A Changed Landscape: Patentable Subject Matter after Alice - A Report from the APLI:SV, Part 1

By TAP Guest Blogger

Posted on January 4, 2016


This is the first report in a 7-part series from The 16th Annual Advanced Patent Law Institute: Silicon Valley.

The report is written by Kevin Hickey, Microsoft Research Fellow, Berkeley Center for Law & Technology at Berkeley Law School.


If there was a single development that loomed largest at the Advanced Patent Law Institute: Silicon Valley (APLI:SV) this year, it was the enhanced limits on patentable subject matter following the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014). Alice reaffirmed and strengthened the two-step test for patent eligibility under 35 U.S.C. § 101 as established by Mayo v. Prometheus, 132 S. Ct. 1289 (2012), calling into question the validity of many patents—especially in the areas of software, bioscience, and business methods. The Mayo test asks first whether a patent claim is directed at an ineligible concept—a “law of nature, natural phenomena, [or] abstract idea.” If it is, the patent is invalid unless the claim elements add enough of an “inventive concept” to transform the invention to a patent-eligible application, i.e., something “significantly more” than merely a claim on the ineligible concept itself. See Alice, 134 S. Ct. at 2355. The impact of Alice—for good or for ill—animated many of the panels and presentations at APLI:SV.


As recently as five years ago, patent subject matter eligibility questions affected very few patents. However, in a string of Supreme Court decisions beginning with Bilski v. Kappos, 561 U.S. 593 (2010) and culminating in Alice, limitations on patent eligible subject matter have taken on immense practical importance. The result is an explosion of the number of decisions in the federal district courts invalidating patents on § 101 grounds. According to numbers presented by Professor Peter Menell, district court decisions based on § 101 invalidity have risen from an average of less than 5 per year prior to 2011, to 24 in 2014 and 77 in 2015 (so far)—a 1440% increase! The vast majority of these decisions involve software and business methods patents, with a smaller percentage relating to bioscience patents.


How did § 101 change from a relative backwater to a critical limitation on what inventions may be patented? Professor Menell presented a fascinating review of the history of patentable subject matter doctrine. His account divided this history into four periods: (1) a “primordial age,” covering Supreme Court and British decisions from the mid-19th century (notably O’Reilly v. Morse and Harford v. Nielson); (2) a “skeptical age,” covering the decisions of the U.S. Supreme Court in the mid-20th century (notably Justice Douglas’s opinion in Funk Brothers); (3) a “modern age” in the 1970–80s, characterized by confusion and conflicting results (including Gottschalk v. Benson, Parker v. Flook, and Diamond v. Diehr); and (4) the current “post-modern age” of the 2010s, in which the Supreme Court has imposed significant limits on subject matter (through the recent decisions in Bilski, Mayo, Myraid Genetics, and Alice). Professor Menell offered a generally skeptical view of the Supreme Court’s revived subject matter limits. He argued that Mayo, which he called “the most important case in modern patent law,” relies on a misreading of key historical precedents such as Harford and perversely operates to limit patents on fundamental, breakthrough inventions. In any event, the practical effect of Mayo and Alice has been pronounced: many business method patents are “effectively dead,” courts take an increasingly skeptical view of software patents, and some biotech companies are turning to trade secret protection in lieu of seeking a patent.


The decision in Alice has thus given patent litigation defendants a powerful tool to invalidate an asserted patent at the outset of a lawsuit. Heide Keefe offered some practical tips for how defendants can use Alice to their advantage in litigation. She described the Mayo test as an obscenity-like “you know it when you see it” approach, which means that strategic advocacy can make a real difference. The key to winning these cases is defining the scope of the “abstract idea” or “law of nature” in the first Mayo step. In the software context, this means characterizing the asserted patent as solving an old, analog-world problem—i.e., that the claims are really nothing more than an application of a known idea or process on a computer. Plaintiffs, for their part, are best served by describing the patent as solving a problem that is specific to the digital realm—a strategy that found success in DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245 (Fed. Cir. 2014).


