December 16, 2014 Interim Guidelines on Subject Matter Eligibility of Software Patents

The United States Patent and Trademark Office has prepared interim guidance (2014 Interim Guidance on Patent Subject Matter Eligibility, called “Interim Eligibility Guidance”) for use by USPTO personnel in determining subject matter eligibility under 35 U.S.C. 101 in view of recent decisions by the U.S. Supreme Court (Supreme Court) such as Alice, Myriad, and Mayo.

The guidelines provide the following flowchart:

(Step 1) Is the claim to a process, machine, manufacture or composition of matter?
If so, proceed to Step 2A. If not, the claim is not eligible subject matter under 35 USC 101.

(Step 2A) [Part 1 Mayo test] Is the claim directed to a law of nature, a natural phenomenon, or an abstract idea (judicially recognized exceptions)?. If so, proceed to Step 2B. If not, the claim qualifies as eligible subject matter under 35 USC 101.

(Step 2B) [Part 2 Mayo test] Does the claim recite additional elements that amount to significantly more than the judicial exception? If so, the claim qualifies as eligible subject matter. If not, the claim is not eligible subject matter.

Two–part Analysis for Judicial Exceptions
A. Flowchart Step 2A (Part 1 Mayo Test) – Determine whether the claim is
directed to a law of nature, a natural phenomenon, or an abstract idea (judicial
exceptions).

A claim is directed to a judicial exception when a law of nature, a natural phenomenon,
or an abstract idea is recited (i.e., set forth or described) in the claim. Such a claim
requires closer scrutiny for eligibility because of the risk that it will “tie up” the excepted
subject matter and pre-empt others from using the law of nature, natural phenomenon, or
abstract idea. Courts tread carefully in scrutinizing such claims because at some level all
inventions embody, use, reflect, rest upon, or apply a law of nature, natural phenomenon,
or abstract idea. To properly interpret the claim, it is important to understand what the
applicant has invented and is seeking to patent.

For claims that may recite a judicial exception, but are directed to inventions that clearly
do not seek to tie up the judicial exception, see below regarding a streamlined
eligibility analysis.

It should be noted that there are no bright lines between the types of exceptions
because many of these concepts can fall under several exceptions. For example,
mathematical formulas are considered to be an exception as they express a scientific
truth, but have been labelled by the courts as both abstract ideas and laws of nature.
Likewise, “products of nature” are considered to be an exception because they tie up the
use of naturally occurring things, but have been labelled as both laws of nature and
natural phenomena. Thus, it is sufficient for this analysis to identify that the claimed
concept aligns with at least one judicial exception.

Laws of nature and natural phenomena, as identified by the courts, include naturally
occurring principles/substances and substances that do not have markedly different
characteristics compared to what occurs in nature. The types of concepts
courts have found to be laws of nature and natural phenomena are shown by these cases,
which are intended to be illustrative and not limiting:
• an isolated DNA (see the Myriad case);
• a correlation that is the consequence of how a certain compound is metabolized
by the body (Mayo);
• electromagnetism to transmit signals (Morse); and
• the chemical principle underlying the union between fatty elements and water
(Tilghman).

Abstract ideas have been identified by the courts by way of example, including
fundamental economic practices, certain methods of organizing human activities, an idea
‘of itself,’ and mathematical relationships/formulas. The types of concepts courts have
found to be abstract ideas are shown by these cases, which are intended to be illustrative
and not limiting:
• mitigating settlement risk (Alice);
• hedging (Bilski);
• creating a contractual relationship (buySAFE);
• using advertising as an exchange or currency (Ultramercial);
• processing information through a clearinghouse (Dealertrack);
• comparing new and stored information and using rules to identify options
(SmartGene);
• using categories to organize, store and transmit information (Cyberfone);
• organizing information through mathematical correlations (Digitech);
• managing a game of bingo (Planet Bingo);
• the Arrhenius equation for calculating the cure time of rubber (Diehr);
• a formula for updating alarm limits (Flook);
• a mathematical formula relating to standing wave phenomena (Mackay Radio); and
• a mathematical procedure for converting one form of numerical representation to
another (Benson)

Nature-based Products
a. Determine Whether The Markedly Different Characteristics Analysis Is
Needed To Evaluate a Nature-Based Product Limitation Recited in a Claim

