Licensing International Patent Portfolios & Understanding National Laws – A Trap for the Unwary

Companies having portfolios of both domestic and international patents that consist of patents in both domestic and international jurisdictions need to account for variances between the laws of the different countries when contemplating licensing such portfolios.   While it is possible to execute individual licenses for specific subsets of jurisdictions, a common approach is to execute a single, comprehensive license to an entire global portfolio.  Since most licensing agreements select the laws and courts of a single jurisdiction for adjudication of disputes, it is important to understand limitations of the selected jurisdiction.

 

United States vs. Europe vs. Canada

One notable instance of differences in the laws of various countries is whether patent licenses can be structured to require royalties beyond the term of the licensed  patents.

In the United States, under the “Brulotte rule”, a requirement in an agreement for a licensee to pay royalties to a licensor after the expiration of the licensed patents is “unlawful per se.” Brulotte v. Thys Co., 379 U. S. 29 (1964).  In Brulotte, an inventor had licensed patents for a hop-picking machine to farmers, with royalties due prior to and after the expiration of the patents on the machine.  The Supreme Court reasoned  that, “contracts to pay royalties for such use continue the patent monopoly beyond the [patent] period.” [i]

The Brulotte rule was affirmed as recently as 2015, when the Supreme Court ruled in Kimble v. Marvel Entertainment, LLC, that post-expiration patent royalties are unlawful, and “when the patent expires, the patentee’s prerogatives expire too.” Kimble v. Marvel Entertainment, LLC 135 S. Ct. 2401 (2015).  In Kimble, inventor Steven Kimble had obtained and licensed to Marvel the rights to his patent for a glove that shot “Web” via an attached can of spray foam.  The license agreement in this case contained no end date for the royalty payment.  Relying heavily on the doctrine of  stare decisis, the  Kimble Court affirmed the decision that Marvel could stop paying Kimble royalties on the expired patent.

The European Union treats extending royalty payments beyond the term of licensed patents differently than the US.   In particular, Paragraph 187 of the Guidelines to the EU Technology Transfer Block Exemption Regulation states:

Notwithstanding the fact that the block exemption only applies as long as the technology rights are valid and in force, the parties can normally agree to extend royalty obligations beyond the period of validity of the licensed intellectual property rights without falling foul of Article 101(1) of the Treaty. Once these rights expire, third parties can legally exploit the technology in question and compete with parties to the agreement. Such actual and potential competition will normally be sufficient to ensure that the obligation in question does not have appreciable anti-competitive effects.

So unless one or more of the parties has such a dominant position in the market that the relevant license agreement has appreciable anti-competitive effects, an obligation to pay royalties post-expiry of a patent should be enforceable in the European Union.

In Canada, a patent license can validly require royalty payments extending beyond patent expiration. However, case law in Canada indicates, “In the absence of an express provision on the subject a license continues until the expiration of the original term of the patent, but not beyond. However, an express stipulation in the contract as to the duration of the license will control.”  Therefore, even if the License  Kimble had with Marvel was reviewed under Canadian law, it is likely that the obligation to pay royalties beyond the term of the licensed patent would not have been enforceable, as it left open the term of the license, which would have been a death blow to fees due post expiration of the patents.

 

Choice of Law

In light of the above with respect to the laws of the United States, European Union and Canada, it is easy to see that each could provide a different outcome for the same license agreement.  This is complicated by the fact that most agreements, including such licensing agreements, have clauses in them that require the agreement to be reviewed under one set of controlling laws.

The Brulotte rule is not absolute.  For example, courts have found that licenses can require payment of royalties on unexpired foreign patents even after U.S. licensed patents have expired.   Licenses often require royalties to be paid until the latest-running patent expires.

However, how would a U.S. court interpret an obligation to pay royalties on European Union patents beyond their term?  How would a European court deal with royalties associated with a Canadian patent portfolio where the agreement did not address royalties beyond the term of the patents?

