Amazon’s New Patent Infringement Review Process is Boon to Patent Holders but Holds the Potential for Abuse

Amazon recently implemented a streamlined process for patent holders to assert claims of infringement against sellers of products on the Amazon marketplace.  The process, which Amazon is calling the Utility Patent Neutral Evaluation Procedure (UPNEP), allows for patent holders to request a neutral evaluator to determine whether a single claim of a granted utility patent is infringed by up to 50 separate products.

The timelines are tight, the stakes are high, and the process is over in a relatively short period of time.  With no current option for appeal or review, it is important for those that rely on Amazon for their profits to take these UPNEP reviews seriously.  Below, we discuss the process, the pitfalls and how the system can be potentially gamed, and how to navigate this new process as Amazon more fully rolls it out into production.

 

The Process

The patent holder initiates the process by submitting a simple complaint to Amazon, which largely identifies who the patent holder is, the patent and single claim to be reviewed, and the identification of products to be evaluated.  One submitted, the sellers are contacted and given three weeks to decide whether they wish to participate in the dispute.  The seller confirms its desire to participate by completing a similarly simple agreement that identifies the seller and the products the seller wishes to have reviewed.  Any identified seller that does not participate in the process will have their listing removed from Amazon.

Once the seller(s) and the patent holder have submitted the necessary paperwork, Amazon identifies a neutral patent attorney to act as an arbiter for the evaluation.  Each side must then submit $4,000 to the identified patent attorney, to be held in escrow until the resolution of the matter.  Where there are multiple sellers, the sellers split the $4,000 payment equally.  If the seller(s) fail to submit payment, their listings will be removed.  If the patent owner fails to submit the payment, any deposits paid by the seller(s) will be returned, and the listings will remain.

After the agreements and the escrow is handled, the Patent Neutral Evaluation Procedure begins, and with it, some very tight deadlines.  Unlike traditional litigation, where discovery, motion practice, settlement conferences and other matters can require years to complete, the UPNEP process takes less than four months.  While the shortened timeline is great for patent owners, it does create some issues, as there are no provisions for extensions, and the response and reply deadlines are tight.

The deadlines for the UPNEP are:

  • The patent owner has 21 days from the commencement of the UPNEP to submit its initial brief;
  • The seller(s) then have 14 days to respond to the initial brief; and
  • The patent owner then has 7 days to file a reply to the response.

The filings are similar to standard motion for summary judgment practice, with the first filing being from the patent owner attempting to show how the accused product(s) infringe the single identified claim, through use of images, claim charts, and written arguments.

The seller(s) then get the right to respond to the patent owner’s initial filing.   The three arguments seller(s) are allowed to make are: i) non-infringement of the claim of the patent; ii) invalidity of the patent based on prior ruling of the United States Patent and Trademark Office (USPTO), International Trade Commission (ITC), or a federal court of the United States; and iii) invalidity of the patent based on products being sold more than one year before the earliest priority date of the patent (i.e., the “on-sale bar”).

Finally, the patent owner can reply to the response of the seller(s), in order to counter any information submitted by the seller(s).  The reply is optional, but is generally advisable, and failure to file a reply will not trigger an automatic victory to the seller(s).

There are page limits for each of the above filings, making it important to focus on the best arguments and evidence available.  This also helps both sides, as it keeps the review laser focused, and not bogged down in tons of information collected in discovery, as would be the case in standard patent litigation practices.

After all the filings are completed, the neutral patent evaluator will return a decision within fourteen days.  The evaluator will determine whether the product(s) of the seller(s) “likely infringe” the claim of the patent at issue.  If the evaluator determines that the product(s) do likely infringe the patent, then the listings are removed and the patent owner is refunded her $4,000.  If the evaluator determines that the product(s) are not likely to infringe the claim, then the seller(s) get their $4,000 back and the listings are unaffected.

Before the conclusion of the evaluation, the parties may independently settle with one another.  If the patent owner and the seller(s) come to an agreement, then the evaluator keeps $1,000 from each of the parties (total $2,000), and the balance is returned to the parties.

