The Patent Office recently proposed (and requested comments on) a new set of rules designed to determine whether a patent application is directed to eligible subject matter. This has been a hot issue ever since the Supreme Court’s 2014 decision in Alice Corp. v. CLS Bank International. Since that case, many software and business method patents have been held invalid. However, in 2016 the Federal Circuit decided Enfish LLC v. Microsoft Corp, which carved a large exception from Alice. Courts since have upheld more software patents.
The PTO’s proposed rules now incorporate the Enfish ruling and broadly permits many forms of software patents. The key difference appears to be between algorithms that merely use generic computers to perform a task, and algorithms that make computers function better, such as more efficient database or more accessible graphical user interfaces.
For software developers, the proposed rules will likely make many more applications eligible for patent protection, provided they can be conformed to the new rules. For many companies, however, it appears that in the future there is an increased possibility there will be targets of patent enforcement efforts. It has been estimated that 60 percent of patent troll cases involve software or other similar technology.
The Supreme Court has long held that the patent statute has certain implicit exceptions to patentability – laws of nature, natural phenomena and abstract ideas. In Alice, the Court held that an abstract idea of a computer-implemented, electronic escrow service for facilitating financial transactions covered abstract ideas ineligible for patent protection. It emphasized that the mere fact that the method is implemented on a computer does not make it eligible.
The Court did emphasize that improvements to computer systems (e.g., a superior form of hardware) could well be patentable.
In Enfish, the Federal Circuit carved a large exception to Alice: it allowed a patent whose claims were directed to a specific improvement to the way computers operate, embodied in the claimed “self-referential table” for a database. This more efficient database, the patent claimed, increased efficiency in the computers’ function. That took it out of the abstract idea disallowed by Alice. The proposed new PTO guidelines, https://www.federalregister.gov/documents/2019/01/07/2018-28282/2019-revised-patent-subject-matter-eligibility-guidance, seek to implement Enfish and other later cases.
The Supreme Court has instructed that these issues are to be analyzed in two steps:
The court determines whether the claims are directed to an abstract idea.
If the patent claims are directed to an abstract idea, then the court determines whether the claims include elements showing an inventive concept that transforms the idea into a patent-eligible invention. Step 2 is satisfied when the claim limitations “involve more than performance of ‘well-understood, routine, [and] conventional activities previously known to the industry.’
The new PTO guidelines focus on the first step. First it identifies three possible areas of abstract ideas: mathematical concepts; methods of organizing human activities (e.g., business and financial relationships), and mental processes. If the patent does not include those, then it is not an abstract idea, except in the rare cases that the Examiner believes otherwise and must bring the issue to the director’s attention.
Even if the part of the claim includes one of the three, the Examiner must also determine whether it is “directed to” an exception or not. What this mean is that an abstract idea whose purpose is to improve the function of a physical machine (like a computer) or some other practical application, it would not be “directed to” and abstract idea, even if such is incorporated in the patent claims.
These proposals have yet to be adopted and may only be adopted in modified form. But what appears clear is that many more software patent applications may now be eligible and issued than before.