The Effect of Alice Corp. v. CLS Bank International: Developments Since the Ruling

Posted on by Alice Choi

Since the Supreme Court’s ruling in Alice Corp. v. CLS Bank International in 2014, there have been many changes in both the software industry and patent litigation. Prior to the ruling, challenges regarding patent ineligibility under 35 U.S.C. Section 101 were rarely used or successful in courts.1 However, the landscape dramatically changed with Alice. 35 U.S.C. Section 101 states that “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 . . . .”2 Although abstract ideas are not considered to be patentable, if one applies an abstract idea in a “‘new and useful end,’” then it could be considered patentable.3

In Alice, the Supreme Court was concerned with certain fundamental ideas that many utilize in the process of creating new technological developments.4 If people created patents on what the Supreme Court called the “building blocks of human ingenuity,” then it would stunt the development of new inventions.5 However, the Court also had to consider the importance of protecting inventions since there is the concern that if too many patents are considered ineligible, then people might not disclose their inventions due to worries of plagiarism.6 Thus, the Supreme Court utilized a two–part test which first determined whether the invention utilized an abstract idea and, if so, whether it was utilized in a unique enough way for it to be considered patent eligible.7 The Supreme Court ruled that applying an abstract idea on a computer is not patent eligible under this test.8

Interestingly, although the Supreme Court never mentioned software patents anywhere in its opinion in Alice, this decision has had a great impact on subsequent cases involving software patents.9 After the Supreme Court’s ruling in 2014, the percentage of software patents found to be ineligible increased significantly.10 Since then, over 1,000 patents, including software patents, have been found to be ineligible under this decision by the Patent Trial and Appeal Board and federal courts according to a study done by Robert Sachs.11 Out of 838 patent claims reviewed by federal courts between July 2014 and June 2019, over 60% of these claims were invalidated by the courts under the Alice test.12 Consequently, there has been a decrease in software patent litigation costs as trial proceedings for these cases have also shortened significantly.13 This is because, under Alice, defendants who are accused of infringement of software patents are able to file a motion to dismiss or a motion for judgment on the pleadings early in the process, bypassing evidentiary complexities which were present with prior analyses that were used in these kinds of cases.14

This trend in ineligibility in software patents is declining as more software patents are found valid rather than invalid, although a significant number of patents are still found to be ineligible under Alice.15 One of the main reasons behind this change is most likely due to fewer suits being brought forward; this is actually good, because people and companies are deterred from attempting to obtain questionable software patents and are more selective about which software patent claims to bring.16

Furthermore, due to the weakening of protection for software patents, it seems that software innovation and small businesses have flourished.17 While businesses reduced their patenting, they increased their investment into Research and Development.18 In the year following the Supreme Court’s decision in Alice, Research and Development spending on software and Internet development increased by 27%.19 Small businesses have flourished because they are able to use the Alice decision to defend themselves against companies claiming that these small businesses infringed on the companies’ software patents early in the litigation process, reducing litigation costs which would otherwise lead to bankruptcy for these small businesses and also reducing the possibility of these businesses being pressured into settlement due to the high litigation costs.20

However, there are also many who protest the Alice ruling, particularly for its lack of clarity. Since the Supreme Court in Alice did not set any clear guidance as to what an “abstract idea” is, courts have found it difficult to discern the distinction between an abstract idea that is considered patent eligible and one that is not patent eligible.21 As one court states in Netflix, it seems that an abstract idea that could be considered patent eligible is “something that restricts the scope of the claims, ensuring that the patent does not cover the entirety of the abstract idea.”22 Thus, it could be considered a “limiting concept” of a broad abstract idea.23 However, even this does not help much because anything can be described with differing levels of generality to make it seem as broad or as narrow as possible.24 Some courts consider the Alice test to consist of one step rather than two steps.25After all, even though the court had already determined a claim to be “‘directed to an abstract idea’” in step one, which would make it patent ineligible, if the court determines that there is an “inventive concept,” then the claim becomes patent eligible.26 Thus, the court seems to make “a categorization error in finding the claim . . . ‘directed to an abstract idea’ in step one.”27 Furthermore, the court in McRO notes that “the two–part test for identifying an abstract idea appears to be of limited utility, while comparisons . . . to past cases’ characterizations of those patents . . . have done the heavy lifting.”28 The difficulty in applying the Alice test to software patent claims is that software is “inherently abstract.”29 Consequently, rulings on software patents under Alice have been unpredictable.30

