It’s been over a year since the Supreme Court’s decision on Alice Corp v. CLS Bank (lovingly referred to as Alice). Since then, there has been widespread speculation whether software patents will survive in the United States. Many courts have invalidated some software related patents, which has only fueled this speculation. Despite this, it is clear that software patents are not completely dead.
But many wish they were. The Electronic Frontier Foundation, for instance, has launched a Patent Busting Project to “combat these annoying and often dangerous legal weapons.” The foundation’s motivation, in large part, stems from copious patent troll lawsuits that seek infringement damages for broadly claimed and slimly applied patents that often are stooges for a quick and expensive settlement.
Others have joined the fray. Wired magazine, for instance, has written that software patents threaten every software developer and that developers “need software to be free of patents.” Forbes has published an article noting that software patents have “created big–and expensive–problems for companies throughout all sectors of our economy.” Even the New York Times has stated that the software patent system “is so flawed that it often stymies innovation.” In light of this rhetoric it’s no wonder that many think the sky is falling on software patents.
There are some good arguments supporting the abolishment of software patents. Many commentators argue that because software patents can be vaguely written with “fuzzy borders” to allow patent trolls to broadly extract royalty fees from true innovators that software patents should not be allowed. Commentators also argue that software patents hinder innovation, should be protected by copyrights, encourage patent thickets, differ from other major innovative industries and often just cover mathematical algorithms.
Despite the rhetoric against software patents, they are still alive and quite useful. The Supreme Court in Alice did not state that software patents are no longer patent eligible. Instead, the high court loosened the standard for what is considered an ineligible abstract idea. The problem with the Court’s ruling; however, is that they failed to elucidate what exactly is considered an abstract idea; hence, the confusion about the status of software patents. This omission has given ammunition to the anti-software patent crowd; left the patent community confused regarding the line between patent eligibility and patent ineligibility; and caused many technology companies to doubt the value of their intellectual property assets.
Despite this confusion, the courts have been clear since Alice that software patents directed toward pure business methods are not patent eligible. Citing Alice, Federal Courts have invalidated numerous patents directed toward such things as creating contract relationships, processing loan information, managing an insurance policy, tax free investing, meal planning, managing a game of bingo and more. The United States Patent and Trademark Office has further organized the types of abstract ideas that have been found ineligible for patentability into several main categories: fundamental economic practices, an idea of itself, certain methods of organizing human activity, mathematical relationships and formulas, and many others.
While some software may fit within one or more of these categories or may be directed toward similar subject matter, it does not mean that all software is unworthy of patent protection. Indeed, the Federal Circuit Court, which has primary appellate jurisdiction over patent cases, has stated that not “all software-based patents will necessarily be directed to an abstract idea” and, therefore, patent ineligible.
The Federal Courts have found software-like claims to be patent eligible in a number of circumstances. These include, for example, claims that recite significantly more than an abstract idea (Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. 10 (2012)), claims to subject matter that produce an improvement to another technology or technical field, claims that recite a mathematical formula that is used in a specific machine to manipulate inputs to cause the specific machine to operate in a certain manner, claims that improve the functioning of the computer itself and claims necessarily rooted in computer technology to overcome a problem specifically arising in a technological area are also patent eligible (DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Circuit 2014)). Even claims directed toward ecommerce applications have been found patent eligible.
How does a company seeking protection for software inventions navigate these waters? Firstly, it’s the details that matter. In particular, it’s the details about how the software is significantly more than an abstract idea, how it improves another technology, how it interoperates with a machine, how it improves the functioning of a computer or solves a problem rooted in computer technology that matter.
Secondly, a discussion in the patent about the technical problems solved by the invention can be helpful to show that the invention is much more than an abstract idea. Thirdly, it takes a good patent attorney to navigate these waters. This is ironic considering that the Court in Alice specifically noted that patent eligibility should not “depend simply on the draftsman’s art.” Yet, the intricacies of the patent eligibility standard created by the Court in Alice are the problems that now require the draftsman’s art.
Even though software is patent eligible, one should tread carefully. The courts and the patent office jurisprudence in this area are still unsettled. Thus, even though they are valid today, some question the future validity of a software patent. Others, however, believe that the pendulum has swung far afield and over time patent eligibility will shift back towards a more lenient standard.
One could analogize to Europe, which once struggled with this problem and has since settled on a system that is permissive to some software patents claimed in a specific manner. It is likely, that this will be the case in the U.S. In addition, the patent office struggles to consistently apply these standards. Thus, any patent application that appears to be directed toward an abstract idea may take some work at the patent office.
Despite this caution, software patents can still be a valuable asset and can justify the risk and costs of obtaining one even if one never intends to enforce it. For startups, software patents can provide protection from large companies with the resources to reverse engineer a product. In some cases patents can be needed to protect investment in the company. In addition, software patents can provide protection against or leverage in a patent related law suit.
Software patents can also boost the relative value of a company in an acquisition or an IPO. Large software companies recognize the value of software patents and routinely invest in them. Google is a great example. The founders patented their search algorithm at the outset of the company. Microsoft, Oracle, and Apple invest heavily in patents. Even Facebook, Twitter and LinkedIn have hundreds or thousands of patents in their portfolio.
Despite the frustration with software patents and the recent court decisions invalidating patents directed toward abstract ideas, software patents are not dead. While the path forward may not be as straightforward as it once was, there is a way to gain patent protection for software that can add value to a company.