While these questions may remain open, the better course is to address differences in the law of different jurisdictions on this issue specifically in the license agreement itself.  Instead of relying on a single choice of law provision in the license agreement, parties could consider addressing choice of law separately for licensed patents of patents of different jurisdictions when seeking to structure a license to require royalties to be paid beyond the term.  This is particularly important when using the U.S. as the choice of law and venue, as doing so may also require addressing royalty rates of the U.S. patents separately from foreign patents and other potential fees and payments.

 

Alternatives

When seeking to structure licensing agreements with obligations to pay royalties beyond the terms of the licensed patents, in many cases, parties license know-how or trade secrets in addition to patents so that royalties can be required to be paid on the trade secrets or know-how (typically at different royalty rates) after the patent rights expire.

The Kimble Court also noted that, “[P]arties can often find ways around Brulotte, enabling them to achieve those same ends.”[ii] Parties can: i) provide for license fees to accrue under the patent term and to be amortized over time; ii) include non-patents rights in the license (e.g., trade secrets, know-how); and iii) forming business arrangements, such as joint ventures.

 

Conclusion

Parties negotiating licensing fees associated with a global patent portfolio need to account for differences in national laws and how such fees are impacted by such laws.  Considering these aspects early benefits the process and allow for the parties to have clarity on the long-term strategy for the portfolio.  There are a multitude of options to structure these licensing arrangements to benefit all those involved.

 

[i] Kimble v. Marvel Entertainment, LLC 135 S. Ct. 2401

[ii] Id.

Artificial Intelligence Systems Are Not Inventors… Yet.

Recently, an Artificial Intelligence (AI) named DABUS (“Device for Autonomous Bootstrapping of Unified Sentience”) made international media buzz when it was listed as an inventor on patent applications filed in the United States Patent and Trademark Office (USPTO), United Kingdom Intellectual Property Office (UKIPO) and the European Patent Office (EPO).  While there have been thousands of patent applications for various AI systems, from machine learning (ML) systems, to neural networks, generative adversarial networks (GANs) and beyond, this is at least one of the first AI systems to be listed as the inventor itself.

What is DABUS

Developed by Stephen Thaler, a well-known expert in the field of AI, DABUS is an implementation of a type of generative adversarial network (GAN), where two or more neural networks are used to play against one another in order to improve the outputs of at least one of the neural networks to create something different and new.

In the most common implementation, a GAN comprises two neural networks.  The first is a generator, which is used to generate new data (e.g., images, text).  The second is a discriminator, which is used to determine whether the data generated by the generator is real or fake.

In order to determine fakes, the discriminator is given a (preferably large) dataset of real data to compare the data generated by the generator against.  Like a high-tech game of cops and robbers, the discriminator is trying to identify the fake data provided to it from the generator.  Each time the generator fails to convince the discriminator of the validity of its generated data, it learns.  This process is repeated at the incredible rate that computing does these days.  The results, can be stunning.   In fact, a piece of artwork generated by such GANs recently sold at Christie’s for $432,000.

DABUS operates on this same principal.  Give a dataset to a discriminator as a training model and let the generator try to fool the discriminator.  Now, of course, Dr. Thaler uniquely calls his generator an Imagitron, and his discriminator a Perceptron, but ultimately it is still a GAN, doing what a GAN does.

What did DABUS “Invent”

Without getting into the debate or hype over what was actually “conceived” by DABUS, the actual products that were more aptly described as “designed” by DABUS are: 1) an interlocking food container; and 2) a light that flashes in a particular way that mimics neural activity.  I do not intend to go into the details of these inventions, as they have been discussed ad nauseum elsewhere.

Regardless of what DABUS designed, the inventions themselves were based on datasets and information provided to it.  As was said excellently elsewhere, “[DABUS] was ‘mentored’ by Dr. Thaler over a two month period to produce increasingly complex concepts.”  Put differently, DABUS did not set out on its own to solve the problem of interlocking containers or calming pulsating lights; rather, DABUS was tasked with solving these concerns.