 

Pros for Patent Owners

Ultimately, for valid patent owners that have their patents being infringed upon on Amazon, the Utility Patent Neutral Evaluation Procedure is a real boon.  It provides quick and easy resolution to infringement matters, and can be done across numerous sellers in a single filing.  If the patent owner were to do this through federal courts or other legal avenues, an action would need to be filed against each seller individually, and would take potentially years to complete.  The time and cost savings here are immense.

Another advantage of the Utility Patent Neutral Evaluation Procedure is that, given these are administrative filings with Amazon, the location of the sellers is irrelevant.  This means that troublesome jurisdictional issues, especially with regards to foreign sellers, are also not an issue that can complicate the proceedings.

With that said, there are strategies to be considered by patent owners with respect to how to file.  For instance, given that sellers can effectively pool their resources, allowing up to 50 sellers to assemble their finances to hire top patent counsel to submit a response on their behalf, it is important to consider the strength and weaknesses of any UPNEP before filing.  In some instances, filing individual complaints against sellers may be advantageous, in order to see which sellers are willing to pony up the $4,000 to fight a UPNEP proceeding by themselves – especially considering that the patent owner can have one initial brief prepared and file that brief individually against each separate seller that does continue to fight.

Conversely, where the case for infringement is strong, then assembling as many sellers into one big group can save the patent owner significantly on both expense and time, knocking out whole groups of competitors at one time.  For many patent owners, this could be an extremely enticing option, as bringing that many small sellers into

Further, where settlement is the desire, such as attempting to obtain a license from one or more sellers, patent owners may leverage the UPNEP process to force quick action on settlement negotiations, with the risk of the seller’s products being delisted from Amazon as a consequence of not taking prompt action on acquiring a license from the patent owner.  This may also play into the decision as to whether to bring the UPNEP against one or a group of sellers, as it may be easier to negotiate with one seller, as opposed to a group of sellers.

 

Potential for Abuse

Of course, the Utility Patent Neutral Evaluation Procedure comes with the potential for abuse as well.  Patent owners, even those with weak or otherwise questionable patents, may file actions against sellers, with the idea that at least some will not have the wherewithal to put up the $4,000 payment for the action, or be able to pay for counsel to prepare a response to submissions by the patent holder.  Amazon is filled with small mom and pop sellers that would be unable to proceed and would have to accept licensing terms from the patent owner or have their product delisted.

Further, given the limited ways in which a seller can defend against the claims of the patent owner, which consist of a smaller subset of the entire list of arguments defendants in federal court actions can use, patent holders with otherwise invalid patents may wield them as a sword in these UPNEP proceedings without fear of invalidation.  In fact, many non-practicing entities may look to capitalize on forcing settlement/licensing agreements with sellers, since there is no risk of invalidation through the UPNEP proceeding.

Finally, given the quick and tight deadlines, sellers may be under the gun to try to get representation and follow through with the filings in order to protect their listings.  For those sellers not currently engaged with counsel, it could take precious time away from their ability to prepare an adequate defense to a patent owner’s claim.  Where in federal courts or before the USPTO, a defendant can request extensions when counsel needs time to review a matter in full, that does not appear to be an option with Amazon’s UPNEP.

With all of the above said, however, nothing prevents sellers or patent owners from taking the matter to a federal court, ITC or the USPTO, if they do not get their way via Amazon’s UPNEP.

 

Conclusion

All-in-all, Amazon’s UPNEP is just one more way in which Amazon is getting serious about infringement on its platform.  The UPNEP offers a very viable and cost-effective platform for both patent owners and sellers to adjudicate their rights quickly and relatively easily.

No matter whether you are a patent owner or an Amazon seller, it is important to consider retaining counsel for these disputes.  Given the limited amount of back-and-forth, the short timelines, and the significance of what is on the line, ensuring that your submissions are as legally sound as possible is a must.

If you are a patent owner looking to file UPNEP complaints, speak first with a qualified patent attorney, preferably one with experience dealing with Amazon and sellers on Amazon.  If you are a seller that has received a UPNEP action against one or more of your listings, the same goes – quickly obtain patent counsel to provide a substantive defense, as the dates will pass quickly, and the more time counsel has, the better job they can do to protect your rights.