In an attempt to add clarity to the Alice test, the U.S. Patent and Trademark Office released guidance on January 7, 2019 to help examiners determine when inventions contain a patent ineligible abstract idea as court decisions provided contradictory results which led to concerns “that the office is reaching inconsistent results.”31 The U.S. Patent and Trademark Office guidance states that there are three categories which constitute abstract ideas.32 Those categories are “mathematical concepts . . . methods of organizing human activity . . . and mental processes that can be performed by the human mind.”33 Any patent claims which are outside of those three categories are only considered abstract ideas in rare circumstances.34 Any claim within those three categories can only be considered patent eligible when it is “‘integrated into a practical application,’” and the U.S. Patent and Trademark Office also lays out a procedure to determine whether it fulfills this requirement.35 According to the U.S. Patent and Trademark Office Director Andrei Iancu, the U.S. Patent and Trademark Office guidance seems to have helped examiners greatly in determining which claims are patent eligible as he stated that the percentage of artificial intelligence patent applications which get rejected have gone back to the percentage that it was prior to the Alice decision, so approximately 32%.36

Additionally, federal courts have made efforts to add limitations to the holding in Alice. In Berkheimer v. HP, Inc., summary judgment was considered inappropriate because “the patent eligibility inquiry may contain underlying issues of fact.”37In another case, Aatrix Software, Inc. v. Green Shades Software, Inc., the court reversed the district court’s decision to dismiss on a 12(b)(6) motion because there were “factual allegations . . . which when accepted as true . . . prevent dismissal pursuant to Rule 12(b)(6).”38 Both Berkheimer and Aatrix made it more difficult for those who utilized the Alice challenge to invalidate patents early in the litigation process.39 The difference in the success rate of motions to dismiss and motions for summary judgment is stark. After Berkheimer and Aatrix, 40% of motions for summary judgment were granted as opposed to the 59% which were granted before these decisions were made and post–Alice.40 Furthermore, after these cases, 45% of motions to dismiss were granted as opposed to the 70% which were granted before these decisions were made and post–Alice.41 Due to the litigation costs, which increase as trials proceed, even though software patents could still be considered patent ineligible, defendants are more likely to settle in those cases in which their motions for summary judgment and motions to dismiss fail.42 Congress members are also making efforts to revise the patent eligibility test through a draft bill which, in its practical application, would decrease the percentage of patents which are determined to be invalid, although the draft bill “has not yet been introduced.”43

Although the Alice test seems to have produced positive results, its ambiguity has caused confusion and frustration in both courts and businesses. Given all of these different considerations, Congress, in passing a bill on patent eligibility, will have to tread carefully to ensure that the test is not so restrictive as to hurt software innovation, but also strict enough to ensure that patent protections are put in place for valid software patents.

  1. Scott McBride, Why Patent Litigation Costs Appear to be Going Down, Law360 (Sept. 30, 2019, 3:32 PM), https://www.law360.com/articles/1200525/why-patent-litigation-costs-appear-to-be-going-down. ↩

  2. 35 U.S.C. § 101 (2018). ↩

  3. Alice Corp. v. CLS Bank Int’l, 573 U.S. 208, 217 (2014). ↩

  4. Id. at 216. ↩

  5. Id. at 216–17. ↩

  6. Crash Course on Patents: What is a Patent and Why is it Useful, Ius Mentis, https://www.iusmentis.com/patents/crashcourse/whatis/ (last visited Oct. 5, 2019). ↩

  7. Alice, 573 U.S. at 217–18. ↩

  8. Id. at 221. ↩

  9. Netflix, Inc. v. Rovi Corp., 114 F. Supp. 3d 927, 935 (N.D. Cal. 2015); see Alice, 573 U.S. 208. ↩

  10. Dani Kass, Alice Axed Claims From Over 1,000 Patents in 5 Years: Study, Law360 (Sept. 3, 2019, 10:10 PM), https://www.law360.com/articles/1194300/alice-axed-claims-from-over-1-000-patents-in-5-years-study; Joseph Saltiel, Five Years After Alice: Five Lessons Learned From the Treatment of Software Patents in Litigation, WIPO (Aug. 2019), https://www.wipo.int/wipo_magazine/en/2019/04/article_0006.html. ↩

  11. Dani Kass, Alice Axed Claims From Over 1,000 Patents in 5 Years: Study, Law360 (Sept. 3, 2019, 10:10 PM). ↩

  12. Id. ↩

  13. Scott McBride, Why Patent Litigation Costs Appear to be Going Down, Law360 (Sept. 30, 2019, 3:32 PM). ↩

  14. Scott McBride, Why Patent Litigation Costs Appear to be Going Down, Law360 (Sept. 30, 2019, 3:32 PM); Joseph Saltiel, Five Years After Alice: Five Lessons Learned From the Treatment of Software Patents in Litigation, WIPO (Aug. 2019). ↩

  15. Dani Kass, Alice Axed Claims From Over 1,000 Patents in 5 Years: Study, Law360 (Sept. 3, 2019, 10:10 PM); Joseph Saltiel, Five Years After Alice: Five Lessons Learned From the Treatment of Software Patents in Litigation, WIPO (Aug. 2019). ↩

