By: Matt Wilk

 

Background: Alice Corp. v. CLS Bank International.

Alice Corporation owned four patents disclosing a computer-implemented, electronic escrow service for facilitating financial transactions.  CLS Bank sued Alice, seeking a declaratory judgment that their patents were invalid, and therefore unenforceable, as they did not meet the requirements for patentable subject matter under 35 U.S.C. § 101. They further sought a declaratory judgment that they had not infringed Alice’s patents.

Section 101 allows any individual who “invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof,” to obtain a patent protecting that invention or discovery.[1]  In Bilski v. Kappos, the United States Supreme Court allowed business method patents to fall within the definition of a “process”, and stated that while not the exclusive test, the machine-or-transformation test could be a useful tool in determining the eligibility of process patents.[2]

In view of the above, the district court agreed with CLS Bank, stating that a method “directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk” is a “basic business or financial concept,” and would not be patentable under 35 U.S.C. § 101.  Further, the court reasoned that a “computer system merely ‘configured’ to implement an abstract method is no more patentable than an abstract method that is simply ‘electronically’ implemented.”[3]

On appeal, the United States Court of Appeals for the Federal Circuit first reversed the lower court, stating that inventions like Alice’s are patentable under § 101 unless it is “manifestly evident” that the claims are about an abstract idea; that is, “the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application.”[4]  CLS Bank then petitioned for an en banc rehearing. Upon this rehearing, the Federal Circuit vacated the earlier decision with a plurality affirming the district court’s decision that Alice’s claims were unpatentable under § 101, but did not agree upon a standard for judging patentability of computer-implemented systems.  Alice then petitioned the Supreme Court to grant certiorari.

In 2014, in a unanimous decision, the United States Supreme Court heard Alice Corp. v. CLS Bank International and held Alice’s patents were invalid because they claimed unpatentable subject matter.[5] The Court reasoned that the patent claims at issue were drawn to an abstract idea and that implementing those claimed methods on a computer is unpatentable.[6] The Court’s relatively narrow holding essentially rendered so-called “business methods” unpatentable. However, the Court’s decision suggested that software-based inventions that “improve the functioning of the computer itself” or “effect an improvement in any other technology or technical field” would likely be patentable subject matter.[7]

In reaching their decision, the Supreme Court developed a two-step test to distinguish patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.[8]  The first step of the test is to determine whether the claims at issue are directed to one of the patent-ineligible concepts stated above.  If so, the court moves to the second step and asks “what else is there in the claims before us?”[9]  To answer this question, the court considers the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible claim.[10]

 

Current Case: McRO v. Activision Blizzard

McRO Corp. is the owner of two patents that describe a computerized process for “automated rules-based use of morph targets and delta sets for lip-synchronized three-dimensional animation” that was an improvement over methods previously used in the industry.[11]  McRO alleges that a group of defendants, including Activision Publishing, Inc., (hereinafter, “Activision defendants”) directly or indirectly infringed these two patents by employing automated lip-synchronization methods in developing computer and/or video games. Thus, McRO filed suit under 35 U.S.C. § 271.  The Activision defendants motioned for summary judgment, claiming that the McRO patents are directed to unpatentable subject matter, and are therefore invalid, citing Alice.  The Activision defendants argued that the McRO patents cover “the abstract idea of rules-based synchronization of animated mouth movement.”[12]

The United States District Court for the Central District of California began its analysis in stating, “facially, these claims do not seem directed to an abstract idea. They are tangible, each covering an approach to automated three-dimensional computer animation, which is a specific technological process.”[13]  However, the court went on to invalidate McRO’s patents because the claims “recite(d) tangible steps, but the only new part of the claim (was) an abstract idea.”[14]  Presently, McRO has appealed to the Federal Circuit because they believe the district court erred in holding that the claimed “method for automatically animating lip synchronization and facial expression of three- dimensional characters,” covers “abstract ideas” that are not patent-eligible under 35 U.S.C. §101.[15]  They argue that the claims in question satisfy the two-step test for patent-eligibility under §101 set forth by the Supreme Court in Alice and that the district court deviated from this test and applied a novel one of its own creation.[16]

 

Analysis

Tim Molino, Policy Director for The Software Alliance, believes the Federal Circuit should reverse the district court’s decision because he believes that the district court reversed the steps of Alice and collapsed them into a single inquiry.[17] Instead of first determining if the claims were directed to abstract ideas and then assessing if the claims’ “additional elements” add significantly more to the idea, the court picked apart all of the elements that were known in the prior art to attempt to discover a “point of novelty” in the claims.[18] Molino believes that the McRO claims describe “(a) concrete, real-world innovation that solves the difficult problem of accurately replicating the human face and speech in CGI and animation,” and should therefore qualify as patentable subject matter.[19]