 

 

 

 

Federal Circuit Decides You Can Patent Those Gains – Dietary Supplements Are Subject Matter Eligible

On March 15, 2019, the Court of Appeals for the Federal Circuit (CAFC) heard an appeal in the matter of Natural Alternatives International, Inc. v. Creative Compounds, LLC regarding the subject matter eligibility of dietary supplements.  At issue in the case were six patents related to the CarnoSyn® beta-alanine athletic performance supplement.

In reversing the lower court’s ruling, the CAFC found that each of the six patents contained patent eligible subject matter under 35 U.S.C. § 101.   In fact, the court found that the patents directed at the beta-alanine product, method of manufacturing the beta-alanine product, and method of using the beta-alanine product for treatment (i.e., improving athletic performance), were are all subject matter eligible, and therefore patentable.

With regards to the patents on the beta-alanine product, the Court noted that, “A claim to a manufacture or composition of matter made from a natural product is not directed to the natural product where it has different characteristics and ‘the potential for significant utility.’”  In the present case, the court found that the combination of a specific form of beta-alanine and glycine, and that the specific dosages of beta-alanine may increase athletic performance in a way that naturally occurring beta-alanine may not.

With respect to the patents on the method of administering beta-alanine, the Court likened the claims to those at issue in Vanda Pharmaceuticals Inc. v. West-Ward Pharmaceuticals International Ltd, noting that, “Claims that are directed to particular methods of treatment are patent eligible[i].”  Here, the claims in the method patents are directed to administering beta-alanine to a human subject in order to overcome homeostasis and increase creatine production, resulting in physiological benefits to the subject.  The Court, in no unclear terms noted, “These are treatment claims, and as such they are patent eligible.[ii]

Finally, with regards to the manufacturing claims, the Court also found that subject matter eligibility under 35 U.S.C. § 101 was met by the fact that the claims were “[D]irected to the manufacture of a human dietary supplement with certain characteristics,[iii]” and that, “The supplement is not a product of nature and the use of the supplement to achieve a given result is not directed to a law of nature.[iv]

It is clear from the Court’s analysis that it is important to take certain precautions when drafting the specification and claims of patents directed to these dietary supplements and related products.  Here, the Court appeared to rely heavily on interpretations pulled from the specification of the patents at issue in order determine the claims were subject matter eligible.  For instance, the court looked to the specification of the patents to find the significance of dosing ranges, how they were calculated based on bodyweight, and how those dosing ranges were required to effectively increase athletic performance.   Applicants would be wise not to submit skimpy disclosures with a bare minimum of detail, as it could mean the difference between validity and invalidity of a patent.

Ultimately, the Court’s findings in the matter provide welcome guidance on the ever-challenging issue of subject matter eligibility under U.S.C. § 101.  The ruling gives clarity on the ability of sports nutrition companies to secure the lucrative rights in their proprietary performance enhancing dietary supplements; the dietary supplement market being valued at $152 billion (USD) as of 2018, and expected to grow to $220 billion (USD) by 2022[v].

 

 

[i] Natural Alternatives International, Inc. v. Creative Compounds, LLC

[ii] Id.

[iii] Id.

[iv] Id.

[v] https://www.statista.com/statistics/828514/total-dietary-supplements-market-size-globally/

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.”

 

 

PTAB Finds Subject Matter Eligibility in Hybrid Trading System

The United States Patent and Trademark Office (USPTO), on Tuesday, March 19, 2019, marked as “Informative” the Patent Trial and Appeals Board (PTAB) finding in Ex parte Smith (2018-00064).  The matter involved a panel of judges at the PTAB finding “claims directed to a hybrid trading system for concurrently trading securities or derivatives through both electronic and open-outcry trading mechanisms” patent eligible subject matter under the revised guidance relevant to 35 U.S.C. § 101 (Subject Matter Eligibility) rejections.  While finding the decision “Informative” is below a fully “Precedential” decision, these “Informative” decisions help guide the judges on “recurring issues.”

The examiner had initially determined that the claims were directed to “an abstract idea of trading derivatives in a hybrid exchange system which is a concept within the realm of ‘fundamental economic practices’ because the concept relates to the economy and commerce.” See, Ex parte Smith (2018-00064).  The examiner determined that under the Alice test, since this was an abstract idea, and that under the Alice step 2 analysis, the claims were directed at generic computer components and did not impose any meaningful limits on the scope of the claims, the claims were therefore patent ineligible subject matter under 35 U.S.C. § 101.

