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Monthly Archives: June 2014

Top Ten Plus One Most Important Patent Cases

This is based on my Top Ten Most Important Patent Cases article, and the plus one is Alice v. CLS Corp.

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Is Your Software or Business Method Patentable? The Supreme Court Weighs In

An Article in Schott, P.C.’s IP Law For Start-ups Series
By Stephen B. Schott

Summary
Alice Corp v. CLS Bank Int’l Supreme Court Opinion

Alice

Today, the Supreme Court took a swipe at business method patents that merely take a known abstract idea and implement that idea using a computer. The Alice Court was careful to distinguish between (1) unpatentable known abstract ideas that were the subject of the case, and (2) abstract ideas that contain “something more…thereby ’transform[ing]’ them into patent-eligible subject matter.’”

The Court called the patent claims at issue “known” and “long prevalent,” and characterized their implementation on a computer a “basic function” that was “’well-understood, routine, [and] conventional.’” The Court took pains to point out that not all abstract ideas implemented using a computer are patent-ineligible, but this particular well-known idea was.

The decision may not, however, have widespread consequences for most patent holders. The Court cited one of its earlier opinions to point out what methods could be patentable. In that opinion (Diamond v. Diehr), the Court found that a computer-implemented method was patentable subject matter “because it improved an existing technological process.” This is an important indicator that software remains patentable subject matter in the Court’s opinion.

It’s going to take years for the US Patent and Trademark Office and courts to interpret and implement the Court’s new test that to be patentable subject matter, a patent claim must provide “something more,” a vague requirement no doubt soon to be dubbed the “something more test.” This something more test would be a hit with Alice in Wonderland’s Mock Turtle, who might conclude, “Well, I never heard it before, but it sounds uncommon nonsense.”

In the meantime, patent claims will not be patentable if they merely take a known idea and implement it generically on a computer.

An Enjoyable Conclusion

It’s worth starting at the end of the opinion because the Court hinted at something that most lay readers will agree with: Lawyers are sneaky.

The Court concluded its opinion by noting that the issue of patentable subject matter is not subject to the “draftsman’s art.” The Court then drew a colorful quote from an 1886 patent case: “The concept of patentable subject matter under §101 is not ‘like a nose of wax which may be turned and twisted in any direction….’” This was a snub to some patent attorneys who spent many of the last 10 or more years tacking magic words like “performed on a computer” onto known methods in an attempt to transform the known method into patentable subject matter. The Court said that patent attorneys don’t possess magic words that permit such a transformation.

The Alice Opinion

Justice Thomas introduced Alice’s much-maligned patent claims early in the Court’s opinion, quoting one of them fully in a footnote:

33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and

(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

After reviewing how the case arrived before the Court and its earlier precedent on this topic, the Court quoted the statute regarding patent-eligible subject matter:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title. 35 USC 101.

And then it reiterated its two-step test for how to apply this statute:

First, we determine whether the claims at issue are directed to [laws of nature, natural phenomena, or abstract ideas]… [Second,] we then ask “[w]hat else is there in the claims before us? We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

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Applying the first step, the Court concluded that the claims encompass an abstract idea. And in applying the second step, regarding whether the claims contain a combination of elements that distinguish them from a known concept, the Court mixed elements of the 35 USC 102 novelty requirement into its 35 USC 101 patentable subject matter analysis, as it has done in earlier opinions (Mayo v. Prometheus and In re Bilski) and during oral argument. This mix is clear in the Court’s statement that taking a known concept and generically implementing it on a computer is “well understood, routine, [and] conventional” and “one of the most basic functions of a computer.…In short, each step does no more than require a generic computer to perform generic computer functions.”

Lessons for Software Inventors

The bottom line is that software is still patentable subject matter, but it will need to be new—not just an implementation of known concepts. “At some level, ‘all inventions…embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.’…Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept. [Applications] of such concepts ‘to a new and useful end,’ we have said, remain eligible for patent protection.” And the more ties and interaction that the software has with the physical world, the better.

This will be a developing area of law, as it has been for the last 30 years.

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“Hail to the…” Redskins Federal Trademarks Canceled as Disparaging

By Stephen B. Schott

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In a 2-1 split decision, the US Patent and Trademark Appeals Board canceled several trademarks owned by American football’s Washington Redskins today. The marks included: WASHINGTON REDSKINS, THE REDSKINS, several stylized variations of REDSKINS, and one mark whose commercial value seems dubious: THE REDSKINETTES.

The Washington Redskins have been under increasing pressure from activists and even 50 US Senators to change their name, and litigation seeking to cancel the REDSKINS name dates back to 1967. This latest decision is another chapter in this long battle.