Nature-based products, as used herein, include both eligible and ineligible products and
merely refer to the types of products subject to the markedly different characteristics
analysis used to identify “product of nature” exceptions. Courts have held that naturally
occurring products and some man-made products that are essentially no different from a
naturally occurring product are “products of nature” that fall under the laws of nature or
natural phenomena exception. To determine whether a claim that includes a nature-based
product limitation recites a “product of nature” exception, use the markedly different
characteristics analysis to evaluate the nature-based product limitation. A claim that recites a nature-based product limitation that does not
exhibit markedly different characteristics from its naturally occurring counterpart in its
natural state is directed to a “product of nature” exception (Step 2A: YES).

Care should be taken not to overly extend the markedly different characteristics analysis
to products that when viewed as a whole are not nature-based.

A nature-based product can be claimed by itself (e.g., “a Lactobacillus bacterium”) or as
one or more limitations of a claim (e.g., “a probiotic composition comprising a mixture of
Lactobacillus and milk in a container”). The markedly different characteristics analysis
should be applied only to the nature-based product limitations in the claim to determine
whether the nature-based products are “product of nature” exceptions. When the naturebased
product is produced by combining multiple components, the markedly different
characteristics analysis should be applied to the resultant nature-based combination,
rather than its component parts. In the example above, the mixture of Lactobacillus and
milk should be analyzed for markedly different characteristics, rather than the
Lactobacillus separately and the milk separately. The container would not be subject to
the markedly different characteristics analysis as it is not a nature-based product, but
would be evaluated in Step 2B if it is determined that the mixture of Lactobacillus and
milk does not have markedly different characteristics from any naturally occurring
counterpart and thus is a “product of nature” exception.

For a product-by-process claim, the analysis turns on whether the nature-based product in
the claim has markedly different characteristics from its naturally occurring counterpart.
(See MPEP 2113 for product-by-process claims.)

A process claim is not subject to the markedly different analysis for nature-based
products used in the process, except in the limited situation where a process claim is
drafted in such a way26 that there is no difference in substance from a product claim (e.g.,
“a method of providing an apple.”).

The markedly different characteristics analysis compares the nature-based product
limitation to its naturally occurring counterpart in its natural state. When there is no
naturally occurring counterpart to the nature-based product, the comparison should be
made to the closest naturally occurring counterpart. In the case of a nature-based
combination, the closest counterpart may be the individual nature-based components that
form the combination, i.e., the characteristics of the claimed nature-based combination
are compared to the characteristics of the components in their natural state.

Markedly different characteristics can be expressed as the product’s structure, function,
and/or other properties,28 and will be evaluated based on what is recited in the claim on a
case-by-case basis. As seen by the examples that are being released in conjunction with
this Interim Eligibility Guidance, even a small change can result in markedly different
characteristics from the product’s naturally occurring counterpart. In accordance with
this analysis, a product that is purified or isolated, for example, will be eligible when
there is a resultant change in characteristics sufficient to show a marked difference from
the product’s naturally occurring counterpart. If the claim recites a nature-based product
limitation that does not exhibit markedly different characteristics, the claim is directed to
a “product of nature” exception (a law of nature or naturally occurring phenomenon), and
the claim will require further analysis to determine eligibility based on whether additional
elements add significantly more to the exception.

Non-limiting examples of the types of characteristics considered by the courts when
determining whether there is a marked difference include:

• Biological or pharmacological functions or activities;
• Chemical and physical properties;
• Phenotype, including functional and structural characteristics; and
• Structure and form, whether chemical, genetic or physical.

If the claim includes a nature-based product that has markedly different characteristics,
the claim does not recite a “product of nature” exception and is eligible (Step 2A: NO)
unless the claim recites another exception (such as a law of nature or abstract idea, or a
different natural phenomenon). If the claim includes a product having no markedly
different characteristics from the product’s naturally occurring counterpart in its natural
state, the claim is directed to an exception (Step 2A: YES), and the eligibility analysis
must proceed to Step 2B to determine if any additional elements in the claim add
significantly more to the exception. For claims that are to a single nature-based product,
once a markedly different characteristic in that product is shown, no further analysis
would be necessary for eligibility because no “product of nature” exception is recited
(i.e., Step 2B is not necessary because the answer to Step 2A is NO). This is a change
from prior guidance because the inquiry as to whether the claim amounts to significantly
more than a “product of nature” exception is not relevant to claims that do not recite an
exception. Thus, a claim can be found eligible based solely on a showing that the naturebased
product in the claim has markedly different characteristics and thus is not a
“product of nature” exception, when no other exception is recited in the claim.

