Patents on Software and Business Methods: Have the Rules Changed?

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Karl Larson

January 29, 2009

Patents on Software and Business MethodsHave The Rules Changed?

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Presentation Overview• Privacy Limitation Justifications

• Introduction

• New Standard Applied

• Significant Questions Raised by Bilski

• Effect on Patent Applications and Existing Patents

• Case Study

• Latest News and Current Trends

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IntroductionPatent Authority

U.S. Constitution, Art. I, §8(8)

The Congress shall have Power… Clause 8: To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries

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1.Patent

2.Trademark

3.Copyright

4.Trade Secrets

IntroductionTypes of Intellection Property Protection

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IntroductionPatent Protection

Inventions that are useful, novel, and nonobvious to a person with ordinary skill in the relevant technology.

Discoveries cannot be laws of nature, mental

processes, ideas, natural formulas, natural phenomena, and methods of calculation.

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Patent application must be filed within one year of first commercial use, sale, or offer for sale

Patent claims are examined by patent examiner Claims may be rejected in an Office Action by the

examiner Patent application either allowed to issue or abandoned

Acquiring a PatentBasics

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35 U.S.C. § 101 – patentable 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 U.S.C. § 112 – defects in the specification or claims

35 U.S.C. § 102 – anticipated (not novel) by the prior art

35 U.S.C. § 103 – obvious in view of the prior art

Acquiring a PatentTypical rejections

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Acquiring a PatentPatent Term

20 years from filing

Before June 8, 1995, 17 years from registration

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Under Bilski, the test for patentable subject matter (35 U.S.C. § 101) is no longer that a claimed process produce a “useful, concrete, and tangible result.”

The new standard articulated by the majority of the Federal Circuit in Bilski is a “machine-or-transformation test,” which restricts patenting to inventions that are either:

• tied to a particular machine or apparatus; or • that transform a particular article into a different state or thing

The involvement of the machine or transformation in the claimed process must not merely be insignificant extra-solution activity.

New Standard AppliedIn re Bilski, 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008)(en banc)

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The court did not consider the viability of patenting specific functions carried out by a general-purpose computer.

If interpreted narrowly – i.e., requiring the use of special-purpose hardware to receive a patent – many if not most business method and software patents may not survive.

On the other hand, if read less restrictively, the status quo may largely prevail.

Significant Questions Raised

Does “tied to a particular machine” include general-purpose computers?

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The Federal Circuit made it clear that transforming business risks were not articles.

Certainly any physical object or substance is an “article.” Something representing a physical object or substance (e.g., a display showing an X-ray of a bone) also qualifies.

However, the Federal Circuit offered limited guidance beyond this as to what articles can be transformed.

Significant Questions Raised

What “articles” can be transformed ?

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• Patents directed to business methods that do not involve the use of computers or other machines are clearly at risk and likely no longer enforceable.

• Such patents could be placed in reissue or re-examination to recast coverage in compliance with the new “machine or transformation” test.

• If a continuing application is pending or can be filed, it may be used as a vehicle for new patent claims.

• For pending applications, it is worth reviewing the claims to determine whether they call for the involvement of a computer, the operation of a mechanical device, or the transformation of an article to a different state or thing.

Effect on Pending/Future Patent Applications

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• Review of existing patent portfolios of software and business method patents advisable.

• If “tied to a particular machine” is interpreted narrowly, many existing “method” claims in software patents will be unenforceable. This possibility was recognized in the dissenting opinion in Bilski by Judge Newman, who said, “For the thousands of inventors who obtained patents under the court’s now-discarded criteria, their property rights are now vulnerable.”

• Increased Ex parte and Inter Partes reexamination requests of software and business method patents by non-patent owners seeking to invalidate the patents are inevitable.

Effect on Pending/Future Patent Applications

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Consider five different patent claims:1. Claims a mathematical computation.

2. Claims an algorithm – a sequence of steps – without any specific application or result and not coupled to a computer.

3. Same as No. 2 above except now coupled to a general purpose computer.

4. Claims an algorithm which manipulates the mechanical behavior of a robot arm.

5. Claims an method to predict future stock prices based on historical market data.

Case Study

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The Federal Circuit’s ruling in Bilski reflects a growing tendency among courts to subject patents to increased scrutiny.

The Patent Office has increased its 35 U.S.C. § 101 rejections over the past couple of years.

Examiners are interpreting 35 U.S.C. § 101 inconsistently and the interpretation changes over time.

Latest News and Current Trends

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Gardere Wynne Sewell LLPKarl Larson

3000 Thanksgiving Tower1601 Elm Street

Dallas, TX 75201-4761Phone: 214.999.4582 Fax: 214.999.3582

klarson@gardere.com