Are "Improvements" Key to Subject Matter Eligibility for Software Patents?

Why it matters: Do software claims that are directed to specific improvements in computer functionality have a greater chance of being found to be non-abstract and patent-eligible under Section 101 of the Patent Act? It would seem so, based on recent activity in the Federal Circuit and the U.S. Patent and Trademark Office (PTO). Read on for a discussion of two recent Federal Circuit cases—Enfish LLC v. Microsoft Corporation and In re: TLI Communications LLC Patent Litigation—and the guidance memo issued by the PTO to its examiners in response, that instructs software claims will more easily pass muster for patent eligibility if they relate specific improvements in the way a computer operates or functions.

Detailed discussion: On May 12, 2016, the Federal Circuit in Enfish LLC v. Microsoft Corporation held software claims to be patent-eligible under Section 101 of the Patent Act. This is notable because it was only the second time since the Supreme Court's 2014 decision in Alice Corp. v. CLS Bank (discussed below) where the Federal Circuit has done so. The Court's decision in Enfish turns on its finding that the software claims were directed to a "specific improvement in the way computers operate," rendering them non-abstract for Section 101 purposes. However, a week later, on May 17, 2016, the Federal Circuit in In re: TLI Communications LLC Patent Litigation reverted to norm and found the software claims before it to be directed to an abstract idea and patent-ineligible, distinguishing that case from Enfish because the claims did not sufficiently recite "a specific improvement in computer functionality." Two days later, on May 19, 2016, the PTO issued a memo to examiners in response to the Enfish and In re: TLI decisions that provided additional guidance for determining what constitutes an abstract idea in light of those cases, with specific attention given to "claims directed to improvements of existing computer technology or functionality." All of this seems to suggest that software claims will now have a better chance of being found to be patent-eligible by the PTO and the courts if they can be seen to offer specific improvements in the way a computer operates or functions.

Background: Alice Corp. v. CLS Bank

We discussed the U.S. Supreme Court's landmark 2014 decision in Alice Corp. v. CLS Bank decision in detail in our December 2015 newsletter under "Down the Rabbit Hole: Trends in Software Patent Court Decisions Post-Alice." In Alice, the Supreme Court held that claims for a software method for reducing financial-settlement risk performed by a computer were "drawn to a patent-ineligible abstract idea" under Section 101 of the Patent Act, and that "[m]erely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention." The Court established a two-step test for ascertaining patent eligibility under Section 101: (1) first, determine whether the claims at issue are directed to one of the "patent-ineligible" concepts of abstract ideas, laws of nature or natural phenomena; and (2) if so, determine whether any of the remaining elements, either alone or in combination with the patent-ineligible elements, contain sufficient "inventive concept" to transform the claim to become patent-eligible; in this regard the Court noted that simply applying an abstract idea on a generic computer is not enough for patent eligibility. In affirming the conclusion of patent ineligibility with respect to the specific facts before it , the Court urged the courts and agency tribunals to "tread carefully" going forward in construing inventions and innovations to be non-patent-eligible abstract ideas "lest [the exclusionary principles] swallow all of patent law." Many courts, however, have failed to heed the Supreme Court's words of caution. Indeed, the Enfish decision marks only the second time post-Alice (out of more than 20 cases) that the Federal Circuit has found software claims to be patent-eligible.

Enfish LLC v. Microsoft Corporation

To briefly recap the relevant facts, Plaintiff Enfish LLC (Enfish) sued Microsoft Corporation (Microsoft) and others in 2012 in California district court for infringement of software patents related to a self-referential "innovative logical model for a computer database." The district court granted summary judgment in favor of Microsoft because it found all of the software claims to be invalid as "directed to an abstract idea" under Section 101 of the Patent Act. The Federal Circuit reversed.

The Federal Circuit began its analysis by applying the two-prong Alice test to the facts of the case. Parsing the language of the first prong, the court stated that, because the Supreme Court had not established a "definitive test" for determining what constitutes an "abstract idea" under Section 101, "both this court and the Supreme Court have found it sufficient to compare claims at issue to those claims already found to be directed to an abstract idea in previous cases." As an example of this, the court said that "fundamental economic and conventional business practices are often found to be abstract ideas, even if performed on a computer." The court next turned to the words "directed to" in the first prong, stating that those words require a "meaningful" inquiry. Rather, the court said, "the 'directed to' inquiry applies a stage-one filter to claims, considered in light of the specification, based on whether 'their character as a whole is directed to excluded subject matter.' "

The Federal Circuit next turned to the Alice decision itself. Relevant here, the court said that in Alice "[t]he Supreme Court… suggested that claims 'purport[ing] to improve the functioning of the computer itself,' or 'improv[ing] an existing technological process' might not succumb to the abstract idea exception." While noting that the Supreme Court made this suggestion when applying the second prong of its test because it had already found the software claims in that case to be abstract ideas under the first prong, the court said:

We do not read Alice to broadly hold that all improvements in computer-related technology are inherently abstract and, therefore, must be considered at step two. Indeed, some improvements in computer-related technology when appropriately claimed are undoubtedly not abstract, such as a chip architecture, an LED display, and the like. Nor do we think that claims directed to software, as opposed to hardware, are inherently abstract and therefore only properly analyzed at the second step of the Alice analysis. Software can make non-abstract improvements to computer technology just as hardware improvements can, and sometimes the improvements can be accomplished through either route. We thus see no reason to conclude that all claims directed to improvements in computer-related technology, including those directed to software, are abstract and necessarily analyzed at the second step of Alice, nor do we believe that Alice so directs. Therefore, we find it relevant to ask whether the claims are directed to an improvement to computer functionality versus being directed to an abstract idea, even at the first step of the Alice analysis.

