Software Patents Set for Supreme Court Consideration

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The Supreme Court is set to weigh in on the muddled law of software patent eligibility.  On Friday, December 6, the Supreme Court granted a petition for certiorari in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, et al. [1] CLS is an appeal of the famously splintered en banc decision of the Federal Circuit from May of this year. [2] The Supreme Court is expected to decide CLS during the current term, which ends in June of 2014. Also on Friday, the Supreme Court put off a final decision on a certiorari petition in another software patent case that raises similar issues, WildTangent, Inc. v. Ultramercial, LLC, et al. [3]

In CLS, the Supreme Court will address the same issues that bedeviled the Federal Circuit below and have continued to torment the Federal Circuit, the District Courts, and the U.S. Patent Office since then. Specifically, the Supreme Court will consider how to determine whether a software-related claim is directed to a patent-eligible invention or an ineligible abstract idea. The claims at issue in CLS are directed to software-implemented business methods for mitigating settlement risk in certain financial transactions. In the claims, a computer [4] maintains a set of shadow credit and debit records. The computer evaluates transaction requests based on the shadow records. A transaction request is approved only when it is supported by sufficient value in the shadow records. [5] As we reported over the summer, the Federal Circuit split down the middle with five of the ten judges concluding that all of the claims were ineligible for patenting and the remaining five judges concluding that, at least, the system claims were patent eligible. [6] No test or evaluative framework won the votes of more than half of the judges.

The Supreme Court will have an opportunity to consider the two primary tests fashioned by the Federal Circuit below, including the approach set forth in Judge Lourie’s concurrence (the “Lourie approach”) and the approach set forth in Chief Judge Rader’s concurrence (the “Rader approach”). According to the Lourie approach, joined by a total of five judges, the focus is on identifying the fundamental concept or abstract idea applied by a claim and then determining whether the claim would preempt it. [7] Judge Lourie concluded that the claims were ineligible for patenting, as they would preempt the abstract idea of “reducing settlement risk by facilitating a trade through third-party intermediation.” [8] The Rader approach, joined by a total of four judges, asks whether a claim, as a whole, is restricted to an application of an abstract idea, or is simply a recitation of the abstract idea itself. Because the system claims were limited to a computer-implemented application, Judge Rader would have found them patent eligible. [9]

Since the Federal Circuit’s decision in CLS, the courts and the U.S. Patent Office have struggled to apply the law consistently. At the Federal Circuit, the Lourie and Rader approaches converged in Ultramercial, Inc. v. WildTangent, Inc., in which both judges concluded that claims directed to Internet advertising were patent eligible. [10] In other post-CLS cases, however, the two approaches have reached opposite conclusions. The U.S. Patent Office has also had difficulty applying the law consistently. In the new covered business method (CBM) reviews, the Patent Office’s Patent Trial and Appeal Board (PTAB) has, in different cases, reached seemingly contradictory conclusions. [11]

The Supreme Court’s decision to hear CLS, while putting off a decision on WildTangent, provides some clues as to how the Supreme Court might ultimately rule.  First, the decision to take CLS makes it more likely that the Supreme Court will provide definitive guidance on software-implemented business methods. The system claims in CLS recite computer hardware that is explicitly integrated into the recited actions. The Supreme Court’s decision should provide an indication of whether this, without more, is enough to confer patent eligibility. Second, at least for now, the Supreme Court will not disturb the Federal Circuit’s ruling in WildTangent that patent claims should only rarely be found ineligible on the pleadings. As we explained in our webinar held on November 13, 2013, if the Supreme Court does later agree to hear WildTangent, it will likely be to address this procedural issue. [12] Between now and the Supreme Court’s decision in CLS sometime next year, it is prudent for applicants to continue to focus on claim drafting and prosecution strategies directed to the areas of overlap between the Rader and Lourie approaches, for example, as described in our summer alert and November webinar. [13]

Notes:
[1] Docket No. 13-298, 571 U.S. ____.

[2] 717 F.3d 1269 (Fed. Cir. 2013).

[3] Docket No. 13-255.

[4] The system claims at issue clearly require computer implementation. The Federal Circuit split as to whether the method and computer-readable medium claims also require computer implementation.

[5] See 717 F.3d at 1289.

[6] See Wolfe, et al., “What is Next for Software Patents?,” Cyberspace Lawyer, Volume 18, Issue 7, August 2013, also at http://www.klgates.com/what-is-next-for-software-patents-07-09-2013/, July 9, 2013. 

[7] See CLS, 717 F.3d at 1282.

[8] See id. at 1286.

[9] See id. at 1309.

[10] Ultramercial, Inc. v. WildTangent, Inc., et al., No. 2010-1544, slip opinion (Fed. Cir. 2013).

[11] See Apple Inc. v. Sightsound Tech., LLC, CBM2013-00019, slip opinion (P.T.A.B. 2013).

[12] “What is Next for Software Patents?,” webinar presented on November 13, 2013, available at https://klg.webex.com/klg/ldr.php?AT=pb&SP=MC&rID=26049447&rKey=84397e708f7d179e.

[13] See Wolfe, et al., “What is Next for Software Patents?,” Cyberspace Lawyer, Volume 18, Issue 7, August 2013, also at http://www.klgates.com/what-is-next-for-software-patents-07-09-2013/, July 9, 2013, “What is Next for Software Patents?,” webinar presented on November 13, 2013, available at https://klg.webex.com/klg/ldr.php?AT=pb&SP=MC&rID=26049447&rKey=84397e708f7d179e.