Alternative Facts on Patent-Eligibility from the Electronic Frontier Foundation

By Michael Borella --

The textbook policy rationale for the existence of a patent system is a quid-pro-quo -- a tradeoff in which an inventor is granted a time-limited property right over his or her invention in return for disclosing it to the public.  Such disclosure is expected to, over time, spur further innovation, and bolster research and development.  But empirical measurements of the impact of the patent system on innovation and the economy have been difficult to come by.  Patents are just one factor influencing ongoing scientific and engineering advances, and their impact is perhaps impossible to determine in an aggregate sense.

Heidi L. Williams of the National Bureau of Economic Research reviewed the available evidence of how patents on existing technologies might affect follow-on innovation and research investment.  Her conclusion is that more evidence is needed:  "[G]iven the limitations of the existing literature we still have essentially no credible empirical evidence on the seemingly simple question of whether stronger patent rights -- either longer patent terms or broader patent rights -- encourage research investments into developing new technologies."

Nonetheless, in a recent article, Vera Ranieri of the Electronic Frontier Foundation (EFF) has used this essentially neutral position to argue in favor of recent changes to U.S. patent law that arbitrarily and subjectively limit patentable subject matter.  In doing so, Ms. Ranieri falls back on a number tired tropes and misconceptions about the workings of U.S. patent law, and fails to consider the damage done by these changes to the certainty function of the patent system.

The Alice Decision

In 2014, the Supreme Court handed down a highly controversial decision in Alice Corp. v. CLS Bank Int'l.  In a nutshell, the Court ruled that patent claims should be analyzed to determine whether they are too "abstract," and if they are, these claims should be further analyzed to determine whether they incorporate "significantly more" than an abstraction.  In doing so, the Court went well beyond the plain language that Congress set forth in 35 U.S.C. § 101, the section of the patent statute that defines subject-matter eligibility.  Furthermore, the Court purposely declined to define what it meant by "abstract" and "significantly more," essentially leaving it up to the Federal Circuit, the district courts, and the USPTO to provide meaning for these ambiguous terms.

While not explicitly stating it, in Alice the Court effectively targeted software and business method inventions (and certain types of life science inventions, such as diagnostic methods) for an additional level of scrutiny.  In fact, the EFF's own amicus brief in Alice encouraged the Court to use the case to "reign in overbroad software patents."  Whether or not this argument ultimately swayed the Justices to rule as they did, the effect of Alice is clear -- over 15,000 patent claims have been invalidated under § 101 since this decision came down, the vast majority of these in the software and business method space.  Additionally, some software and most business method claims are now harder to obtain from the USPTO, with rejection rates of over 90% in some business method art units.

In many cases, courts have invalidated patents under § 101 without undertaking claim construction.  Let that sink in for a while -- courts are throwing out patents as allegedly being abstract without determining the actual scope of the claimed invention.

The Alice Decision Has Not Been, and Cannot Be, Applied Consistently or Objectively

The problem with Alice is not just that it limits the scope of patentable subject matter, but that it does so in an arbitrary and subjective fashion.  Courts and the USPTO have struggled mightily with making sense of the decision.  Judge Wu of the United States District Court for the Central District of California criticized Alice for setting forth an "I know it when I see it" test.[1]  Judge Pfaelzer, a colleague of Judge Wu, wrote that the Supreme Court's patent-eligibility cases "often confuse more than they clarify [and] appear to contradict each other on important issues."[2]  Former Chief Judge of the Federal Circuit Paul Michel stated that Alice "create[d] a standard that is too vague, too subjective, too unpredictable and impossible to administer in a coherent consistent way in the patent office or in the district courts or even in the federal circuit."

While the Federal Circuit has attempted to provide a consistent line of post-Alice case law, this has resulted in some very thin bacon slicing.  For instance, in 2014 a panel in Ultramercial v. Hulu found a complex and narrow web-based transaction to be unpatentably abstract, while another panel in DDR v. Hotels.com found a web server that combines the look and feel of two different web sites meeting the requirements of § 101.  Last year, in Synopsys v. Mentor Graphics, an invention automating circuit design procedures was found to be abstract because these procedures had been performed manually by humans.  But in McRO v. Bandai Namco Games America, an invention automating lip-synchronization in animated characters was found not abstract even though the automated procedure could be performed by humans.