Returning to the facts before it in Enfish, the Federal Circuit said that "[f]or that reason, the first step in the Alice inquiry in this case asks whether the focus of the claims is on the specific asserted improvement in computer capabilities (i.e., the self-referential table for a computer database) or, instead, on a process that qualifies as an 'abstract idea' for which computers are invoked merely as a tool." The court concluded that "the plain focus of the claims is on an improvement to computer functionality itself, not on economic or other tasks for which a computer is used in its ordinary capacity." Put simply, the claims were "directed to a specific improvement to the way computers operate," namely a "specific type of data structure designed to improve the way a computer stores and retrieves data in memory," and were thus non-abstract and patent-eligible.

In re: TLI Communications LLC Patent Litigation

One week later, on May 17, 2016, the Federal Circuit again addressed the issue of whether software claims were "directed to abstract ideas" under Section 101. In this case, the plaintiff TLI Communications LLC (TLI) sued multiple defendants, including Yahoo and Twitter, in 2014 in Virginia and Delaware district court claiming infringement of its patent "relating to a method and system for taking, transmitting, and organizing digital images." The district court granted the defendants' motion to dismiss, finding the software claims to be patent-ineligible under Section 101. The Federal Circuit affirmed, finding, after an application of the Alice test, that the claims were "directed to the abstract idea of classifying and storing digital images in an organized manner [that] fail to add an inventive concept sufficient to confer patent eligibility." The court distinguished its holding a week earlier in Enfish, stating that, unlike in that case, "the claims here are not directed to a specific improvement to computer functionality."

PTO guidance memo

On May 19, 2016, Robert W. Bahr, PTO Deputy Commissioner for Patent Examination Policy, issued a memo to examiners in direct response to the Federal Circuit's decisions in Enfish and In re: TLI. Bahr starts the memo by referring to the Enfish ruling, stating that "[w]hile the decision does not change the subject matter eligibility framework, it provides additional information and clarification on the inquiry for identifying abstract ideas (Step 2A of the subject matter eligibility examination guidelines)."

The memo went on to address the "several important points regarding the subject matter eligibility analysis" highlighted by the Federal Circuit in Enfish, "in particular regarding whether a claim is directed to an abstract idea (Step 2A)." The memo sets forth these important points for the examiners as follows: (1) "when determining whether a claim is directed to an abstract idea, it is appropriate to compare the claim to claims already found to be directed to an abstract idea in a previous court decision"; (2) "the 'directed to' inquiry applies a filter to claims, when interpreted in view of the specification, based on whether their character as a whole is directed to a patent ineligible concept"; (3) a claim should not be described "at a high level of abstraction untethered from the language of the claim when determining the focus of the claimed invention"; and (4) "an invention's ability to run on a general purpose computer does not automatically doom the claim."

The memo next told examiners that, in light of the holding in Enfish, they

… may determine that a claim directed to improvements in computer-related technology is not directed to an abstract idea under Step 2A of the subject matter eligibility examination guidelines (and is thus patent eligible), without the need to analyze the additional elements under Step 2B. In particular, a claim directed to an improvement to computer-related technology (e.g., computer functionality) is likely not similar to claims that have previously been identified as abstract by the courts.

Moreover, the memo continued, examiners should look to the "teachings of the specification" as the Federal Circuit did in Enfish to determine whether claims are directed to an improvement in computer technology, focusing on specifics such as whether "the claimed invention achieves other benefits over conventional databases, such as increased flexibility, faster search times, and smaller memory requirements." The memo also told examiners that an improvement can be defined by "logical structures and processes, rather than particular physical features," using as an example the Enfish claims which were "not ones in which general-purpose computer components [were] added after the fact to a fundamental economic practice or mathematical equation, but were directed to a specific implementation of a solution to a problem in the software arts." The memo acknowledged the Federal Circuit's In re: TLI ruling, which "closely followed" Enfish and came to the opposite conclusion about the software claims in that case, saying that it "provides a contrast between non-abstract claims directed to an improvement to computer functionality [as in Enfish] and abstract claims that are directed, for example, to generalized steps to be performed on a computer using conventional computer activity."

The memo concluded: "In summary, when performing an analysis of whether a claim is directed to an abstract idea (Step 2A), examiners are to continue 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. The 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."

See here to read the 5/12/16 Federal Circuit opinion in Enfish LLC v. Microsoft Corporation et al.

See here to read the 5/17/16 Federal Circuit opinion in In re: TLI Communications LLC Patent Litigation.

See here to read the 5/19/16 guidance memo issued by the PTO to examiners entitled "Recent Subject Matter Eligibility Decisions (Enfish, LLC v. Microsoft Corp. and TLI Communications LLC v. A.V. Automotive, LLC)."

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