  16. Dani Kass, Alice Axed Claims From Over 1,000 Patents in 5 Years: Study, Law360 (Sept. 3, 2019, 10:10 PM); Joseph Saltiel, Five Years After Alice: Five Lessons Learned From the Treatment of Software Patents in Litigation, WIPO (Aug. 2019). ↩

  17. Sridhar Srinivasan, Do Weaker Patents Induce Greater Research Investments?, SSRN (Dec. 22, 2018), https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3185148; Daniel Nazer, Happy Birthday Alice: Four Years Busting Software Patents, Electronic Frontier Foundation (June 22, 2018), https://www.eff.org/deeplinks/2018/06/happy-birthday-alice-four-years-busting-software-patents. ↩

  18. Sridhar Srinivasan, Do Weaker Patents Induce Greater Research Investments?, SSRN (Dec. 22, 2018). ↩

  19. Daniel Nazer & Vera Ranieri, EFF to Patent Office: Supreme Court Limits on Abstract Patents Are a Good Thing, Electronic Frontier Foundation (Jan. 24, 2017), https://www.eff.org/deeplinks/2017/01/eff-patent-office-supreme-court-limits-abstract-patents-are-good-thing. ↩

  20. Daniel Nazer, Happy Birthday Alice: Four Years Busting Software Patents, Electronic Frontier Foundation (June 22, 2018); Daniel Nazer & Vera Ranieri, EFF to Patent Office: Supreme Court Limits on Abstract Patents Are a Good Thing, Electronic Frontier Foundation (Jan. 24, 2017). ↩

  21. Steven M. Amundson, The Supreme Court’s Decision in Alice Corp. v. CLS Bank Has Taken a Heavy Toll on Patents for Computer–Related Inventions, Lexology (Feb. 16, 2016), https://www.lexology.com/library/detail.aspx?g=300e6862-012d-49dd-bed4-ba8ae4477397. ↩

  22. Netflix, 114 F. Supp. 3d at 937. ↩

  23. Id. ↩

  24. Fairfield Indus. v. Wireless Seismic, Inc., No. 14–CV–2972, 2014 U.S. Dist. LEXIS 176599, at *11; Steven M. Amundson, The Supreme Court’s Decision in Alice Corp. v. CLS Bank Has Taken a Heavy Toll on Patents for Computer–Related Inventions, Lexology (Feb. 16, 2016). ↩

  25. Front Row Techs., L.L.C. v. NBA Media Ventures, L.L.C., 204 F. Supp. 3d 1190, 1225 n. 17 (D.N.M. 2016); McRO, Inc. v. Sony Comput. Entm’t Am., L.L.C., 55 F. Supp. 3d 1214, 1220 (C.D. Cal. 2014). ↩

  26. McRO, 55 F. Supp. 3d at 1220. ↩

  27. Id. ↩

  28. Id. ↩

  29. Joseph Saltiel, Five Years After Alice: Five Lessons Learned From the Treatment of Software Patents in Litigation, WIPO (Aug. 2019). ↩

  30. Id. ↩

  31. Ryan Davis, USPTO Patent Eligibility Revamp Expected to Cut Rejections, Law360 (Jan. 4, 2019, 9:52 PM), https://www.law360.com/articles/1115368. ↩

  32. Id. ↩

  33. Id. ↩

  34. Id. ↩

  35. Id. ↩

  36. Britain Eakin, Iancu Touts Patent Eligibility Guidance that Just ‘Works’, Law360 (Sept. 25, 2019, 7:12 PM), https://www.law360.com/articles/1202980/iancu-touts-patent-eligibility-guidance-that-just-works-. ↩

  37. Berkheimer v. HP, Inc., 881 F.3d 1360, 1365 (Fed. Cir. 2018). ↩

  38. Aatrix Software, Inc. v. Green Shades Software, Inc., 882 F.3d 1121, 1130 (Fed. Cir. 2018). ↩

  39. Ryan Davis, Quick Alice Wins Dwindling in Wake of Berkheimer Ruling, Law360 (July 25, 2019, 8:47 PM), https://www.law360.com/articles/1181804/quick-alice-wins-dwindling-in-wake-of-berkheimer-ruling. ↩

  40. Id. ↩

  41. Id. ↩

  42. Id. ↩

  43. Tiffany Hu, GOP Rep. Blasts ‘Unthinkable’ Fed. Cir. Drive Shaft IP Ruling, Law360 (Oct. 4, 2019, 9:14 PM), https://www.law360.com/articles/1206482/gop-rep-blasts-unthinkable-fed-circ-drive-shaft-ip-ruling. ↩

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