The Patent Applications

The three patent applications were submitted by a group led by Ryan Abbott, a professor of law and health sciences at the University of Surrey in the United Kingdom.  Not unsurprisingly, a novel question of law has been raised by an academic.  And that is not a criticism, but rather an acknowledgement that patent law will have to address certain pressing questions about the patentability and ownership of inventions in a world that is increasingly being influenced by artificial intelligence and its effects.

The question at issue here is whether, given the “creative” output of DABUS qualifies it as an “inventor” under the laws of the patent offices the applications were filed in.  For instance, in the USPTO, the Manual for Patent Examining Procedure defines an inventor as a person who contributes to the conception of the invention.

Here, Dr. Abbott and his team are suggesting that DABUS, through its processing of the data into a useful invention, contributed to its conception in such a manner that it would have to be considered an inventor under that definition.  Others, such as Dr. Noam Shemtov, state that DABUS, and other AI systems are merely tools.  In a 2019 report commissioned by the EPO, Dr. Shemtov writes:

When it comes to a human actor that uses an AI system, whose identity may be inconsequential to the invention process, who simply uses a machine learning technique developed by another, the inventor may be the person who “tooled” the AI system in a particular way in order to generate the inventive output. Hence, under such circumstances the person that carries out the intelligent or creative conception of the invention may be the one who geared up the AI system towards producing the inventive output, taking decisions in relation to issues such as the choice of the algorithm employed, the selection of parameters and the design and choice of input data, even if the specific output was somewhat unpredictable[i].

While I tend to agree with Dr. Shemtov’s analysis of current AI systems as tools that individuals use to provide useful output, that is not to say that it is impossible to conceive that an AI system in the future will able to identify a problem, identify available materials/components/data, and solve the problem on its own, all without human intervention or direction.  And herein lies where Dr. Abbott’s filing of the patent applications with DABUS as an inventor is truly aimed at addressing – AIs as inventors.

AI Inventorship

Dr. Abbott’s true intention appears to be raising the debate over whether current statutory regimes at the various patent offices would allow for an AI to be listed as an inventor, given that even at present, it could be rationalized that the AI is part of the conception of the invention.  However, in the case of DABUS, it seems that there is a strong argument that the conception was at the hands of Dr. Thaler, and DABUS merely reduced the invention to practice.

Regardless, the issues related to having an AI system as an inventor are definitely worth bringing to light.  Dr. Abbott told BBC News, “These days, you commonly have AIs writing books and taking pictures – but if you don’t have a traditional author, you cannot get copyright protection in the US.”  And Dr. Abbott is not incorrect.  The United States Copyright Office published an opinion in 2014 stating that, “[O]nly works created by a human can be copyrighted under United States Law.”

Dr. Abbott continued, stating to BBC News, “So with patents, a patent office might say, ‘If you don’t have someone who traditionally meets human-inventorship criteria, there is nothing you can get a patent on.’ In which case, if AI is going to be how we’re inventing things in the future, the whole intellectual property system will fail to work.”  And again, Dr. Abbott is not incorrect.  35 U.S.C. § 100 defines an “inventor” as the “individual” who invented or discovered the subject matter of the invention.  If an AI system conceived of both the problem and the inventive solution to that problem, it becomes more difficult to say that the inventor of the AI system itself was the inventor of that invention, leaving that IP unable to be secured by patents under the current regime.

Similar inventorship issues arise in both the UK, where the UK Patents Act of 1977 requires an inventor to be a person, and the EPO, where in the EPO’s published opinion written by Dr. Shemtov states, “[I]t has been shown that is is unambiguously implicit that AI systems cannot be identified as inventors.”

All three patent offices where these DABUS patent applications have filed are aware of the issue and are reviewing options and requesting input from the community.  In fact, On August 27, 2019, the USPTO just released a Request for Comments on Patenting Artificial Intelligence on the Federal Register, asking for input on whether current US patent laws need to be revised to take into account inventions where an entity or entities other than a natural person contributed to the conception of an invention.