If a rejection under 35 U.S.C. 101 is ultimately made, the rejection should identify the
exception as it is recited (i.e., set forth or described) in the claim, and explain why it is an
exception providing reasons why the product does not have markedly different
characteristics from its naturally occurring counterpart in its natural state.

Flowchart Step 2B (Part 2 Mayo test) – Determine whether any element, or
combination of elements, in the claim is sufficient to ensure that the claim
amounts to significantly more than the judicial exception.

A claim directed to a judicial exception must be analyzed to determine whether the
elements of the claim, considered both individually and as an ordered combination, are
sufficient to ensure that the claim as a whole amounts to significantly more than the
exception itself – this has been termed a search for an “inventive concept.” To be
patent-eligible, a claim that is directed to a judicial exception must include additional
features to ensure that the claim describes a process or product that applies the exception
in a meaningful way, such that it is more than a drafting effort designed to monopolize
the exception. It is important to consider the claim as whole. Individual elements viewed
on their own may not appear to add significantly more to the claim, but when combined
may amount to significantly more than the exception. Every claim must be examined
individually, based on the particular elements recited therein, and should not be judged to
automatically stand or fall with similar claims in an application.

The Supreme Court has identified a number of considerations for determining whether a
claim with additional elements amounts to significantly more than the judicial exception
itself. The following are examples of these considerations, which are not intended to be
exclusive or limiting. Limitations that may be enough to qualify as “significantly more”
when recited in a claim with a judicial exception include:
• Improvements to another technology or technical field;
• Improvements to the functioning of the computer itself;
• Applying the judicial exception with, or by use of, a particular machine;
• Effecting a transformation or reduction of a particular article to a different state or
thing;
• Adding a specific limitation other than what is well-understood, routine and
conventional in the field, or adding unconventional steps that confine the claim to
a particular useful application; or
• Other meaningful limitations beyond generally linking the use of the judicial
exception to a particular technological environment.

Limitations that were found not to be enough to qualify as “significantly more” when
recited in a claim with a judicial exception include:
• Adding the words “apply it” (or an equivalent) with the judicial exception, or
mere instructions to implement an abstract idea on a computer;
• Simply appending well-understood, routine and conventional activities previously
known to the industry, specified at a high level of generality, to the judicial
exception, e.g., a claim to an abstract idea requiring no more than a generic
computer to perform generic computer functions that are well-understood, routine
and conventional activities previously known to the industry;
• Adding insignificant extrasolution activity to the judicial exception, e.g., mere
data gathering in conjunction with a law of nature or abstract idea; or
• Generally linking the use of the judicial exception to a particular technological
environment or field of use.

For a claim that is directed to a plurality of exceptions, conduct the eligibility analysis for
one of the exceptions. If the claim recites an element or combination of elements that
amount to significantly more than that exception, consider whether those additional
elements also amount to significantly more for the other claimed exception(s), which
ensures that the claim does not have a pre-emptive effect with respect to any of the
recited exceptions. Additional elements that satisfy Step 2B for one exception will likely
satisfy Step 2B for all exceptions in a claim. On the other hand, if the claim fails under
Step 2B for one exception, the claim is ineligible, and no further eligibility analysis is
needed.

The Interim Guidelines provide for a Streamlined Eligibility Analysis as follows.
For purposes of efficiency in examination, a streamlined eligibility analysis can be used
for a claim that may or may not recite a judicial exception but, when viewed as a whole,
clearly does not seek to tie up any judicial exception such that others cannot practice it.
Such claims do not need to proceed through the full analysis herein as their eligibility
will be self-evident. However, if there is doubt as to whether the applicant is effectively
seeking coverage for a judicial exception itself, the full analysis should be conducted to
determine whether the claim recites significantly more than the judicial exception.

