Patent litigation was on a significant upwards trend since 2009, reaching a peak of 6114 cases filed in 2013, but since then, there has been a gradual reduction of patent cases filed. This reduction is largely due to a combination of new AIA post-grant procedures and the 2014 Supreme Court decision on patent eligibility in Alice Corp. v. CLS Bank Int'l. Since Alice, courts follow a two-step inquiry ("Mayo/Alice inquiry") for determining whether an invention claims patent-eligible subject matter. The first step requires a court to determine whether the claims are directed to a patent eligible concept. If this threshold is met, the second step is to consider the elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the claim into a patent-eligible application. At the end of the first quarter of 2016, approximately 70% of federal court decisions post-Alice determined the claims were invalid under the Alice standard.
As all software patents are at some level directed to an abstract idea, the first step of the Alice inquiry was often treated as a mere formality. However, in Enfish, LLC v. Microsoft Corp. and TLI Communications LLC v. Automotive, LLC, the Federal Circuit confirmed this threshold inquiry to be "a meaningful one." The Federal Circuit stressed that even with respect to claims directed to software, courts must be careful to avoid oversimplifying claims.
Enfish: A Self-Referential Database Is Patent Eligible
The two patents at issue in Enfish relate to a specific method of storing data in a database. For step one of the Mayo/Alice analysis, the district court construed the patents broadly as claiming "the concept of organizing information using tabular formats." On appeal, however, the Federal Circuit warned that describing claims at "such a high level of abstraction and untethered from the language of the claims" during step one "all but ensures that the exceptions to § 101 swallow the rule." Here, the Federal Circuit found the district court's construction to be an oversimplification, and explained that a focus of step one of the Mayo/Alice analysis is to determine whether the claims are directed to an improvement to computer functionality, as opposed to being directed to an abstract idea.
In Enfish, the Federal Circuit found that the patents focus on improving the functioning of a computer because the patents claimed a specific database structure that improves the way a computer stores and retrieves data in its memory. The Federal Circuit repeatedly emphasized that the specification teaches how a claimed database is different from conventional databases, and achieves benefits such as "increased flexibility, faster search times, and smaller memory requirements." Because the claims are directed to a specific solution to a problem in the software arts, they are patent eligible, and there was no need to perform the second step of the Alice analysis.
TLI Communications: Storing and Organizing Digital Images Is Not Patent Eligible
In contrast to the claims in Enfish, the Federal Circuit explained that the claims at issue in TLI Communications are not directed to a specific improvement to computer functionality, and therefore, they are not patent eligible. The patent at issue in TLI Communications is related to an apparatus and method for storing and organizing digital images using classification data, such as a date or a timestamp. While the Federal Circuit performed the same analysis it did in Enfish, it found instead that "the claims are directed to an abstract idea of classifying and storing digital images in an organized manner." In arriving at this conclusion, the Federal Circuit explained that the claims are not directed to "a specific improvement to computer functionality" because the specification (1) does not describe any new apparatus, (2) fails to provide any technical details, (3) and generally describes the system and methods in "purely functional terms" performing "generic computer functions such as storing, receiving, and extracting data."
Federal Circuit's Clarifications on Patent Eligibility
While acknowledging that the Supreme Court did not establish any definitive rule for determining what constitutes an abstract idea in step one of the Mayo/Alice inquiry, the Federal Circuit in Enfish and TLI Communications provided several clarifications to determining whether the claims are directed to a patent‑eligible concept:
- The relevant inquiry in step one is determining whether claims are directed to an abstract idea for which computers are invoked merely as a tool, or instead are directed to:
- "the specific asserted improvement in computer capabilities" or "computer functionality,"
- "[a] solution to a technological problem," or
- an attempt to solve "a challenge particular to the Internet."
- It is appropriate "to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases."
- A court "cannot simply ask whether the claims involve a patent-ineligible concept" but should instead apply "a stage-one filter to claims" and ask whether "their character as a whole is directed to excluded subject matter" when "considered in light of the specification."
- "[C]laims directed to improvements in computer-related technology, including those directed to software" are not inherently abstract."
- Neither an invention's ability to run on a general-purpose computer nor lack of reference to "physical" components "doom the claims," as there is no "categorical ban on software patents."
PTO's New Guidance on Patent Eligibility
In light of the Enfish and TLI Communications decisions, the United States Patent and Trademark Office issued new guidelines requesting patent examiners to follow the Federal Circuit's reinterpretation of the Mayo/Alice inquiry. The Patent Office directs examiners "to determine if the claim recites (i.e., sets forth or describes) a concept that is similar to concepts previously found abstract by the courts" and to keep in mind that "[t]he fact that a claim is directed to an improvement in computer-related technology can demonstrate that the claim does not recite a concept similar to previously identified abstract ideas."
Implications Going Forward
Given the Federal Circuit's emphasis that the first step of the Alice inquiry is "meaningful," parties will need to ensure that this analysis is not taken lightly in their briefings. As the Federal Circuit has emphasized, "[s]oftware can make non-abstract improvements to computer technology" and is not "necessarily analyzed at the second step of Alice." As a result, a court will not necessarily find a patent to be directed to an abstract idea merely because it is a software patent. Parties should be cautious about overgeneralizing claim limitations, as the Federal Circuit had directed the courts to be "careful to avoid oversimplifying the claims."
Companies whose businesses are impacted by software patents should keep a close eye on how district courts apply Enfish and TLI Communications decisions in the coming months. The Federal Circuit's clear statement that the first step of the Mayo/Alice inquiry is more than a formality, coupled with its warning against oversimplifying the claims, may indicate the patent eligibility pendulum is now swinging back toward plaintiffs.
While Microsoft missed the 30-day deadline to seek en banc rehearing before the Federal Circuit, it has until August 10, 2016 to file a petition for certiorari with the Supreme Court.