 Conclusion

While lofty news articles have hyped the filing of these patents in DABUS’s name, let us not fall for the smoke and mirrors associated with the current state of AI systems.  At least in the vast majority of existing AI systems, they are not inventors as we define them for the purpose of patents in the US.  They are advanced tools that assist in the reduction to practice of inventive concepts and inventions themselves.  DABUS is not an inventor for the purpose of US patent law.  However, using the leverage and momentum of a good news cycle, DABUS has been able to push forward the conversation on what will inevitably be questions about ownership and protection of all forms of Intellectual Property generated by AI systems in the future.

[i] Dr Noam Shemtov, “A study on inventorship in inventions involving AI activity” (2019)

Nike’s Deal to Bring Virtual Jordan Brand Air Jordan 1s to Fortnite is the Best Example of Crossover Branding Ever

 

 

With over 250 million registered players, Fortnite is unquestionably become a gaming phenomenon.  The free to play battle royale style game, where up to 100 players drop from flying bus into a large island in order to gun one another down in a slightly cartoonish style in order to become the last person standing, has taken over the gaming industry.  It’s no secret that the Fortnite style of game play, known as battle royale, has become ubiquitous in the gaming community, with most multiplayer game developers launching some form of the game play style on their own titles.

Fortnite is largely funded by players who, as opposed to paying anything for the game itself, pay for items that personalize their appearance (i.e., “skins”).   This is a strategy that has clearly worked for Epic Games, the developer of Fortnite, which reportedly grossed $3 billion in 2018 with this model.

Epic has been running a massively successful branding and advertising operation through Fortnite, having collaborations with the likes of Marvel’s Avengers: Endgame, Summit Entertainment’s John Wick, the NFL, and Wendy’s.

Now, in its latest move, Epic has teamed with Nike’s Jordan Brand to bring a set of skins that have the characters wearing classic Air Jordan 1s.  These virtual kicks will be offered in various color schemes, like the venerable red and black associated with the Chicago Bulls.  The skins, like most in Fortnite, will be offered only for a limited time.

This collaboration between Nike and Epic is perfect on so many levels.  Given the limited time offering of the skins in Fortnite, and the similar mass appeal of Jordan Brand shoes among a very dedicated type of consumer, the synergies are perfectly aligned.  There is little doubt that the sneaker heads will be dropping plenty of V-Bucks (the in-game currency used in Fortnite, which can be earned over time or purchased with real world currencies) on these new skins.

Another great aspect of this collaboration is that we are seeing real world companies put branded products in virtual worlds, and capitalizing off of it.  While it is not public what the split is on these virtual goods, it is in any case a win for both Epic, which is undoubtedly going to profit from the sales of the Air Jordan 1 skins, and Nike, by keeping its products relevant in new mediums in attempts to maintain one of its flagship brands, which faltered slightly in 2018.

From an intellectual property standpoint, the deal is interesting as we see not only Nike’s licensing the Jordan branding for certain use in the game, but also the generation of new virtual IP, in the form of the in-game graphical representations of the sneakers.  These are the kind of deals we will undoubtedly see more and more of, as video games and eSports become ever more a part of the mainstream fabric.   It will become even more interesting as the professional eSports players start having not only brand deals with companies for out-of-game endorsements, but what will invariably be in-game endorsement deals as well.

The future is bright for the eSports community, and deals like the one between Nike’s Jordan Brand and Epic’s Fortnite serve as a reminder that we are on the verge of an entirely new world of advertising and branding principles.

Federal Circuit Ruling Cast Shadow Over USPTO Subject Matter Eligibility Guidance

In January of 2019, the United States Patent and Trademark Office (USPTO) issued revised guidance relevant to 35 U.S.C. § 101 (Subject Matter Eligibility) rejections. Entitled, 2019 Revised Patent Subject Matter Eligibility Guidance, the document added a new pathway for patent eligibility, whereby a claim that includes a judicial exception is still subject matter eligible under 35. U.S.C. § 101, if the judicial exception, such as an abstract idea, is “integrated into a practical application” of the judicial exception.

A large portion of the legal community felt that the guidance would cut the number of rejections under 35 U.S.C. § 101.  The guidance provided much needed clarity on how to present claims in an application to avoid such rejections, which had become commonplace in several art units at the USPTO.

