
Part 2 - Argue claim has “something more”
Rely upon Diamond v. Diehr
Real world input
Transformative processing
Real world output
That achieves an advantage over the prior art
Rely upon Gottshalk
Doesn’t remove a generic technology from the public domain
Add harmless detail, such as available hardware - sensors receiving input, input/output ports, etc.

17. Post-Alice Drafting Avoid claims to:
Fundamental economic activity (Bilski, etc.)
Mathematical formulas (Benson)
Signals (In re Nuitjen)
Device Profiles (Digitech (with respect to the claims directed to the “device profile”)
Pure Data Structures
In re Warmerdam - data structure not patent eligible
In re Lowry - functional data structure on a memory is patent eligible
Games (Planet Bingo)

18. Post-Alice Drafting
Direct claims and description to specific, practical applications
Avoid e-commerce words like game, order, commerce, auction, etc.
Avoid overly broad or abstract characterizations of the invention in the description and arguments
Avoid buzzwords like “formula”, “equation”, and “algorithm” in the description
Use caution when reciting mathematical equations in the claims
Explain how the invention solves a technical problem in the description
Use language from the cases in your description or arguments – e.g., “embodiments improve the functioning of a computer by …”
Draft for an uncertain future: Recognize that patents have 20-year term and patent-eligibility law may well change during this time

19. U.S. Companies’ Response
On legal/policy question US companies see this differently:
High tech companies that get sued a lot on software patents
Pharma companies
Companies who assert software patents (e.g., operating companies, NPEs, Universities, defunct businesses with valuable patent portfolios)
In portfolio development:
Improve technical character of patents, particularly software patents
Perhaps file fewer patent applications on items that could be regarded as mental steps, financial algorithms, or methods of organizing human activity
Recognize that patents have a 20 year term from priority and that legal standards concerning patentable subject matter will likely change during this time

20. U.S. Companies’ Response
In Litigation:
As a defendant
Increasing use of 101 invalidity arguments early in litigation.
CBM (Covered Business Method Review)
As a plaintiff
Consider alternative forums
ITC and Germany gaining in popularity

21. Covered Business Method (CBM) Review
Potentially powerful
CBM patent claims “a method, apparatus, or operation used in the practice, administration, or management of a financial product or service”
Only party charged with infringement of a CBM patent can initiate CBM challenge (receiving cease and desist letter likely to be considered charge of infringement)
May assert any grounds for invalidity
May be filed only when post-grant review unavailable (e.g., nine months after issuance).
Estoppel provisions less extensive than post-grant review (extends only to grounds actually asserted, not to grounds that reasonably could have been asserted)

22. Litigation Effects – Curbing Trolls?
PwC study reports number of patent lawsuits in 2014 decreased by 13%1
But data collected Oct. 31, 2013 – Sept. 30, 2014; Alice decision issued June 2014.
Also, new patent lawsuits decreased 8% Jan – May 2014 (before Alice) as compared to same period in 20132
Number of patents invalidated by District Courts under § 101 July – Dec was more than double in all of 2013.
Other newly available procedures (IPR, CBM) to attack patents
Impact on NPE business model? Many believe Yes
More difficult to obtain venture funding of NPE suits
Vague/overly-broad patents have been critical to ensnare many defendants
“Nuisance value” model less viable
1 “2015 Patent Litigation Study”, May 2015, PricewaterhouseCoopers LLP
2“Patent Case Trends and the Business of Litigation”, February 5, 2015, Lex Machina

23. Legislative Fixes Unlikely to improve at Supreme Court
PTO probably lacks authority
Professional organizations, including Intellectual Property Owners and AIPLA, are working on a proposed amendment to section 101 to address these issues.
One proposal amends 101 to exclude considerations found in 102, 103, and 112.
Another proposal seeks to amend 101 in line with European standards such as:
Susceptible of industrial application and
Invention must be of a “technical character” (i.e, “a technical solution to a technical problem”)

24. THANK YOU 24