For instance, a claim directed to a complex manufactured industrial product or process
that recites meaningful limitations along with a judicial exception may sufficiently limit
its practical application so that a full eligibility analysis is not needed. As an example, a
robotic arm assembly having a control system that operates using certain mathematical
relationships is clearly not an attempt to tie up use of the mathematical relationships and
would not require a full analysis to determine eligibility. Also, a claim that recites a
nature-based product, but clearly does not attempt to tie up the nature-based product,
does not require a markedly different characteristics analysis to identify a “product of
nature” exception. As an example, a claim directed to an artificial hip prosthesis coated
with a naturally occurring mineral is not an attempt to tie up the mineral. Similarly,
claimed products that merely include ancillary nature-based components, such as a claim that is directed to a cellphone with an electrical contact made of gold or a plastic chair
with wood trim, would not require analysis of the nature-based component to identify a
“product of nature” exception because such claims do not attempt to improperly tie up the
nature-based product.

Regardless of whether a rejection under 35 U.S.C. 101 is made, a complete examination
should be made for every claim under each of the other patentability requirements: 35 U.S.C. 102, 103, 112, and 101 (utility, inventorship and double patenting) and nonstatutory
double patenting.

The guidelines also provide sample analyses based upon earlier Supreme Court decisions.

The December 16, 2014 Interim Guidance can be found here:
https://www.federalregister.gov/articles/2014/12/16/2014-29414/2014-interim-guidance-on-patent-subject-matter-eligibility

Post-Alice Decision on Software Patents, Ultramercial Inc. v. Hulu LLC, Federal Circuit 2014

Ultramercial sued Hulu, YouTube, and WildTangent in 2009 for infringement of a patent related to distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material.

WildTangent filed a motion to dismiss, alleging that the claims were not statutory under 35 U.S.C. § 101.  The district court granted the motion.  The Federal Circuit reversed.  The Supreme Court vacated the decision and
remanded for consideration in view of its decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc.  A unanimous panel of the Federal Circuit again held the claims to be statutory.  WildTangent petitioned for Supreme Court review.  The Supreme Court again vacated the Federal Circuit’s decision and remanded for consideration in view of its more recent decision in Alice v. CLS Bank.  Judge Rader, a voice of reason, had since resigned and Judge Mayer was appointed to take his place.

Claim 1 of the patent recites:

A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:

  • a first step of receiving, from a content provider, media products that are covered by intellectual property rights protection and are available for purchase, wherein each said media product being comprised of at least one of text data, music data, and video data;
  • a second step of selecting a sponsor message to be associated with the media product, said sponsor message being selected from a plurality of sponsor messages, said second step including accessing an activity log to verify that the total number of times which the sponsor message has been previously presented is less than the number of transaction cycles contracted by the sponsor of the sponsor message;
  • a third step of providing the media product for sale at an Internet website;
  • a fourth step of restricting general public access to said media product;
  • a fifth step of offering to a consumer access to the media product without charge to the consumer on the precondition that the consumer views the sponsor message;
  • a sixth step of receiving from the consumer a request to view the sponsor message, wherein the consumer submits said request in response to being offered access to the media product;
  • a seventh step of, in response to receiving the request from the consumer, facilitating the display of a sponsor message to the consumer;
  • an eighth step of, if the sponsor message is not an interactive message, allowing said consumer access to said media product after said step of facilitating the display of said sponsor message;
  • a ninth step of, if the sponsor message is an interactive message, presenting at least one query to the consumer and allowing said consumer access to said media product after receiving a response to said at least one query;
  • a tenth step of recording the transaction event to the activity log, said tenth step including updating the total number of times the sponsor message has been presented; and
  • an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

According to Alice, the two prong circular logic of Mayo is to be used to determine if claims are directed to statutory subject matter.  The first prong is to determine whether the claims are directed to a patent-ineligible law of nature, natural phenomenon, or abstract idea.   If so, the second prong is to determine whether any additional claim elements transform the claim into a patent-eligible application that amounts to significantly more than the ineligible concept itself.  No definition has been provided by the Supreme Court as to when an idea is abstract.  Similarly, no definition has been provided as to what amounts to “significantly more.”

In this case, the court conceptualized the claim as relating distributing copyrighted material over the Internet to a consumer at no cost in exchange for viewing an advertisement, with the advertiser paying for the copyrighted material.  The court ignored details of the claim in considering the first prong.