This updated guidance has been largely welcomed by the legal community.  In fact, in its comments to the USPTO on the matter, the American Bar Association stated, “[T]he guidelines are a significant improvement in the examination of patent eligibility by providing a greater degree of certainty and increased predictability in subject matter eligibility determinations at the USPTO.[i]”  However, with quite a bit of foreshadowing, the American Bar Association’s letter noted, “We understand that these Guidelines, however, do not constitute substantive rulemaking and thus do not ‘have the force and effect of law.’”

Fast forward to April 1, 2019, the Federal Circuit found two patents owned by Cleveland Clinic invalid for being directed to ineligible subject matter.  The patents in question were related to testing for cardiovascular disease, and in the opinion of the court, “invalid under 35 U.S.C. § 101 as directed to an ineligible natural law.[ii]

Cleveland Clinic had argued that the courts “failed to give the appropriate deference to subject matter eligibility guidelines published by the PTO.”  Relying on Skidmore v. Swift & Co., 323 U.S. 134 (1944), Cleveland Clinic argued that, “Skidmore ‘requires courts to give some deference to informal agency interpretations of ambiguous statutory dictates, with the degree of deference depending on the circumstances.’[iii]”.

However, the Federal Circuit noted, “While we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance. And, especially regarding the issue of patent eligibility and the efforts of the courts to determine the distinction between claims directed to natural laws and those directed to patent-eligible applications of those laws, we are mindful of the need for consistent application of our case law.”

So while the USPTO appears to be loosening the reigns on subject matter eligibility, the Federal Circuit does not appear to be following suit.  And while the Cleveland Clinic v. True Health case did not specifically address the 2019 Revised Patent Subject Matter Eligibility Guidance, the courts opinion clearly noted that the USPTO’s guidance was not the ultimate arbiter on subject matter eligibility.

Ultimately, from a prosecution perspective, it may be wise to not solely rely on the broader interpretations of subject matter eligibility provided under the latest USPTO guidance, and include at least some claims that would survive more rigorous scrutiny under the tests outlined and applied by the Federal Circuit and the Supreme Court of the United States.

 

[i] https://www.uspto.gov/sites/default/files/documents/eligibility2019comments_a_abaipl_2019mar07.pdf

[ii] http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/18-1218.Opinion.4-1-2019.pdf

[iii] See, Stephenson v. Office of Pers. Mgmt., 705 F.3d 1323, 1330) (Fed Cir. 2013)

5 Things you Need to Know about Software Patentability in 2019

If you are a developer, tech startup or otherwise considered trying to protect your amazing new idea or technology based in software, you probably have already looked into patents as a potential way to secure those technologies.  (I highlight idea, as we will come back to that very salient point in a minute).    Probably one of the first things you run across is everyone talking about Alice!

Who is Alice?  When people refer to Alice, they are referring to a Supreme Court decision in the case of Alice Corp. v. CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014).  In 2014, this was a landmark ruling that shifted the applicability of 35 U.S.C. § 101 to certain types of inventions.  One central component of this shift was related to the patent eligibility of inventions that were based in software (or those that were otherwise based on abstract ideas).

We will not dive too deep in the analysis of Alice in this article for two main reasons: 1) it has been covered ad nauseum elsewhere; and 2) the ruling is over 4 years old and while Alice is still the root to most eligibility analyses, there have been numerous rulings since that have broadened, extended and clarified exactly what is and is not patent eligible subject matter.

So let’s start with this, for all you developers and executives at software companies:

 

  1. Software is Patentable

Let us be clear, software is patentable, when done correctly.  Even things you and I may feel are simple processes are still protectable.  For instance, Gaming Arts, LLC. just received a patent for a software based “BINGO GAME WITH BONUS FEATURE” (See US Patent 10,242,531), and Sony Interactive Entertainment jut received a patent for playing a sound effect when a computer detects a user saying a trigger word (See US Patent No. 10,242,674).   Both were issued on March 26, 2019.