Molino also believes that the district court misinterpreted the second step of Alice.  Instead of analyzing all additional elements adding to the initial abstract idea, the court believed that only novel elements should be considered for the “significantly more” analysis.[20]  In using this standard, the court, unsurprisingly, read out the additional elements of the claims because they lacked novelty, leaving just the abstract idea that fails the “significantly more” test.[21]

Further, the district court’s holding appears to directly conflict with that of the United States Supreme Court in KSR Int’l Co. v. Teleflex, Inc.  In a unanimous decision, in KSR, the Supreme Court acknowledged that in certain situations, “a patent composed of several elements is not proved obvious merely by demonstrating that each of its elements was, independently, known in the prior art.”[22]  The Court implemented a new test to determine if such combination patents are obvious under 35 U.S.C. § 103, asking, from the point of view of one of ordinary skill in the art, if the combination is predictable, whether there is a reason to combine the components, or whether it was obvious to try the combination.[23]  In the present case, it appears that the district court ignored the aforementioned standard and simply held the claims at issue invalid because their individual components had been disclosed in the prior art.

If the district court’s decision is affirmed, it would create a tremendous problem for future patent applications.  Advances in software technology generally arise from building upon what is known in the prior art.[24]  If patent examiners are allowed to disregard every element that has been previously disclosed in the prior art when assessing patentability under § 101, it will be nearly impossible to patent any software inventions, as the only elements remaining in the claims will be abstract ideas, which will be rejected as unpatentable.  Molino urges the Federal Circuit to nip this problem in the bud by overruling the district court’s erroneous conclusion and providing guidance regarding the correct application of the Alice test.[25]

Affirming the district court’s decision could create severe consequences for software patent owners and future applicants. Patents with claims related to implementing abstract ideas appear to be unsafe.  Additionally, it is foreseeable that the ramifications of this decision could spread outside of the software industry and, for example, into biotechnology, where abstract algorithms are frequently used in pharmaceuticals to optimize drug delivery effectiveness. This would unpatentable in light of the current state of McRO.

In conclusion, the district court’s decision incorrectly applied the Alice test. In doing so, the court created a higher bar of patentability under § 101 for software patents than intended in Alice. Additionally, the district court’s conclusion seems to contradict the Supreme Court’s obviousness test described in KSR.  For these reasons, I expect the Federal Circuit to reverse the current holding in McRO v. Activision Blizzard.

 


 

[1] 35 U.S.C. § 101

[2] Bilski v. Kappos, 561 U.S. 593, 607-12 (2010).

[3] CLS Bank Int’l v. Alice Corp. Pty. Ltd, 768 F. Supp. 2d 221, 242-255 (D.D.C. 2011), rev’d, 685 F.3d 1341 (Fed. Cir. 2012) reh’g en banc granted, opinion vacated, 484 F. App’x 559 (Fed. Cir. 2012) and aff’d, 717 F.3d 1269 (Fed. Cir. 2013) aff’d, 134 S. Ct. 2347, 189 L. Ed. 2d 296 (2014).

[4] CLS Bank Int’l v. Alice Corp. Pty. Ltd, 685 F.3d 1341, 1352 (Fed. Cir. 2012) reh’g en banc granted, opinion vacated, 484 F. App’x 559 (Fed. Cir. 2012).

[5] Alice Corp. Pty. v. CLS Bank Int’l, 134 S. Ct. 2347, 2355 (2014).

[6] Id.

[7] Tim Molino, Despite Alice Corp, McRO’s Software Patents Should be Seen as Eligible under Section 101

[8] Alice Corp. Pty. Ltd. v. CLS Bank Int’l

[9] Alice Corp. Pty., 134 S. Ct. at 2355.

[10] Id.

[11] Molino, supra.

[12] Ruling on Defendant’s Motion for Judgment, 12.

[13] Id.

[14] Id.

[15] Brief for Plaintiff-Appellant McRO, Inc., 1.

[16] Id. 28-32.

[17] Molino, supra.

[18] Id.

[19] Id.

[20] Id.

[21] Id.

[22] KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398, 418 (2007)

[23] Id. 417, 421.

[24] Molino, supra.

[25] Id.