According to the Federal Circuit, claim 1 provided an “ordered combination of steps reciting an abstraction — an idea, having no particular concrete or tangible form.”  In addition, “[t]he process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an
abstract idea, devoid of a concrete or tangible application.”  While the Court did state that “certain additional limitations, such as consulting an activity log, add a degree of particularity,” these limitations were insufficient to provide significantly more.

Further, even though some steps of the claim “were not previously employed in this art [that] is not enough — standing alone — to confer patent eligibility upon the claims at issue.”

This decision puts patent applicants in a difficult position.  Adding novel subject matter to a claim is not sufficient to render a claim statutory.

“Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter.”  Even though the claim recited use of the Internet, which is arguably a concrete, tangible system, the Court reiterated its reasoning from CyberSource Corp. v. Retail Decisions, Inc., stating that “use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101.”

Further, the Federal Circuit held that Ultramercial’s claims failed both prongs of the machine-or-transformation test.  The only machine recited in the claims was the Internet, which is a “ubiquitous information-transmitting medium, not a novel machine.”  As for any sort of transformation elicited by the many steps of claim 1, the Court wrote that “manipulations of public or private legal obligations or relationships, business risks, or other such abstractions” are not transformations “because they are not physical objects or substances, and they are not representative of physical objects or substances.”

Consequently, all of Ultramercial’s claims were invalid.  The point of Alice seemed to be to allow courts to avoid a complicated novelty analysis if the only hardware in claims was a computer.  The reasoning seemed to be that adding a computer to a conventional process was insufficient to make the claim statutory.  However, in this case there was novelty in the claim that was ignored.

Adapting to this case would seem to require passing the machine or transformation test using more machines than are included in the Internet.

Post-Alice Decision on Software Patents, Digitech Image v. Electronics for Imaging, 2014

In Digitech Image v. Electronics for Imaging, decided by the Federal Circuit on July 11, 2014, claims were held to be invalid as non-statutory in view of 35 U.S.C. 101.  The Federal Circuit affirmed the district court’s decision.


This case concerned U.S. Patent No. 6,128,415 directed to a device profile and a method for creating a device profile within a digital image processing system. The district court concluded that the asserted claims were invalid under 35 U.S.C. § 101.

A representative apparatus claim of this software patent is as follows:

A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:
     first data for describing a device dependent transformation of color information content of the image to a device independent color space; and
     second data for describing a device dependent transformation of spatial in- formation content of the image in said device independent color space.

A representative method claim of this software patent is as follows:

A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:
     generating first data for describing a device dependent transformation of col- or information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;
     generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and de- vice response characteristic functions; and
     combining said first and second data in- to the device profile.

Digitech argued that a device profile is subject matter eligible because it is “hardware or software within a digital image processing system” and exists as a tag file appended to a digital image.  The Federal Circuit stated that Digitech’s position is not supported by the claim language, which does not describe the device profile as a tag or any other embodiment of hardware or software. The claims’ only description of the device profile is that it comprises “first data for describing” color information and “second data for describing” spatial information.

The Federal Circuit stated that the claims at issue here were even broader than the claim in Nuijten.

The Federal Circuit affirmed the decision of the district court.

Alice Corp. v CLS Bank International, U.S. Supreme Court 2014

This is the most recent Supreme Court decision on software patents. In this case, the U.S. Supreme Court has made it harder to obtain software patents by siding with CLS Bank.

The software patents concern “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate “counter party” or “settlement” risk. Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counter-party’s performance. Alice’s patents address that risk by relying on a trusted third party to ensure the exchange of either both parties’ obligations or neither obligation. For example, when two parties agree to perform a trade, in certain contexts there may be a delay between the time that the parties enter a contractual agreement obligating themselves to the trade and the time of settlement when the agreed trade is actually executed. Ordinarily, the parties would consummate the trade by paying or exchanging their mutual obligations after the intervening period, but in some cases one party might become unable to pay during that time and fail to notify the other before settlement. As disclosed in Alice’s patents, a trusted third party can be used to verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.

The software patent claims recited methods of exchanging obligations between parties, data processing systems, and computer- readable media containing a program code for directing an exchange of obligations.