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 primarily on claim elements directed to the use of timers to delay automatically executing market orders (i.e., electronic) to allow “in-crowd” market orders (i.e., from “in the pits”).  A majority of the panel of judges for the board did note that that felt these timers were not trivial timers, but it was not a unanimous panel.  One judge did dissent, under the idea that these timers, no matter how they were implemented, were not “[T]echnical in nature and do not provide any ‘technical solution to a technical problem’ as contemplated by the Federal Circuit in DDR and Amdocs.” See, Ex parte Smith (2018-00064).

Conclusion

The marking of Ex parte Smith (2018-00064) as “Informative” with respect to patentability is a good sign for applicants in the space of computer implemented inventions of all sorts, but especially for those in the financial services space.  We are seeing more and more positive outcomes from the PTAB with respect to how they plan to leverage the new guidance on subject matter eligibility as it relates to abstract ideas “integrated into a practical application.”

While there have been some interesting developments at the Federal Circuit, which we will post about separately, guidance from the USPTO appears to favor subject matter eligibility for well-tailored claims that involve computer implemented subject matter.

New Guidance from the USPTO – a Boon for Patent Applicants

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 is “integrated into a practical application” of the judicial exception. The guidance was incorporated into the Federal Register on January 7, 2019, and applies to all USPTO personnel, which includes the examiners that review applications for 35 U.S.C. § 101 concerns, and the administrative judges that oversee appeals and disputes on these issues.

Of considerable note, the new procedure, referred to in the guidance and Federal Register as “revised Step 2A,” changes how Step 2A of the Alice/Mayo test is applied.

The old Step 2A asked whether a claim is directed to a judicial exception.   There are three enumerated judicial exceptions: 1) laws of nature; 2) natural phenomena; and 3) abstract ideas. If a claim had no judicial exception, it was patent eligible subject matter.  If a claim did have a judicial exception, the analysis would then move to Step 2B for further review.

The revised Step 2A still looks to see if there is a judicial exception in a claim, and if there is no judicial exception, the claim is considered directed to patent eligible subject matter.  However, the revised Step 2A differs in that if a judicial exception is identified, the claim is still directed to patent eligible subject matter if the judicial exception is “integrated into a practical application” of the judicial exception. For example, if a patent application with claims directed to a software method which incorporated an abstract idea, so long as that abstract idea is integrated into a practical application of that abstract idea, the claim is directed to patent eligible subject matter and may still be entitled to patenting.

 

The Guidance in Action at the Patent Trial and Appeal Board

Now that a little over a month has passed since the new guidance has gone into effect, we are starting to see some opinions from the Patent Trial and Appeal Board (PTAB).  While the PTAB has still issued a greater number of affirmed 101 rejections than reversals since the new guidance, the opinions have been positive with respect to those reversals.

One very telling reversal came on application 14/282,015, for claims directed to a software-based system for vehicles that allows users to provide consent for installing optional software updates that add a feature to a vehicle module or adjust a configuration of an existing feature, and, in lack of receipt of such consent, displaying an icon in a gauge cluster in the vehicle.  The examiner had initially rejected the claims under 101 as directed to: i) the abstract idea of updating software; and ii) organizing human activity (i.e., receiving consent to take an action).

The PTAB reversed, noting that there was a “specific practical application” of the abstract ideas in the claims.   The PTAB found that the claims were “directed to a practical application of updating software specifically for a vehicle module, in which user consent is required and in which lack of receipt of user consent is communicated to a user via an icon within the gauge cluster of a vehicle.  The opinion also noted that the claims were “directed to providing in a head unit display of the vehicle an indication of an optional status of the software update and a request for consent to install the optional update and upon receipt of user consent sends an update command over the vehicle bus and installs the update to a memory of the vehicle module.”

Notably, here we have an opinion from the PTAB identifying a quite low bar for application of the “practical application” standard.  In this case, the “practical application” seems to be not much more than having a prompt for approval that you would see on any software update (e.g., “accept the new Terms of Service”) and then displaying an icon on a display when there is an update still pending approval.

The second opinion we find interesting is one involving US Patent Application No. 12/374,372, and the following claim in particular:

A method of surfing the Internet comprising: a. selecting information on a web page; b. clicking on the information as it resides on the web page; and c. in response to the clicking, conducting a web search on the information.

The PTAB’s opinion in this case is less telling on the what constitutes “practical application” standard, as the opinion does not make such an analysis, and merely focuses on the examiner’s failing to adequately assert a valid analysis of the claim as an abstract idea unto itself.  Rather, the opinion simply notes that:

[T]he Examiner’s factual findings regarding the underlying abstract idea to overgeneralize the claimed invention under the patent eligibility guidelines at the time of the rejection in the Final Action and Examiner’s Answer and this same overgeneralized abstract idea similarly does not meet the Examiner’s requisite burden for analysis under the 2019 Revised Patent Subject Matter Eligibility Guidance.

 Given the simplicity and breadth of the claim, it is likely good news for applicants with inventions in the software space that the PTAB is not outright viewing broad claims as inherently abstract under the new guidance.  The opinion does note other likely issues with the application, but it is in the context of the PTAB’s views on 101 with which we are concerned.

Conclusion

It has only been a month since the USPTO issued the latest in subject matter eligibility guidance, and our initial impressions of how the PTAB is using the new guidance is positive and optimistic.  Even though a greater percentage of opinions citing the 2019 Revised Patent Subject Matter Eligibility Guidance affirmed the 101 findings of the examiner, the limited numbers are not truly representative of what we expect to see over the long run.  Further, a closer look at those affirmed 101 findings leads us to believe that the cases were destined to be maintained, regardless of the updated guidance.

Most notably for us is that the current interpretation of what constitutes when claimed subject matter is “integrated into a practical application” of the judicial exception seems to be initially very favorable for applicants, particularly for those with inventions in the software space.

5 Things you Need to Know about Software Patentability in 2018

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 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 that are simple processes are still protectable. For instance, Sony Interactive Entertainment, Inc. just received a patent for “DISPLAY OF TEXT INFORMATION ON A HEAD-MOUNTED DISPLAY” on May 29, 2018 (See US Patent 9,984,905), and Zynga recently got a patent for providing in game tutorials for players via a “Show Me” button on May 8, 2018 (See (US Patent No. 9,962,612).

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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 not 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.

2. An Idea is Not Enough

If you are forming the next great startup and you want to be the “Uber for X” or the “Tinder 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.

3. 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.

4. 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 kinds 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.

5. Examiners are Now Put to Task on Eligibility

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.

The good news is that the examiners have now been put to task on these rejections. Per a recent memo from the Deputy Commissioner for Patent Examination Policy at the USPTO addressing all patent examiners, the examiners are now required to give specific rationale for findings that specific elements of the claims are well-understood, routine and conventional in the art. The avenues for them to do this are: i) point to the specification of the present application where the applicant makes express statements about the element being well-understood, routine and conventional (note: silence is not to be construed as having made any such statement); ii) point to previous court rulings that address specific claim elements in the present application; iii) provide reference(s) that show that the claim element is well-understood, routine and conventional in the art; or (iv) take official notice.

The memo and the CAFC note that when providing one or more specific references to show that the claim is well-understood, routine and conventional in the art, that “merely finding the additional elements in a single patent or published application would not be sufficient to demonstrate that the additional element is well-understood, routine and conventional in the art.”

Further, the memo notes that when an examiner chooses to take official notice, that the examiner be “certain, based on upon his or her personal knowledge, that additional element(s) represent well-understood, routine, or conventional activity engaged in by those in the relevant art, in that the additional elements are widely prevalent or in common use in the relevant field, comparable to the types of activity or elements that are so well-known that they do not need to be described in detail in a patent application to satisfy 35 U.S.C. § 112(a).” However, the memo then states that if challenged on this by the applicant, the examiner must provide items under (i)-(ii) above.

Conclusion

Software system and methods are still very much patentable in 2018, even in light of Alice.  However, it is important to consciously and conspicuously focus on what is it you are trying to protect, and what you say in your disclosures to the USPTO.  Done right, the pathway to obtaining a patent on a software system and method can be paved with a smooth and straightforward surface.  Follow the rules, watch what you write, include everything, and you are on your way.