While one could argue that there are at least tenuous distinctions between the claimed inventions that were found eligible and ineligible in these four cases, the recent Recognicorp v. Nintendo case clearly illustrates the Federal Circuit's inability to apply Alice consistently.  In the decision, the panel characterized a 154-word claim as nothing more than "encoding and decoding image data," despite the panels in Enfish v. Microsoft and McRo explicitly forbidding such claim over-simplification.

At the USPTO, despite the administrators' admirable efforts to provide clear examination guidelines with respect to Alice, it is notoriously well known amongst practitioners that different art units and different examiners will apply the Alice test in radically different ways.  Further, it is common for an applicant to receive an Alice rejection that is purely conclusory in nature -- the examiner essentially saying "Your claims are abstract, no patent for you!" without any rationale or reasoning to support the rejection.  While the latter type of rejection can be rebutted, it imposes additional and unnecessary costs on the applicant to go through extra cycles of Office actions or appeals.

Ultimately, the problem does not lie with the Federal Circuit or the USPTO.  The Alice test is inherently subjective, requiring one to look at a claim and imagine analogous "well-known, routine, and conventional" activities.  In doing so, examiners and judges often ignore key claim elements, resulting in a 10,000-foot view of the claim being analyzed, rather than the actual claimed invention.

Due to this subjectivity, reasonable minds can differ regarding whether a claim is abstract and whether it contains something more.  There is no way for thousands of examiners and hundreds of federal judges to reach the same conclusion on a consistent basis.

The Lack of Evidence Found in the Williams Paper Cuts Both Ways

For sake of argument, let's assume that Ms. Williams's analysis is correct, and that there is little or no evidence identified yet that establishes innovation is spurred on by a strong patent system.[3]  Ms. Ranieri interprets this result as an invitation to slam the door on software patents, arguing that there is no need to change the law to fix problems introduced by Alice.

But the same argument could be used to establish that there was no need for the Supreme Court to change the law in Alice either.  If the impact of patent system strength on innovation was unclear, the Court should not have instituted such a dramatic change.  Besides, Congress is better equipped than the Court to derive policy from such studies.  If anything, the dramatic growth of technology company profitability and market capitalization from the mid-1990s to the Alice decision in 2014 suggests that a strong patent system is not inconsistent with innovation and technological investment in the software market.

Ms. Ranieri also states that the Williams paper establishes that there is no evidence that the Alice decision has "done any harm to the innovation economy or innovation generally."  But the paper does not address Alice at all, and most of its cited research was conducted prior to the 2014 date of Alice.  Given the lengthy, multi-year time scales of patent lawsuits, patent prosecution, and research and development, the three years between then and now is way too short a time period to draw such broad conclusions.

Ms. Ranieri Mischaracterizes the Efforts to Overturn Alice

Throughout her article, Ms. Ranieri makes misleading statements about efforts to overturn Alice.  Particularly, she focuses on proposals by the Intellectual Property Owners Association and the American Intellectual Property Law Association to rewrite § 101.  A comparison of their efforts indicates that they would replace the Alice test with an analysis of whether the claimed invention as a whole (i) exists in nature independently of human activity, or (ii) solely in the human mind.  Such a test would certainly result in fewer patents being invalidated under § 101, but would also go a long way toward clarifying the law.

Unlike Ms. Ranieri's contentions, this would not "return us to a world where 'do it on a computer' ideas are eligible for a patent."  That world never existed.  If a claimed invention's sole difference from prior art is to perform a known series of steps on a computer, the invention is probably obvious and can be invalidated on those grounds.  In fact, the claims in Alice and many other so-called "overly broad" patents could be invalidated under the patent statute's existing novelty, non-obviousness, and written description provisions.  Ms. Ranieri's further statement that the proposed changes to § 101 would mean that "anything is patentable" aside from the aforementioned exceptions ignores the fact that eligible subject matter is just one requirement of many for a patent to be granted.

Furthermore, Ms. Ranieri asserts that "the recent reform proposals seem like little more than a bid by lawyers to create work for themselves."  If anything, the opposite will likely be the case.  The uncertainty surrounding Alice has been a boon for § 101 focused practice, opening more patent prosecution and litigation opportunities.  While some applicants are filing fewer patents as a result of Alice, many are filing more -- attempting to protect multiple narrow inventions rather than one or two broader ones.  There are more appeals in the USPTO, as well as more covered business method review proceedings as well.

When there is a gray area in the law, lawyers are needed more than ever to help their clients navigate the ambiguities.  If the Intellectual Property Owners Association and the American Intellectual Property Law Association succeed in their efforts, the patent law will be less ambiguous and there will be far fewer billable hours spent determining whether or not a claim is abstract.  Even though such a change might have a negative impact on their bottom lines, many patent attorneys would welcome the change because the patent system is broken as long as Alice stands.

Conclusion

Opposition to the Alice test is not based on it making patents easier to invalidate, but that it does so in an unworkable and intellectually dishonest fashion.  This has resulted in applicants with limited financial resources being unable to pursue patent protection for legitimate technical inventions.  If such a trend is widespread and continuing, small U.S. companies will be reluctant to innovate in certain market segments because of the risk of their U.S.-based or foreign competitors getting a free ride to copying or cloning a product or service.

This is the area that merits academic study -- has Alice actually harmed innovation?  As noted above, it may be a while before we can make that determination.  But if it is the case, that would be just one more reason of many for discarding the test.

[1] Eclipse IP v. McKinley Equipment (C.D. Cal. 2014).

[2] Cal. Inst. of Tech. v. Hughes Commc’ns Inc. (C.D. Cal. 2014).

[3] As far as we know, the paper has not yet been subject to thorough peer review, and therefore its conclusions should be viewed as preliminary at best.

Comments

[Dan Feigelson]

Excellent write-up.

[Philip McKay]

Outstanding analysis and excellent summary of the situation.

[Larry Hoffman]

It doesn't take much smarts to see through the EFF's anti-patent propaganda and based on its member's perceived benefits to take advantage of the efforts of others without compensating them so they themselves can make more money.

Irrespective of that Alice is not workable in part because it does not address the basic question of what are the useful arts

[GrzeszDeL]

Every word of this essay is well said.

[EG]

Hey Michael,

You're spot on about the EFF's disingenuous and propaganda-driven "entitlement" view of IP generally and patents specifically. Contrary to what Ranieri and the EFF believe, if you don't encourage protection of invention/patent rights, those inventions will either be kept as trade secrets or won't be developed at all.

[Paul Cole]

As I have said in my recent Recognicorp posting and elsewhere, the subject of affirmative categorical compliance within Section 101 is a neglected area of study amongst academic commentators, attorneys and judges.

We still live with the after-effects of State Street Bank, in the sense that broad claims considered arguably valid in that more liberal era are now coming before the courts. Section 101 categorical compliance should be a concern of every prosecution attorney, and obtaining of main independent claims of undue and difficultly-defendable scope risks setting off a judicial avalanche in which valid subject matter within a patent gets buried. As the EPO Enlarged Board has told us in Europe, claim scope is ultimately the responsibility of the inventor(s) and the prosecution attorney(s) representing him or her (them). The fact that a claim can be slipped past a weary examiner on a Friday afternoon is not an indication that it is desirable or in a client's interests.

The question, therefore, for every prosecution attorney nowadays should be: is the claimed subject-matter a new and useful process, machine, manufacture or composition of matter, and if challenged what arguments have been built into the written description and allowed claims that provide a clear positive defence against such challenge?

Those who question the value of such analysis are invited to consider the representative claim at issue in Mayo and the available in arguments in support of the proposition that it is a transformative process falling plainly within the eligible category of section 101. A reading of the Supreme Court opinion sets out strong and credible arguments that it is not.

That being said, there is a range of possible interpretations of the Alice test ranging from mainly harmless to severely damaging. Why pick on the broadest and most damaging interpretations?

The USPTO and the lower courts have paid insufficient attention to the caution which is expressed by the Supreme Court in its recent section 101 opinions and its intention not to eviscerate the patent system. Lack of attention to detail, "gold plating" of Supreme Court dicta, failure to conduct detailed study of these important decisions and extract the true rules of law that are applicable are exemplified in the Federal Circuit decisions in Sequenom and Recognicorp.

