IoT Innovation and USPTO Decisions in a Post-Alice World

IoT Innovation and USPTO Decisions in a Post-Alice World

Submitted by the Intellectual Property PAC

By: Robert Suarez, Espinosa Trueba Martinez P.L., Miami, FL

We have reached the next industrial revolution and it is largely driven by innovation in the “Internet of Things” (IoT). From smart phones and smart watches to smart TV’s and even smart buildings, devices that are connected to, and interconnected with, vast data networks, present a seemingly limitless opportunity for innovative companies to tap into new avenues of economic growth. Processors, memory and sensors are well known and used in combination to create a variety of devices. The real innovation driving the IoT revolution is the software that runs on the hardware, interacts with the user and transforms the hardware into a new and useful invention.

Companies involved in the IoT revolution strive to protect and monetize their inventions through patents. Luckily for inventors, hardware, being tangible and easily describable, is readily understood by the various players in the patenting arena – from the USPTO examining the application, to the courts deciding infringement and validity. Software is another story altogether. As a series of ordered steps used by the hardware to perform certain functions, software is generally considered a “process” or “method” and, therefore, patent-eligible subject matter. The problem has come from a lack of understanding by the courts of the interplay between software and the hardware it runs on.

Engineers and programmers will tell you that the hardware, being just a combination of chips, wires, and circuits, is nothing without software. Indeed, most commercially successful devices – mobile phones – are largely only distinguishable due to the software that runs on them. Why is it so difficult, then, for the courts to see that software adds an “inventive step” – makes the hardware “something more” – and is, therefore, patent-eligible? The problem seems to lie in the abstract idea of an “abstract idea.”

The Patent Act states that an inventor may receive a patent for any new and useful process, machine, manufacture, or composition of matter. 35 U.S.C. §101. Over the decades of patent jurisprudence, three judicial exceptions to these have arisen: laws of nature, physical phenomena, and abstract ideas. As applied to business methods and software, courts (especially, the Supreme Court) have struggled with the patentability of these types of inventions and generally have held to the notion that all software is inherently directed to abstract ideas. Software, in the eyes of the Court, merely performs a series of steps that a human could perform, but using a computer. For example, a human being can perform arithmetical calculations, therefore a software program directing a processor to perform arithmetical calculations is directed to the abstract idea of “doing math” and is, therefore, ineligible subject matter for patenting. Likewise, process claims directed to a database is held patent-ineligible as merely the “abstract idea” of ordering of data into a table of rows and columns.

While a handful of older cases discussed processes and patent eligibility, the 2010 decision in Bilski v. Kappos set the stage for the current subject matter eligibility framework. In Bilski, the Court confirmed that software patents are eligible for patent protection as a process. While not the only test, the Court applied the machine-or-transformation (MOT) test to determine if the claimed process (software) was patent-eligible subject matter. Under the MOT test, a process is eligible for patenting if it is tied to a particular machine or apparatus, or it transforms a particular article into a different state or thing. In the aftermath of Bilski, a rash of patent applications issued claiming otherwise ineligible processes, but “on a computer.”

In 2012 (Mayo Collaborative Services v. Prometheus Laboratories, Inc.) and 2013 (Association for Molecular Pathology v. Myriad Genetics, Inc.) the Court addressed the “laws of nature” and “physical phenomena” judicial exceptions in the form of guidance to USPTO examiners. The Mayo two-part test instructs examiners to first determine whether a patent claim is a “law of nature” or a “physical phenomena.” Step two asks the examiner to determine if the claim, as a whole, describes something significantly different than the law of nature or physical phenomena. This analysis works fine for inventions directed to medicine and genetics, but what about our Internet of Things? What about the abstract idea of “abstract ideas,” as related to software?

You have met Bilski, Mayo, and Myriad. Allow me to introduce you to Alice.

In 2014, the Supreme Court issued their decision in Alice Corp. v. CLS Bank Int’l. This case involved a computer-implemented process (software) for mitigating settlement risk. In Alice, the Court declined to comment on the eligibility of software in general, but rather only considered whether a “generic computer…transform[] a patent-ineligible abstract idea into a patent-eligible invention.” See Alice, 134 S.Ct. at 2352. The Court held that the two-part Mayo test applies to abstract ideas as well as to the other two judicial exceptions.

While the Court may have intended to “tread carefully,” the impact of Alice, broadly interpreted by the federal courts, as well as the USPTO, has been massive. Before the ink was dry on the Alice decision, the USPTO issued their Preliminary Examination Instructions to the examiner corps. Almost immediately, patent applications, including those that had already received notices of allowance, were being rejected on the basis of subject matter eligibility. Business method and software patent application rejections, post-Alice, jumped dramatically. Currently, the rate of business method and software patents receiving an Alice rejection is well over 70% (one metric shows artificial intelligence patents at 100%) and the odds of convincing an examiner to withdraw their Alice rejection are not good.

So, what can be done? Should inventors give up on applying for patents for their software or process-based inventions? Certainly not!

The USPTO continuously updates their examiners, as well as the public, on the current state of subject matter eligibility based on the most recent court decisions. As recently as December 15 2016, the USPTO published new materials as part of their subject matter eligibility guidance (see Inventors and patent attorneys alike should be well-versed in the latest USPTO examination guidelines. Furthermore, the latter half of 2016 saw an increase in clarity coming out of the Federal Circuit, with decisions that found software claims to be patent eligible. Precedential cases coming out of the Federal Circuit worth noting are Enfish LLC v. Microsoft Corp. (May 12, 2016), TLI Communications, LLC v. AV Automotive, LLC (May 17, 2016), BASCOM v. AT&T (June 27, 2016), and Amdocs (Israel) Limited v. Openet Telecom, Inc. (November 1, 2016). These decisions start to provide some clarity to navigating in a post-Alice world:

· Claims that improve the functioning of a computer might not succumb to the abstract idea exception. Enfish

· Generic computer components that operate in well-understood, routine, conventional ways, are insufficient to add inventive concept to an otherwise abstract idea. TLI

· The inventive concept may be found in the ordered combination of claim limitations (i.e., there was “significantly more”). BASCOM

· Claims are not directed to an abstract idea when generic components are described in the claim to operate in unconventional ways to achieve an improvement in computer functionality. Amdocs

Navigating the world of software patents post-Alice is certainly not an easy one, but the latest guidance from the Federal Circuit does seem to clear some of the weeds from the path.

Robert Suarez is a partner with the Miami intellectual property law firm of Espinosa Trueba Martinez P.L. His practice focuses on the identification, creation and protection of IP rights for athletes, corporations and entrepreneurs. He may be reached at: