On June 25th, the USPTO provided its examiners with preliminary guidelines for analyzing patent applications that contain “abstract ideas.” What is an abstract idea? The Supreme Court seems to know. The rest of us, including the USPTO, are still trying to figure that out. The Office’s new guidelines come in response to the Supreme Court’s opinion in Alice Corp. Pty. Ltd. v. CLS Bank Intn’l (‘Alice’). In Alice, the Court determined that a software patent was invalid under §101 of the Patent Act.
The Supreme Court has held that §101 precludes patenting “laws of nature, natural phenomena, and abstract ideas.”
The Court considers these “the basic tools of scientific and technological work”; the monopolization of which, through a patent, would “impede innovation.” However, at the same time, “all inventions . . . embody, use, reflect, rest upon, or apply the laws of nature, natural phenomena, or abstract ideas.” Thus, with respect to abstract ideas, patent applications applying such ideas “to a new and useful end,  remain eligible for patent protection.”
In Alice, the Court attempted to outline guidance for distinguishing between patent applications that solely claim “the building blocks of human ingenuity and those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention.” In a previous holding, Mayo Collaborative Services, v. Pormetheus Laboratories, Inc., the Supreme Court laid out a framework for assessing patents that contain laws of nature, natural phenomena, or abstract ideas:
- First, determine whether the claims at issue contain laws of nature, natural phenomena, or abstract ideas.
- Second, assess whether the claims transform those patent-ineligible concepts into a patent eligible invention. This “search for an inventive concept” requires an examiner to consider the elements of a patent individually, and as “an ordered combination to determine whether the additional elements transform the nature of the claim” into an invention.
This criterion is anything but clear. It seems to be an abstract framework, applied to potentially abstract ideas, to come to an abstract conclusion about eligible patents. Rather than clarify this test, the Court used precedent to conclude the patent-at-issue was ineligible. In Alice, the contested patent claimed both a method and system for, what the Court dubbed, “electronic mediated settlement.” The Court summarized the method patent as follows: (1) the system created “shadow records” for counterparties in a financial transaction; (2) it then obtained the parties’ fund balances; (3) the system then recorded any financial transactions agreed upon by the parties; (4) finally, at the end of the day, it irrevocably carried out the recorded transactions. The system ensured that the parties had the necessary funds to enter a transaction, and that they could not back out of their agreements.
Drawing upon previous holdings, the Court concluded that the method recited an abstract idea. One such case was Bilski v. Kappos, where the contested patent claimed a “method for hedging against the financial risk of price fluctuations.” The patent claimed: (1) initiating a series of financial transactions between providers and consumers of a commodity; (2) identifying other market participants that have a “counterrisk” for the same commodity; (3) initiating a series of transactions between the commodity provider and the counterrisk participants. The method ensured that the commodity providers were insulated from any negative swings in their respective commodity prices. The Court determined that “hedging is a fundamental economic practice long prevalent in  commerce.” As such, the method was an abstract idea. Accordingly, it was not a stretch, based on its precedent, for the Justices to find that the Alice patent was an abstract idea. The opinion stated, “like the risk hedging in Bilski, the concept of intermediated settlement is a fundamental economic concept.”
Turning to the second step in the Mayo framework, the Court held that the patent’s steps did not sufficiently transform the abstract idea into an invention. Again, drawing upon precedent, the Court looked to Mayo’s contested patent. That patent claimed a method for measuring metabolites in a patient’s blood, and provided their treating doctors with an appropriate drug-dosage. The Supreme Court determined that idea was merely a natural law because it solely “described the relationship between the concentration of certain metabolites and the likelihood that the drug dosage will be harmful or ineffective.” Further, the idea did not sufficiently claim an inventive concept because it only recited instructions for doctors to apply this natural law. Moreover, the Court stated that implementing such a method on a computer is insufficient to create an inventive concept.
Somewhat confusingly, the Court distinguished Alice’s and Mayo’s patents from that in another Supreme Court holding, Diehr. In Dierh, the patent contained an abstract idea, but employed that idea in “a process designed to solve a technological problem in conventional industry practice.” Thus, the Court held, the patent sufficiently claimed an inventive concept. The Dierh patent used a well-known algorithm used to determine the “cure rate” of rubber in a mold. A computer was fed information about the temperature of curing rubber inside the mold – “something the industry had [previously] been unable to obtain.” Accordingly, the patent used an abstract idea, but sufficiently claimed an inventive process because “it improved an existing technological process, not because it implemented the process on a computer.”
Based on this holding, and the cited precedents, the USPTO has offered guidance to its Examining Corp. Here is what they are changing:
- The USPTO previously reserved the laws of nature, natural phenomena, and abstract analysis for product claims, however, after Alice it will apply the analysis to process claims as well.
- The USPTO will now find that certain things are categorically abstract ideas:
- “Fundamental economic practices
- Certain methods of organizing human activities
- An idea itself, and
- Mathematical relationships/formulas”
These claims may still survive if they add an “inventive concept”
- An application containing an abstract idea must provide an inventive concept, and the USPTO lists the following examples as sufficient:
- “Improvements to another technology or field
- Improvements to the functioning of the computer itself
- Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.”
- The USPTO also lists what is not sufficient to achieve an inventive concept:
- Adding the word ‘apply it’ (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer.
So what have we learned? First, patenting software that carries out a business method will prove challenging. In fact, three justices concurring in the Alice decision, would eliminate any patent protection for business methods. Second, and perhaps to the relief of many programmers, the Court did not reject the patent because it was software. As such, assuming the aforementioned abstract idea issues are dealt with, software is still eligible for patent protection. Third, simply automating a process via software or a computer is insufficient to surmount the inventive concept hurdle. Rather, a patentee will have to show how that automation improves another technology, or the computer itself. Thus, while the Court did not explicitly say so, automating a process likely does not constitute an invention. Finally, aside from the specific categories listed in the USPTO’s examiner instructions, it still is not clear what an abstract idea really is.
So if you are looking to protect your business method software, the likelihood of obtaining a patent is looking less certain. If a patent application is to be filed, or even if the patent process is skipped entirely, it may be best --to file for copyright protection (despite its reduced scope of protection relative to patents) in the hope that it provides at least some protection for your efforts-- and to hope that this storm of uncertainty passes soon.