It is important to note that a utility patent covers the functionality of the software, through defining the software in terms of systems and methods.  What patents do not cover is the actual code.  Source code is covered largely by copyright, which can protect direct copying of the code, but does not provide protection against those who write their own code to do the same thing.  And that is exactly where patents step in.

Now, there is a certain bare minimum that must be reached for a software system and/or method to be patentable.  Which brings us back to why I highlighted idea back in the beginning.  Ideas are not patentable in and of themselves, as they are abstract and fall squarely into the realm of what is not patent eligible.

 

  1. An Idea is Not Enough

If you are forming the next great startup and you want to be the “Uber for X” or the “Instragram for Y”, that is not, in and of itself, going to get you cross the finish line for patent eligibility.   Remember, software patents are directed to covering systems and methods.  Software almost always is nothing more than a series of steps (i.e., instructions) that drive a computer to take some action (e.g., process data).  Some data goes in, software directs the computer as to what to do with that data, and the output is some generally useful result.  Whether it is finding the closest Uber, matching you to your next soulmate, adding two numbers together, or calculating the trajectory of a rocket for sending a payload into space, it all boils down to some data going in, being processed, and a result being output.

When putting together a patent to protect your invention, your invention must be more fully flushed out than simply stating in conclusory terms what your software will do.  The abstract idea alone is not protectable, but the steps you use to get to the solution (i.e., method) may be.  Develop the flowcharts for how your great idea gets from problem A, to solution B.  The road in between is your patentable method.  For some help on this topic, the United States Patent and Trademark Office (USPTO) has provided a useful resource in the form of a Quick Reference Sheet for Identifying Abstract Ideas.

Remember, the more flushed out your idea is, the more it becomes a methodology which may be protected.

 

  1. What you Disclose in your Patent is Important

The content you put into your disclosure is king when it comes to your patent filing, especially for software related inventions.   The basic requirement for a patent application is that the drawings and specification disclose the invention in enough detail that one of ordinary skill in the art would be able to practice the invention without undue experimentation.   While that is the bare minimum, remember, if it is in your application, you can use it later during examination to overcome examiner’s arguments related to novelty, obviousness and even indefiniteness.  Conversely, if you do not include detailed descriptions of the various aspects of your invention, you cannot later use them in your arguments.

One thing that should be remembered when preparing a patent application for software methods is that even though you may be filing a patent application for your unreleased software product that will be launched soon as an initial version (e.g., v1, beta), there is no need to limit the patent application disclosure to just the features that are in the software now.  In fact, there is no requirement to have a working prototype in order to file a patent application on an invention.  This is particularly important with software, where you may be going to market with a minimum viable product (MVP), but have a roadmap that goes through several iterations, versions and include numerous improvements and features not present in the MVP.

Since there is no requirement to have a working prototype, and the enablement requirements only require that you be able to describe the invention in enough detail that one or ordinary skill in the art would be able to practice the invention – something probably already at least partially contained in your roadmap – you should consider putting details of all your future concepts, features and improvements in your application.   What this does is secure your priority date for all of the future features and improvements you have planned.

This strategy also allows you to use these features and improvements in arguments and amendments during examination.  It generally takes 18-24 months to enter substantive examination at the USPTO.  By this time, you will have a greater insight as to what features and improvements became a big hit, and those that did not pan out as planned.  This allows you to focus the examination of the application on those key features that were later implemented, without the need to file additional patent applications on an ongoing basis.

Further, by disclosing additional features and improvements in the first application, you can later file one or more continuation applications at a later time to secure patents on the individual features and improvements at a later time.  Each of these continuation applications get the benefit of the earlier filing date, even though they may be filed years later.

 

  1. How you Write the Patent is as Important as the Technology

What you disclose in the application is only part of it.  How you write the application is critical.   The words you use can end up coming back to haunt you, by unnecessarily limiting the breadth and scope of your rights, or otherwise acting as self-sworn statements that you cannot back away from.

