U.S. SC created confusion with June patent decision, former Federal Circuit judge says

WASHINGTON (Legal Newsline) – Paul Michel, the former chief judge of the U.S. Court of Appeals for the Federal Circuit, says the future of the nation’s economy is in jeopardy after the U.S. Supreme Court ruled in June that some software method and system patents are invalid.

Michel was on the Federal Circuit, which handles all U.S. patent appeals, from 1988 until 2010. He served as its chief judge from 2004 until his retirement.

He also submitted an amicus brief in the recently decided case of Alice Corporation Pty. Ltd. v. CLS Bank International and CLS Services Ltd.

“The problem with this decision is that it has created vast uncertainty,” he said of Alice. “Now, none of the four categories (under Section 101 of the Patent Act) are clear anymore.”

Section 101, only a sentence or two long, describes the four categories of inventions that it declares eligible to be considered to be patented. They include: machines, compositions of matter (i.e. pharmaceuticals), articles of manufacturing (i.e. tools) and processes or methods.

“There are no types of inventions excluded,” Michel explained. “It doesn’t exclude anything at all. There are no limits in the section. No exclusions from any of the four categories.”

But over time, the nation’s high court, through its rulings, has changed the law, creating exemptions, the former judge said.

“In the last four years, the Supreme Court has greatly broadened the list of exclusions in a series of four different cases. The most recent is Alice. First was Bilski (v. Kappos) (in 2010), then Mayo (v. Prometheus) (in 2012) and then (Association for Molecular Pathology v.) Myriad (in 2013),” he said.

“Now, you can’t tell if something is patent eligible or not because the tests provided in these cases are so vague, so subjective, so personal.”

The ruling

In Alice, the Supreme Court said the claims were drawn to an abstract idea.

Implementing those claims on a computer was not enough to transform the idea to a patentable invention, the justices explained in their June 19 opinion.

“Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer,” Justice Clarence Thomas wrote for a unanimous court.

“Taking the claim elements separately, the function performed by the computer at each step — creating and maintaining ‘shadow’ accounts, obtaining data, adjusting account balances, and issuing automated instructions — is [p]urely ‘conventional.’”

Thomas continued, “Considered ‘as an ordered combination,’ these computer components ‘ad[d] nothing… that is not already present when the steps are considered separately.

“Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field.”

An instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer is “not enough” to transform the abstract idea into a patent-eligible invention, the justices said in their 17-page opinion.

The Supreme Court granted Alice’s petition for writ of certiorari in December after the U.S. Court of Appeals for the Federal Circuit, sitting en banc, failed to reach an agreement in the case. Justices heard arguments in March.

CLS originally sued Alice in the U.S. District Court for the District of Columbia in 2007, seeking a declaratory judgment that Alice’s patents were invalid and unenforceable and that the bank did not infringe them.

Alice, which countersued, claimed CLS started using its technology in 2002.

Alice asserted four patents — U.S. Patent Nos. 5,970,479; 6,912,510; 7,149,720; and 7,725,375 — against CLS, all on electronic methods and computer programs for financial-trading systems.

Last year, the Federal Circuit ruled 7-3 against patent eligibility of the method claims and 5-5 on the system claims, leaving the lower court’s ruling that the system claims were ineligible in place.

The Supreme Court’s opinion affirms that ruling, again deeming all of Alice’s claims ineligible.

The fallout

Michel contends the court’s reasoning is misplaced, putting too much emphasis on Section 101 instead of sections 102, 103 or 112 – what he described as more objective “hurdles.”

He said as much in his own 12-page amicus brief, filed to the high court in January.

“The criteria for patent-eligibility should exclude only clearly ineligible inventions, allowing the other sections of the Patent Act – sections 102, 103 and 112 on conditions of patentability – to perform their respective functions,” he wrote.

Michel continued, “The computer and the software controlling it impact every person through incorporation into vehicles on land, sea, air, below the sea, and in space; communications devices that realize recent science fiction; and innumerable devices in virtually every other important field of human activity.

“For the future of the country, it is essential to advance the constitutional purpose of promoting the progress of science and useful arts through the patent system by supporting innovation in computers and computer programs.”

Simply put, the Supreme Court’s ruling creates confusion, Michel said.

“It means unpredictability for patent examiners, appeal board members, universities and inventors,” he said.

“Now, an issue that used to be decided by juries is being taken away and being decided by judges. It becomes very subjective.”

Add lack of consistency to unpredictability and lack of objectivity, Michel said.

“Because the eligibility test in Alice and the earlier decisions is so unclear, it means it can’t be applied consistently,” he explained.

“Now, you’re going to have 8,000 different patent examiners who are going to come up with different decisions. It’s impossible with such a vague set of standards,” he said. “Same goes for judges. You have more than 1,000 federal trial judges. There’s no way they can be consistent.”

What’s worse, he said, is thousands of patents now are in doubt – those applications that already have been filed and future applications.

“Not only will (Alice) affect new patent applications, but it will affect all of the two million patents out there today,” Michel said. “The validity of an enormous number is in doubt.

So what does that do those who invest in research?

“It means the incentive to make those investments is going way down because the survival of the patents is now in substantial doubt,” Michel said.

And if investing goes down, the amount of research and development will go down, he said.

“This is critical to the progress of science and technology,” Michel said of the Alice ruling. “It will affect our global competitiveness and job creation.

“There’s a real risk of economic calamity for us, as a country.”

The fix?

The only “fix” to the problem the Supreme Court has created: to amend Section 101 in light of Alice and related decisions, Michel said.

“Congress would be justified in asserting its powers to determine (patent) eligibility,” the former judge said.

Of course, it will take years before federal lawmakers take any action – even if just means adding a sentence to the statute – but it’ll happen eventually, Michel said.

“Before the end of the decade, Congress will legislate again about the eligibility of inventions,” he said.

“Companies are going to lose existing patents and patents they would’ve gotten prior, so it may be they will be exercised enough to stimulate Congress.”

Keith Grzelak, a principal at Spokane, Wash., intellectual property firm Well St. John PS and co-chair of the Institute of Electrical and Electronics Engineers USA’s IP Professional’s Initiative, argues legislation isn’t the only fix.

He said even a “cleaner case” with better definition would prove helpful.

“Hopefully, in the next six years, the court will get another case and come out with some clarity,” said Grzelak, who also is a former automotive safety and crashworthiness expert and past inventor.

Until then, many within the patent community will remain uneasy, Grzelak said.

“At the end of the day, this is about property rights. Patents are just property interest,” he said. “If you don’t have a property interest, then people won’t invest. And that means we’re going to have a fundamental problem down the road.”

Startups, especially, are going to feel it, Grzelak said.

“How are people going to get money to start a business if all they have is an idea and no property interest in it? If it’s not protected, then who’s going to invest in it?

“If we don’t continue to create new, viable startups, they are going to leave the country.”

He continued, “I don’t see how IEEE members, for example, are going to benefit if there’s no interest in what they contribute and if they can’t get the money to invest.”

The IEEE also filed an amicus brief in Alice.

Like Michel’s, the organization’s brief did not support either party but stressed the importance of computer patentability.

“Computer-implemented inventions as a class are too important to deny patent protection,” its 32-page brief stated. “There are nearly 1 million software-related U.S. patents in force today on which the public relies.

“In this case the Court is asked to decide whether computer-implemented inventions are patentable under 35 U.S.C. § 101. On both legal and technological grounds, IEEE-USA believes the answer is clearly yes.”

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.