In canceling the federal trademarks, the Board concluded that “we decide, based on the evidence properly before us, that these registrations must be cancelled because they were disparaging to Native Americans at the respective times they were registered, in violation of Section 2(a) of the Trademark Act of 1946, 15 U.S.C. § 1052(a).”

The law permits refusal for registration or cancelation of any mark that “consists of or comprises immoral, deceptive, or scandalous matter; or matter which may disparage or falsely suggest a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt, or disrepute.”

The opinion, including its dissent, weighed in at a Hog-like 99 pages and included a detailed review of testimony, history, media coverage, and third party submissions. For example, Kimberly Whitehead wrote this to former Redskins owner Jack Kent Cooke in 1993:

The Washington Redskins must go! No, not the team, but the name, which is totally demeaning of Native Americans and reinforces a negative stereotype that is unjust and unwarranted. The term “redskins” is out of a period when there was a bounty on the heads of Indians and they were scalped. Eighty cents for a man’s skin, 60 cents for a woman’s skin and 20 cents for a child’s skin. It is a period in our history that every American should be ashamed of and the continued use of such a derogatory and offensive term is an abomination. Ben Nighthorse Campbell, the only Native American in the U.S. Senate, says that “the name Redskins carries the same negative connotation as some terms that blacks and whites find offensive.”

Many people wrote in support of the name as well, and these letters and quotes are also included in the opinion, such as a letter from the Principal Chief of the Seminole Nation of Oklahoma, Jerry G. Haney, who expressed that “the use of the Redskins name by the Washington football team is a source of pride.”

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The Board took note of several facts, including that “[f]rom 1983 on, all dictionary entries…include a usage label indicating the term [REDSKIN] is offensive, disparaging, contemptuous or not preferred.”

Based on the record as a whole, the Board concluded that “In view of the above, petitioners have shown by a preponderance of the evidence that a substantial composite of Native Americans found the term REDSKINS to be disparaging in connection with respondent’s services during the relevant time frame of 1967-1990. Accordingly, the six registrations must be cancelled as required under Sections 2(a) and 14(3) of the Trademark Act.”

Can the Redskins still use REDSKINS? 

Yes, definitely. The Board was careful to note that it cannot deny someone’s use of a trademark, merely its federal registration. “This decision concerns only the statutory right to registration….We lack statutory authority to issue rulings concerning the right to use trademarks.”

And even if it loses its federal registration, the REDSKINS mark can still be asserted against would-be infringers based on the Washington Redskins’ state trademark registrations and common law rights. While this is a substantial loss to the Washington Redskins in losing some valuable intellectual property, the bigger loss may be that the Board validates the protests and heightens pressure on Redskins’ owner Daniel Snyder to change the team name.

What happens next? 

After almost 50 years, this isn’t over. The Washington Redskins can appeal this decision and where it goes on appeal from this divided Board decision is pure speculation, although the media and political pressure might play a role in upholding the decision.

Editor’s Note. The author of this article is prone to bias when it comes to American football teams, especially those that beat his beloved Buffalo Bills in the Superbowl. I don’t care if the Washington Redskins win a football game or court case ever again. By the way, I’m waiting on the Buffalo Bills to get sued by all the Williams of the world for disparaging their good names.

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Tesla Donates Its Patents to the Public: “All Our Patent Are Belong To You”

By Stephen B. Schott

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Yesterday, Tesla Motors announced that it “will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology.” It removed all of its patents from its lobby in Palo Alto and says that “applying the open source philosophy to our patents will strengthen rather than diminish Tesla’s position in [the market].” Tesla titled its announcement “All Our Patent Are Belong To You” in a variation of the All Your Base Are Belong To Us Internet meme that you can watch below.

Tesla makes electric cars like its sporty Roadster that has a base model price of $100,000. But with the all-electric and even hybrid market still struggling to gain footing against cheaper gas alternatives, Telsa hopes that promising not to sue for patent infringement will spur competition and demand.

Tesla’s promise is vague and leaves open some questions. It won’t sue someone who develops an infringing technology but that doesn’t mean Tesla is adopting an open source model. In true open source, people and companies open their technology vault. Tesla, however, is not making its blueprints, drawings, chemical compounds, circuit diagrams, computer code, etc. freely available to anyone. In fact, according to a Forbes article, Tesla is currently in talks to license its technology to BMW, a license that BMW would not need if Tesla just gave its technology away.

And Tesla is taking advantage of its IP rights in other ways. A TIME article got it wrong when it said, “Tesla wants to share its secret sauce with everyone.” Gas 2.0 made an even more egregious error when it said “With Tesla having the best battery packs in the business, opening their trade secrets could be a major boon to the EV world.” Tesla is not in any way giving away its secrets related to its technology. It merely agreed not to sue for infringement of the 160 patents it currently owns.