For instance, restrictive words, like, “only”, “must”, “always”, and “never” may limit the scope of an invention.   If in an application, the disclosure states, “The system always does X before Y”, then you have been committed to a system that either always does X before Y, or never does Y (if you don’t do X, you cannot do Y).  These kind of limitations can poke holes in the breadth of an application, particularly when related to software, where there are frequently dozens if not hundreds of other ways to accomplish a task.  Think to yourself when drafting or reviewing an application whether the statements you are making are really requirements, or just simply one way you have chosen to implement the solution.

In another example, statements about what have been done in the past or are done in an industry can act as prior art against your invention.  This is known as “Applicant Admitted Prior Art” (AAPA) and can be disastrous in certain cases.  Commonly found in the background section of a patent, some applicants (or their patent attorneys or agents) may end up making statements that go beyond what actually IS prior art and inadvertently giving up certain rights by making such statements.

Further, even beyond just admissions of prior art, statements in the application about what is well-understood, routine and conventional in the art can come back to haunt inventors and applicants, as this can give grounds to the examiner to provide a subject matter rejection under 35 U.S.C. § 101.  Avoid these statements at all cost, as they are generally unnecessary and add little value to the actual disclosure itself.

However, the recent federal circuit opinion in Berkheimer v. HP, Inc., 881 f.3d1360 (Fed Cir. 2018) also confirmed that the concept of applicant admissions in a patent specification works in the opposite direction as well.  In Berkheimer v. HP, Inc., and a later USPTO memo regarding implementation of the ruling as it relates to patent examination practice. In this case, the court found that the applicant’s statement that the novel improvements contained in the application were not convention, and represented an improvement over the art, created a factual dispute that would not permit a finding otherwise under a motion for summary judgment.  Simply put, feel free to include statements throughout the specification as to how the disclosed software works or functions differently than conventional software, and how it provides improvements over the conventional or routine functionality of other software.

 

  1. New Guidance Makes Obtaining Software Patents Easier

When it comes to patents on software based systems and methods, Alice’s spectre still haunts us to this day.  Examiners are still issuing subject matter eligibility rejections under 35 U.S.C. § 101 on otherwise valid and protectable systems and methods that are based in software.  Frequently, these rejections are held up only by loose accusations and conclusory statements about an abstract idea contained in the claims.

However, on January 4, 2019, the USPTO announced the issuance of revised guidance relevant to 35 U.S.C. § 101 (Subject Matter Eligibility) rejections. Entitled, 2019 Revised Patent Subject Matter Eligibility Guidance, the document adds a new pathway for patent eligibility, whereby a claim that includes a judicial exception is still subject matter eligible under 35. U.S.C. § 101, if the judicial exception, such as an abstract idea, is “integrated into a practical application” of the judicial exception.

Since the issuance of the new guidance, we have seen very favorable action on subject matter eligibility involving the “integration into a practical application” analysis as it relates to software patents.  For instance, on March 19, 2019, the USPTO marked as “Informative” the Patent Trial and Appeals Board (PTAB) finding in Ex parte Smith (2018-00064).  The matter involved “claims directed to a hybrid trading system for concurrently trading securities or derivatives through both electronic and open-outcry trading mechanisms.”

The board initially identified the claims as being directed to methods of organizing human activity, a category of inventions under 35 U.S.C. § 101 that constitutes an abstract idea, namely fundamental economic practices.  The board then reviewed the claims under the revised guidance relevant to 35 U.S.C. § 101 (Subject Matter Eligibility) rejections. Using this guidance, the board determined that the claims were “integrated into a practical application” of the abstract idea, and therefore patent eligible subject matter.

Interestingly enough, the board’s determination that the claims were “integrated into a practical application” was based on use of timers to delay automatically executing market orders (i.e., electronic) to allow “in-crowd” market orders (i.e., from “in the pits”).

However, we do have to be cautious with regards to this guidance, as the Court of Appeals for the Federal Circuit (CAFC) just stated in its opinion in Cleveland Clinic Foundation v. True Health Diagnostics LLC on April 1, 2019, that, “while we greatly respect the PTO’s expertise on all matters relating to patentability, including patent eligibility, we are not bound by its guidance.”