A representative method claim of this software patent is as follows:
33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

A representative apparatus claim of this software patent is as follows:
1. A data processing system to enable the exchange of an obligation between parties, the system comprising:
a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and
a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said trans action, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

The district court granted summary judgment in favor of CLS, holding each of the asserted claims of Alice’s software patents invalid under §101.

In the Federal Circuit decision, a ten-member en banc panel released seven different decisions. None of the opinions garnered majority support. Seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility. Eight of the ten concluded that the software patent claims should rise and fall together regardless of their claim type.

The Supreme Court used its earlier decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. as a framework. Using this framework, the Court must first determine whether the claims at issue are directed to a patent-ineligible concept. If so, the Court then asks whether the claim’s elements, considered both individually and “as an ordered combination,” “transform the nature of the claim” into a patent-eligible application.

The court stated that the software patent claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement. Turning to the second step of Mayo’s framework, the court stated that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention. The court stated that simply appending conventional steps, specified at a high level of generality,” to a method already “well known in the art” is not enough to supply the “inventive concept” needed to make this transformation.

Referring to Mayo, the Court than stated that wholly generic computer implementation is not generally the sort of additional feature that provides any practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself.

Still applying a Mayo analysis to this software patent, the court noted that, taking the claim elements separately, the function performed by the computer at each step—creating and maintaining “shadow” accounts, obtaining data,adjusting account balances, and issuing automated instructions—is purely conventional. Considered “as an ordered combination,” these computer components add nothing that is not already present when the steps are considered separately.

In summary, a software patent in which conventional steps are computerized is not statutory. Unfortunately, the Supreme Court conflated 35 U.S.C 101 and 35 U.S.C. 103 analyses. They should have addressed these two issues separately.

The court also mentioned its previous software patent decision, Bilski v. Kappos, 561 U. S. 593 (2010). The claims at issue in Bilski described a method for hedging against the financial risk of price fluctuations.
All members of the Court agreed that the patent in Bilski claimed an “abstract idea.” Specifically, the claims described “the basic concept of hedging, or protecting against risk.” The Court explained that “‘hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.’” “The concept of hedging” as recited by the claims in suit was in therefore a patent-ineligible “abstract idea, just like the algorithms at issue in Benson and Flook.” The court stated that it follows from prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea.

The court has walked away from sensible software patent precedent in Diamond v. Diehr. In that case, the court said that the novelty of any element or steps is not relevant to a 101 analysis. If you have a computer in the claim, that removes it from the possibility of reading on mental steps, so the claim should be statutory. This court is quite unclear about what makes a claim too abstract.

My belief is that we are moving to a European style patentability analysis for software inventions. This is unfortunate because software per se (without a hardware invention) is valuable and one of the primary fields in which the U.S. dominates and excels. Expect to see more 101 rejections from the U.S. Patent and Trademark Office. It will be easier for an examiner to automatically issue a form rejection under 35 USC 101 whenever a patent application mentions the word “software” than to search for relevant prior art.

The decision can be found here:
http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf

Post-CLS case on Software Patents, Ultramercial, Inc. v. Hulu, LLC, Federal Circuit 2013

Ultramercial sued Hulu, YouTube, and WildTangent for infringement of U.S. Patent No. 7,346,545.  The software patent generally relates to method for inserting ads in free online videos so that viewers must watch them before they can proceed.  Hulu and YouTube were eventually dismissed from the case.  WildTangent filed a
12(b)(6) motion to dismiss for failure to state a claim.  The District Court for the Central District of California held that the patent does not
claim patent-eligible subject matter.  On appeal, the Federal Circuit
reversed and remanded.  However, that decision was vacated by the
Supreme Court.

