05 May Is your software patent enforceable?

By Christian Drago, Counsel, and Brad Pulfer, Law Clerk, Fay Sharpe LLP

A Supreme Court decision from June 2014 has left some companies with patents on software-related inventions on unstable ground and subsequent lower court decisions only continue to raise questions for those who hold or desire a patent on software.

The initial ruling in Alice Corp. Pty. Ltd. v. CLS Bank International changed what is considered patent-eligible subject matter. That could leave some patents unenforceable, and will challenge companies to rethink how they draft future patent applications.

Up until this decision, it was understood by the U.S. Patent and Trademark Office (USPTO) and patent attorneys in general that software-related patents were patent-eligible subject matter is they were sufficiently tied to a machine, such as a computer.

In essence, you’re not claiming the software, you’re claiming the computer that’s performing the function that the software is instructing it to do. After Alice, the court said adding a computer is not enough. They’re looking for something tangible that affects the real world.

Who is at risk?

Anyone who has patented business methods, such as those that function to process financial information, may be at risk.

Alice Corp., for instance, owned several patents directed to a computer-implemented scheme for mitigating settlement risk via a third-party intermediary that CLS Bank International was utilizing, until Alice notified the conglomerate of a potential infringement.

The decision could also affect app developers, e-commerce companies, and others in the software industry if they can’t prove that their inventions tangibly affect the real world.

Companies with software-related inventions and business methods may move away from filing patents.

Following the Alice decision, a significant drop was noted, but it isn’t clear whether prosecutors are delaying patent prosecution in hopes that the courts will provide more favorable case law, or if examiners simply aren’t granting applications. It remains too early to know for certain.

There have been several federal circuit decisions post-Alice, most notable Ultramerical Inc., v. Hulu LLC, and DDR Holdings LLC v. Hotels.com.

Ultramercial’s patent involved a method for distributing copyrighted content on the condition that the user watched an ad. It was found in November 2014 that the claims asserted by Ultramercial were ineligible for a patent. The company filed for en banc review in January 2015.

A decision issued in December 2014, in DDR Holdings LLC. v. Hotels.com gives some guidance as to how a patent directed to purely computer-implemented subject matter can survive post-Alice. DDR’s patent was directed to a method of providing different digital storefronts within one website. The court said this was a uniquely technical problem and hence did not preempt any longstanding real-world analogue.

These two decisions seem to have the best chance for a Supreme Court challenge.

Other options

Many of these companies will use trade secret and copyright to protect their inventions, which are strategies that have received some negative consequences.

Copyright can be used to protect software, but to get copyright protection, a copy of the code must be sent to the Library of Congress, which means it could be copied, creating unwanted exposure.

More likely, companies will protect their inventions as a trade secret, which can also be burdensome because it’s difficult to maintain the secrecy of each step. It also puts companies at risk when those products are sent to market because the function code may be copied.

Why is the court taking this approach?

The Court is trying to prevent patents on what are considered abstract ideas, from preempting the use of those ideas by the public.

For instance, if the court allowed a patent on the human gene, that would preempt someone from studying that gene.

The problem, however, is that the court gives little guidance on what “abstract idea” means.

How can companies protect their products?

Most of the software that’s being invented is going to affect something in the real world – it’s just a matter of making that clear in the patent application.

Based on rejections being issued by USPTO, claims of pending or new applications must be drafted in a way that shows:

• an improvement to an existing technological process
• that it uses an output to affect a tangible object
• that it links the idea to a particular technological environment with some form of meaningful limitation

The Court is showing that it equates “technology” with “physical.”

Any claims to an “abstract idea” will be deemed patent-eligible only if they claim tangible, physical results or have an impact on the real world.

Most recently, guidelines issued by the USPTO in December 2014 have offered some better insight into how examiners will be analyzing applications.

Should companies with existing patents be concerned?

 Software remains eligible under the Alice decision. But the manner in which it is described, and the field in which it is implemented, will limit the scope of protection available.

Companies negotiating a license agreement should take precautions that licensees don’t sue for declaratory judgment of invalidity. But the bigger concern is asserting patent protection against infringers.

Contact a patent attorney is there’s a chance patent rights could be lost because of this recent judgment. He or she may be able to help rewrite the patent claims by way of a reissue patent.

Christian Drago is Counsel and Brad Pulfer is a Law Clerk at Fay Sharpe LLP. If you have questions about your software patent, or are looking to apply for one, contact Christian at cdrago@faysharpe.com.