Equally exemplified by these two decisions is inattention to the underlying facts and consequential decision based on what would nowadays be called "fake news" or in a judicial context "fact facts". That is exemplified in Sequenom where Judge Reyna notoriously said (slip opinion at page 11): "Because the method steps were well-understood, conventional and routine, the method of detecting paternally inherited cffDNA is not new and useful." Presumably he has no daughter of child-bearing age. If he had such a daughter and asked her, she would have expressed in no uncertain terms her preference for a simple blood test at 11 weeks gestation over an invasive and inherently risky amniocentesis at 17 weeks gestation. It is notable that the same Judge concluded in Recognicorp that the claimed process began and ended with data, whereas it is plain to any reader who has reached secondary school age that the claimed process begins and ends with images. Such a decision based on "fake fact" has nothing to do with the Alice test, however interpreted, and much to do with inexcusable inattention to and disregard of plain claim wording and the integers expressed by such wording.

Unfortunately, many recent Section 101 decisions have done nothing to enhance the reputation of the US courts either domestically or internationally.

Incidentally I claim credit in the judicial context for the terms "fake fact decision" and "fake law decision." Possibly an academic commentator could compile a list of Federal Circuit and other significant decisions since Mayo which fall into one or both of these categories

[skeptical]

Mr. Cole,

Perhaps you would like to reevaluate the case serving as the lynchpin in your statement of

"We still live with the after-effects of State Street Bank, in the sense that broad claims considered arguably valid in that more liberal era are now coming before the courts."

Considering the historical analysis on "software" patents at: http://www.ipwatchdog.com/2017/05/21/alice-over-half-u-s-utility-patents-issued-annually-software/ the use of the "State Street" case as some type of 'Scape Goat should be critically evaluated.

[skeptical]

...I will also add Mr. Cole, that your lament does not accord with the facts of the Alice case itself.

In that case, claims stipulated by both parties as firmly meeting your desired "affirmative categorical compliance" were none-the-less swept up by the Supreme Court and made to be "Abstract."

I KNOW that I have already "told you so" regarding this - must I do so again (and again...)?

The driving problem here just is NOT what applicants are doing.

Pretending otherwise - even with the best intentions - remains pretending and to the degree that such pretending PACIFIES a righteous anger with the Court scrivening its own patent law, your laments are part of the problem rather than a factor in a solution to the real problem.

[Paul Cole]

@ Skeptical

What matters is not whether a claim has a form that fits one of the statutory categories but whether as a matter of substance it indeed does so. If you read the representative claim in Alice, you get a powerful feeling at the end: "so what?!" The Alice parties were well represented in Europe and conspicuously failed to get their claims past the EPO. I have not seen, on re-reading Alice, any stipulation that the representative claims were statutorily compliant, and in any event such stipulation matters nothing if the claims do not in substance comply. If you consider that the Alice claims in fact comply, a detailed explanation why you credibly believe this to be the case and what the transformative nature of the claimed subject matter indeed is would be helpful.

One of the driving problems is that applicants have in the past got large numbers of dubious patents through the USPTO. Judges hate dealing with bad patents, and by human nature throw them out, even if they use bad reasoning to do so.

One of my concerns is not what applicants HAVE DONE in the past but what they CAN DO IN THE FUTURE to avoid falling down the section 101 rabbit hole. It CANNOT be a part of the problem to explain what applicants can and should do to better themselves.

That being said, the IPO and AIPLA proposals are a pointer in a better direction. Until then, better claims prosecuted through the USPTO and brought before the courts in combination with better opinions from the judges would do much to help. We are where we are NOW, and if we cannot solve the problem completely there is much that can be done to mitigate its worst effects.

[skeptical]

"One of my concerns is not what applicants HAVE DONE in the past but what they CAN DO IN THE FUTURE to avoid falling down the section 101 rabbit hole. It CANNOT be a part of the problem to explain what applicants can and should do to better themselves."

Yes is can be - to the extent that such distracts from a focus on the waywardness of the Court.

You miss the point that ANY change by applicants will more than likely NOT work, because the Court will simply move the goalposts.

Have you ever heard the phrase "patent profanity?"

Have you been paying attention to the Supreme Court denigrate attorneys as "scriviners?"

Your path Paul is just going to lead to (yet) another "I told you so"...