Trade secrets, such as the Coca Cola recipe, can often be more valuable than patents. The government awards a patent on the premise that you publicly display your idea in exchange for a 20-year monopoly. Society at large benefits by (1) the limited 20-year protection and (2) the innovation that other inventors must undertake to avoid the publicly disclosed patent. Trade secrets, in contrast, are never made public and thus are the opposite of open source.

Coca Cola Lineup Of Bottles With Dates

A trade secret has its own risks but also some rewards. A trade secret, unlike a patent, never expires. Ever. A company can keep a trade secret monopoly going indefinitely. So far, that’s worked well for products like Coca Cola and WD-40 that dominate their markets. If Coca-Cola had revealed its secret recipe in a patent under the current law, the patent would have expired in 1886. The trade secret risk, however, is that if someone reverse-engineers the secret, it’s theirs. Also, if the secret ever becomes public through some disclosure, the trade secret protection expires. And even if someone figures out a trade secret independently, there is no way to prevent their use of the secret.

Tesla is not the first company to promise not to sue under its patents. In 2005, IBM dedicated 500 patents to the open source communitySun Microsystems gives away patents and Google keeps a running list of patents it will not assert.

How this plays out remains to be seen but if it puts a Tesla Roadster in my driveway sooner, I applaud it.

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Schott P.C. Sponsors World Cup Contest

By Stephen B. Schott

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The World Cup starts on Thursday and even more exciting for soccer/football fans here, the US plays on Monday. I may not like the new Bomb Pop uniforms but I do hope for the best Monday in an early must-win game against the team that eliminated the US in 2010: Ghana.

In honor of the World Cup, Schott, P.C. has sponsored a contest for the Hunter Cheetahs U13 girls soccer team. Each player has a national team and if their team wins the World Cup, they win the contest: A simple way to invest the players in the beautiful game of soccer and the World Cup.

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More to come and let’s hope the winner is the United States, although honestly, it’s a lot safer to bet on the US next year in the Women’s World Cup in Canada.

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Supreme Court Issues Two Patent Opinions

By Stephen B. Schott

On Tuesday, the Supreme Court issued two patent-related opinions.

Inducement—Direct Infringer Needed (Limelight Networks v. Akamai Tech.)

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The law at issue in this case revolves around induced infringement. In layman’s terms, induced infringement arises when one actor does not itself perform all of the steps in a claim. Consider an example where a patent claim requires 39 steps. An accused infringer performs 38 steps but another party performs the 39th. Can the patent owner sue the accused infringer for infringement? What if the accused infringer told the third party how to perform the 39th step? This example illustrates the induced infringement issue.

Turning to the Limelight case, the Federal Circuit held that Limelight did not perform all of the patent’s steps because its users performed some of them, and these users “did not act as agents of, or under the direction or control of, Limelight.”

The Supreme Court overturned this holding, leaving the Federal Circuit a Cubs-like 0-45 for Justices supporting its decisions this term. Like a parent who had a bad day at the office, it took the Federal Circuit to the woodshed for several errors not actually present in the Federal Circuit’s decision.

If [,as the Federal Circuit holds,] a defendant can be held liable under §271(b) for inducing conduct that does not constitute infringement, then how can a court assess when a patent holder’s rights have been invaded?

As Jason Rantanen put it over at Patently-O, the Supreme Court handled this criticism “clumsily” because the Federal Circuit made no such holding.

Setting this squabble aside, the Supreme Court remanded the case with the guidance that  “there [can be] no infringement of the method in which respondents have staked out an interest, because the performance of all the patent’s steps is not attributable to any one person.”

Whether an accused infringer “provid[ing] instructions and offer[ing] technical assistance” to its customers regarding how to perform a claim step is infringement under this standard is a decision that the Federal Circuit will have to make on remand, but it seems unlikely.

Claim Indefiniteness Requires Reasonable Uncertainty (Nautilus v. BioSig)

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The Patent Act requires that a patent specification “conclude with one or more claims particularly pointing out and distinctly claiming the subject matter which the applicant regards as [the] invention.” Setting aside a painful that vs. which error in the statute, a claim that fails to meet the statute is unpatentable in an application or invalid in a patent.

The Federal Circuit standard until yesterday was that a claim was not indefinite unless it was “insolubly ambiguous” and not “amenable to construction,” or interpretation by a court. The Supreme Court rejected this standard and inserted in its place a new indefiniteness test.

A patent is invalid for indefiniteness if its claims, read in light of the patent’s specification and prosecution history, fail to inform, with reasonable certainty, those skilled in the art about the scope of the invention.

This “reasonable certainty” standard is a new test and it will take a chain of cases to flesh out what it means and how it differs from the old “insolubly ambiguous” standard. This Nautilusdecision may make it easier to invalidate patent claims but the shift in standard seems more about the language that will now be quoted in future opinions than a change with widespread consequences.

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