Many panelists observed that the current spate of decisions invalidating patents will not continue indefinitely, as patent prosecution changes in response to Alice’s subject matter limits. Christopher Palermo spoke to how patent prosecutors can effectively navigate the new landscape. He noted that patent examiners have become very skeptical of applications in certain fields, such that it has become extremely difficult to obtain a patent in advertising technology, payment systems, and pure data analytics. Winning prosecution strategies, in his view, involve seeking an interview with the examiner whenever there is a § 101 rejection, and exhaustively insisting that the examiner meet each of his burdens for a § 101 rejection under the PTO’s July 2015 Guidance Update. Losing strategies include contentious battles with examiners—it is better to try to work with them, not against them—and persisting in arguing for claims in which technical connection or technological point of novelty is not explicit.


A later session addressed Alice’s interaction with the new standards for pleading patent cases introduced on December 1, 2015. (For more detail on the new pleading standards, see my post Patent Procedure & The Continuing Importance of Forum - A Report from the APLI:SV, Part 2 on the APLI:SV session on procedural issues.) Since many § 101 challenges are raised at the Rule 12(b)(6) stage—at least outside of the Eastern District of Texas—patent plaintiffs would be wise to include allegations in their complaint aimed at countering a potential motion to dismiss based on Alice. A robust complaint, including allegations that certain claims elements are unconventional or inventive under Mayo step 2, may be the best way to undercut a subject matter ineligibility defense. At the least, more detail may create a contested issue of fact to defeat a motion to dismiss.


Alice and related decisions also create issues for how companies should manage their patent portfolios in light of new legal uncertainties. A panel led by Douglas Luftman, Rajiv Patel, and Julie Stephenson addressed this issue. Their core advice was to make an honest reassessment of your business’s patents in light of Alice and other recent changes in patent law (including KSR v. Teleflex’s more robust obviousness test, and the increased availability of PTAB procedures to challenge patents). For already issued and pending patents, this means considering whether to pursue reexamination, reissue, or continuation in order to get claim language that is less likely to be invalidated. In the reassessment process, it is critical to communicate with other employees at the company—engineers, managers, marketers, et al.—to assess which patents are key assets for the business and which patents may not be worth trying to save. A few quality patents are likely to be more important than the simple quantity of patents in your portfolio. For pending applications, it is of course key to ensure that the patent claims are carefully drafted. In-house attorneys should also think carefully about whether filing a patent in the first place is a good return on the investment and carefully consider non-patent alternatives (such as trade secret or copyright) to protect the business’s intellectual property.


David Simon also pursued the theme of how best to protect your IP portfolio and key business assets in light of the changing legal environment. His advice was to strategically diversify IP holdings in response to these new developments. The alternatives of ignoring the changes or trying to predict the future are high-risk and unlikely to be successful. A better strategy is to hedge your bets and consider all the different ways to protect business assets—including non-IP means such as contract—pursuing multiple layers of protection best suited to the context. Patent law is not always the best model, nor is it wise to have all one’s eggs in the same legal basket. Mr. Simon used the example of how Sun Microsystems protected the Java programming language, relying on copyright, patent, trademark, and contractual licenses for different aspects of Java. Ultimately, the best course of action will depend on the technology, whether the business is a startup or an established firm, resource constraints, the larger business model, and other factors.



Professor Peter Menell – Tracing the History of Patent Eligibility Doctrine
Christopher J. Palermo – Section 101 in Prosecution
Michael C. Hendershot, Richard S. J. Hung, and Christian E. Mammen – Drafting and Attacking Pleadings Under the New Standards (at pages 10–12)
Douglas Luftman, Rajiv Patel, and Julie Stephenson - Patent Portfolio Management: Claim Drafting and Prosecution Strategies in Uncertain Times


Read more on the Advanced Patent Law Institute: Silicon Valley


This conference summary was written by Kevin Hickey. Mr. Hickey is the Microsoft Research Fellow, Berkeley Center for Law & Technology at Berkeley Law School.