In June of 2014, the United States Supreme Court upheld the decision of the United States Court of Appeals for the Federal Circuit in striking a blow against the patent eligibility of software and business methods by concluding that the patent claims in the patents at issue in the infringement case of Alice Corp. Pty Ltd v. CLS Bank Int’l were directed toward ineligible subject matter for patent protection.  In so doing, the Supreme Court attempted to promulgate a standard for determining patent eligibility under 35 U.S.C. § 101.  The pronounced test involves a two-part inquiry: (1) whether the claims directed to an abstract idea; and (2) subsequently, whether the claims add significantly more in their implementation such that the abstract idea is transformed into a patent eligible invention.  Following the decision, many scholars and practitioners were disappointed, however, to have received little practical guidance from the Supreme Court, which limited its consideration of what constitutes an abstract idea to only the claims at issue in Alice and did not elucidate what was necessary to transform a claim directed at an abstract idea into a patent eligible invention.

Notwithstanding the somewhat hazy standard it instituted, the Supreme Court has not been shy about encouraging lower courts and the United States Patent and Trademark Office (USPTO) to apply it.  Such adherence has resulted in a new form of a § 101 “Alice” rejection being issued by Patent Examiners at the USPTO and lower courts striking down software and business method patents with greater frequency.  The latest instance of this occurred on November 14, 2014 in the Federal Circuit case of Ultramercial Inc. v. Hulu, LLC, Fed. Cir., No. 10-1544, November 14, 2014.  The main patent claims at issue would be familiar to anyone who has spent some time on websites such as YouTube, Pandora, and particularly in this case, Hulu.  U.S. Patent No. 7,346,545 revolved around a method of exchange where a consumer receives free streams of video or other media by watching a paid advertisement.  The judges of the Federal Circuit, though careful to say that this is not necessarily true for all claims in all software patents, found the claims directed to the abstract idea of advertising as an exchange of currency, also utilized on television and the radio.  The method at issue, which outlined the steps of the exchange, was not found sufficiently concrete or tangible to pass muster under the first prong of the Supreme Court’s test.  The Federal Circuit deemed the method an abstract idea.

Moreover, the court did not find the claims to add any elements to transform the claims into a patent eligible invention by adding that ever-elusive “inventive step.”  According to the court, the method was nothing more than an implementation of an abstract idea through conventional steps, and the claims’ additional limitations, such as updating an activity log, were all considered just as routine, conventional, and well-understood.  The court went further to state that the mere addition of novel or non-routine elements does not necessarily transform the abstract idea to make it patent eligible.  The claims must add “significantly more” to the abstract idea, offer some type of technological, physiological, or otherwise transformative leap to satisfy patent eligibility.  Perhaps most importantly, following in the wake of Alice in particular, the court emphasized that the addition of the Internet alone cannot make the abstract idea patentable.  Instruction to use or implement the abstract idea on the Internet (or in the case of Alice, on a computer in general) does not constitute that “inventive step” necessary for eligibility, particularly in light of the prevalence and permeation of such technology in today’s society.

Arguably, the Alice standard has already made it tougher to attain and maintain software and business-type method patents.  The Supreme Court’s two-part framework offers the contours of an analysis, but was not actually accompanied by clear, practical decision-making standards.  As such, patent applicants in the USPTO and patent litigants throughout the federal districts are still confused and wary, and will remain so at least until a solid body of case law accumulates interpreting and implementing the Alice test.  It appears, however, that courts are at least beginning to make strides toward that end, even though recent decisions do not pave a smooth and easy road for software inventions.

Promoting the advancement of science through a system of guaranteeing certain exclusive rights to inventors of new and useful articles reaches back to the very foundation of the United States Constitution.  Article II, Section 8 specifically provides that Congress shall have the power “[t]o promote the Progress of Science and the useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  Ever since that enigmatic phrase was scribed, patent law in the United States has struggled with identifying just what types of subject matter are eligible for patent protection.

Patent law defines four categories of patentable subject matter, into at least one of which any invention must fall to be eligible for patent protection: process, machine, manufacture, or composition of matter.  In contrast, laws of nature, physical phenomena, and abstract ideas cannot receive patent protection.  As discovery and innovation grow, courts continue to struggle with categorizing new inventions as either patentable or not patentable subject matter.

The most recent struggle, looming for the U.S. Supreme Court in June of 2014, is whether new software, arguably the most prevalent current form of innovation, will definitively be deemed too abstract to patent.  Decisions to date have been adjudicated mostly with respect to the principles determining the patentability of mathematical algorithms set out in the Supreme Court Trilogy decisions (Gottschalk v. BensonParker v. Flook, and Diamond v. Diehr) and the patentability of business methods in the seminal 2010 Bilski v. Kappos decision.  In so doing, the Supreme Court has mostly decided the eligibility of software for patent protection on a case-by-case basis, maintaining unclear standards and divisive majority opinions on whether software patents categorically can be considered patentable or not.

In May of 2013, in Alice Corp. Pty Ltd v. CLS Bank Int’l, an extremely divided ten-judge panel of United States Court of Appeals for the Federal Circuit ruled that Alice Corp.’s patented software, which provides a way to reduce the settlement risk in financial transactions between two parties, was actually ineligible for patent protection, but produced seven different opinions on the patentability of computer software inventions.  In the end, the court failed to settle on a cognizable standard that would once and for all determine the eligibility of computer software for patent protection.  This decision has been granted certiorari by the Supreme Court, with oral arguments currently set for March 31, 2014.  In the meantime, the upcoming decision has drawn the attention of many scholars and players in the software industry, evidenced by over forty amicus curiae briefs filed by third parties.  It seems that many hope the Supreme Court will finally either deem software definitively patentable subject matter, or force software engineers to look to other legal means through which to protect their innovations.