Claim 1 recites:
        A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
        a first step of receiving, from a content provider, media
products that are covered by intellectual property rights protection and
are available for purchase, wherein each said media product being
comprised of at least one of text data, music data, and video data;
        a second step of selecting a sponsor message to be associated
with the media product, said sponsor message being selected from a
plurality of sponsor messages, said second step including accessing an
activity log to verify that the total number of times which the sponsor
message has been previously presented is less than the number of
transaction cycles contracted by the sponsor of the sponsor message;
        a third step of providing the media product for sale at an Internet website;
        a fourth step of restricting general public access to said media product;
        a fifth step of offering to a consumer access to the media
product without charge to the consumer on the precondition that the
consumer views the sponsor message;
        a sixth step of receiving from the consumer a request to view
the sponsor message, wherein the consumer submits said request in
response to being offered access to the media product;
        a seventh step of, in response to receiving the request from
the consumer, facilitating the display of a sponsor message to the
consumer;
        an eighth step of, if the sponsor message is not an
interactive message, allowing said consumer access to said media product
after said step of facilitating the display of said sponsor message;
        a ninth step of, if the sponsor message is an interactive
message, presenting at least one query to the consumer and allowing said
consumer access to said media product after receiving a response to
said at least one query;
        a tenth step of recording the transaction event to the
activity log, said tenth step including updating the total number of
times the sponsor message has been presented;
        and
        an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Judge Rader noted first that it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter. This is so because every issued
patent is presumed to have been issued properly, absent “clear and convincing” evidence to the contrary.  Second, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues.   Third, and in part because of the factual issues involved,
claim construction normally will be required.  Fourth, the question of eligible subject matter
must be determined on a claim-by-claim basis.

The court then noted that 35 U.S.C. § 101 sets forth the categories of subject matter that are eligible for patent protection:
“[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Underscoring its breadth, § 101 both uses expansive categories and modifies them with the word “any.” In Bilski, the Supreme Court emphasized that “[i]n choosing such expansive terms modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.” 130 S. Ct. at 3225 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980)).

The Supreme Court has on occasion recognized narrow judicial exceptions to the 1952 Act’s deliberately broadened eligibility provisions. In line with the broadly permissive nature of § 101’s subject matter eligibility principles and the structure of the Patent Act, case law has recognized only three narrow categories of subject matter outside the eligibility bounds of § 101—laws of
nature, physical phenomena, and abstract ideas. Bilski, 130 S. Ct. at 3225. The Court’s motivation for recognizing exceptions to this broad statutory grant was its desire to prevent the “monopolization” of the “basic tools of scientific and technological work,” which “might tend to impede innovation more than it would tend to promote it.” Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct.
1289, 1293 (2012) (“Prometheus”)

Though recognizing these exceptions, the Court has also recognized that these implied exceptions are in obvious tension with the plain language of the statute, its history, and its purpose.  Thus, this court must not read § 101 so restrictively as to exclude “unanticipated inventions” because the most
beneficial inventions are “often unforeseeable.”

In the eligibility analysis as well, the presumption of proper issuance applies to a granted software patent.

Defining “abstractness” has presented difficult problems, particularly for the § 101 “process” category. Clearly, a process need not use a computer, or some machine, in order to avoid “abstractness.” In this regard, the Supreme Court recently examined the statute and found that the ordinary, contemporary, common meaning of “method” may include even methods of doing business.
See Bilski, 130 S. Ct. at 3228. Accordingly, the Supreme Court refused to deem business methods ineligible for patent protection and cautioned against “read[ing] into the patent laws limitations and conditions which the legislature has not expressed.” Id. at 3226 (quoting Diamond v. Diehr, 450 U.S. 175, 182 (1981)).

In an effort to grapple with this non-statutory “abstractness” exception to “processes,” the dictionary provides some help.  Judge Rader referred to Merriam-Webster’s Collegiate
Dictionary 5 (11th ed. 2003) (defining abstract as “disassociated from any specific instance . . . expressing a quality apart from an object ”). An abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.

He noted that members of both the Supreme Court and the Federal Circuit have recognized the difficulty of providing a precise formula or definition for the abstract concept of abstractness.

A software patent claim can embrace an abstract idea and be patentable.  See Prometheus, 132 S. Ct. at 1294 (explaining that the fact that a claim uses a basic tool does not mean it is not eligible for patenting). Instead, a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself.

In determining on which side of the line the software patent claim falls, the court must focus on the claim as a whole.

The Court has long-recognized that any software patent claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. A court cannot go hunting for abstractions by
ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.
Instead, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea. See Prometheus, 132 S. Ct. at 1297.

Judge Rader then considered an old example. The claims in O’Reilly v. Morse, 56 U.S. (15 How.) 62 (1854), and a case described therein, illustrate the distinction between a patent ineligible abstract idea and a practical application of an idea. The “difficulty” in Morse arose with the claim in which Morse did not propose to limit himself to the specific machinery or parts of machinery described in the specification and claims; the essence of him invention being the use of the motive power of the electric or galvanic current however developed for marking or printing intelligible characters, signs, or letters, at any distances. In considering Morse’s claim, the Supreme Court referred to an earlier English case that distinguished ineligible claims to a “principle” from claims “applying” that principle.

The Supreme Court repeatedly has cautioned against conflating the analysis of the conditions of patentability in the Patent Act with inquiries into patent eligibility. See Diehr, 450 U.S. at 190.

When assessing computer implemented claims, while the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact
that a claim is limited by a tie to a computer is an important indication of patent eligibility. See Bilski, 130 S. Ct. at 3227. This tie to a machine moves it farther away from a claim to the abstract idea itself. Moreover, that same tie makes it less likely that the claims will pre-empt all practical applications of the idea.

This inquiry focuses on whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible. On the other hand, software patent claims directed to nothing more than the idea of doing that thing on a computer are likely to face larger problems. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology. See SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1332-33 (Fed. Cir. 2010) (noting that “a machine,” a GPS receiver, was “integral to each of the claims at issue” and “place[d] a meaningful limit on
the scope of the claims”). A special purpose computer, i.e., a new machine, specially designed to implement a process may be sufficient. See Alappat, 33 F.3d at 1544.

In this case, the defending parties proceed on the assumption that the mere idea that advertising can be used as a form of currency is abstract, just as the vague, unapplied concept of hedging
proved patent-ineligible in Bilski.

The ’545 patent seeks to remedy problems with prior art banner advertising over the Internet, such as declining click-through rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product.

By its terms, the claimed invention invokes computers and applications of computer technology.
Specifically, the ’545 patent claims a particular internet and computer-based method for monetizing copyrighted products, consisting of the following steps: (1) receiving media products from a copyright holder, (2) selecting an advertisement to be associated with each media product, (3) providing said media products for sale on an Internet website, (4) restricting general public access to the media products, (5) offering free access to said media products on the condition that the consumer view the advertising, (6) receiving a request from a consumer to view the advertising, (7) facilitating the display of advertising and any required interaction with the advertising, (8) allowing the consumer access to the associated media product after such display and interaction, if any, (9) recording this transaction in an activity log, and (10) receiving payment from the advertiser. ’545 patent col. 8, ll. 5-48. Judge Rader noted that his court does not need the record of a formal claim construction to see that many of these steps require intricate and complex computer programming.

Even at this general level, it wrenches meaning from the word to label the claimed invention “abstract.” The claim does not cover the use of advertising as currency disassociated with any specific application of that activity. It was error for the district court to strip away these limitations and instead imagine some “core” of the invention.

Further, and even without formal claim construction, it is clear that several steps plainly require that the method be performed through computers, on the internet, and in a cyber-market environment. One clear example is the third step, “providing said media products for sale on
an Internet website.” Col. 8, ll. 20-21. And, of course, if the products are offered for sale on the Internet, they must be “restricted”—step four—by complex computer programming as well.

In addition, Figure 1, alone, demonstrates that the claim is not to some disembodied abstract idea but is instead a specific application of a method implemented by several computer systems, operating in tandem, over a communications network.  Almost all of the steps in this process, as explained in the flow chart of Figure 2, are tied to computer implementation.

Viewing the subject matter as a whole, the invention involves an extensive computer interface. Unlike Morse, the claims are not made without regard to a particular process. Likewise, it does not say “sell advertising using a computer,” and so there is no risk of preempting all forms of advertising, let alone advertising on the Internet.

Further, the record at this stage shows no evidence that the recited steps are all token pre- or post-solution steps.

Finally, the software patent claim appears far from over generalized, with eleven separate and specific steps with many limitations and sub-steps in each category. The district court improperly made a subjective evaluation that these limitations did not meaningfully limit the “abstract idea at the
core” of the claims.

Having said that, the Federal Circuit refused to define the level of programming complexity required before a computer implemented method can be patent-eligible. Nor did the court hold that use of an Internet website to practice such a method is either necessary or sufficient in every case to satisfy § 101. They simply held the claims in this case to be patent-eligible, in this posture, in part because
of these factors.