Alice Corp. v. CLS Bank: Setting the abstract idea goalposts

This week, the Court heard oral arguments in Alice Corp. v. CLS Bank. There are lots of writeups, and I, of course, prefer the one that quotes me. For that reason, I’m going to skip a lot of the detail. The gist of the case is that the Supreme Court must again decide whether patent claims are eligible subject matter – that is, whether the claims should be tested on their merits, or thrown out because we just don’t patent that sort of thing.

The last time around, in Bilski v. Kappos, the Court said that abstract ideas were not patentable, and that a claim to hedging was an abstract idea. That’s all well and good, until the next claim comes around, and the next claim, and the next claim. In Mayo v. Prometheus, the court added a little meat to the bones, saying that once you have your “natural law,” the inventor has to add some non-conventional steps in addition to the natural law.

That’s all well and good, except: 1) for reasons I can’t understand, lower courts aren’t tying the Prometheus conventional steps idea to abstract ideas systematically; 2) the conventional steps view imports 102 and 103, but without any of the rigor those sections require; and 3) lower courts and litigants can’t agree on what the base “idea” or “law” is, to which we might add steps. More on that later. Justice Breyer, at oral arguments in Alice, made clear that the Court was providing a “shell” in prior cases and that he was hopeful that the lower courts and litigants would figure it out.

How wrong he was. As I’ve written several times over the past seven years, since before subject matter challenges were en vogue, this is a morass that cannot be solved in a principled way. I think the best shot we had was our argument in Life after Bilski that we should be looking for claim overbreadth, and for ideas untethered from any application. The Court did not adopt this approach, though there is hope it will reconsider in this case.

But, despite my misgivings, my viewpoint that we should just abandon all attempts to limit patentable subject matter beyond the statute has been expressly rejected by the Court. In short, the Court really, really wants 101 to do something, and it is now struggling with what and how.

This leads to my view of how the Court should rule. Despite everyone who knows anything about patents (including me) thinking the Court is going to invalidate some of the claims of this patent, my view is that the Court must affirm patentability of the Alice Corp. claims. This doesn’t mean I think it’s a good patent.

Why do I argue this? Because we need goalposts. As long as the Court continues to hold patents invalid, we will see uncertainty. This is directly parallel to the Diehr case of 1981. Prior to that time, there was great uncertainty about what could be patented, and it did not end until Diehr. That uncertainty led to under-applications for patents, which led to less prior art, which made it harder to invalidate weak patents of the 1990s, the very same patents that give us so much trouble now.

My view is that Alice Corp. can be a new floor, that patent applications can be rejected on their merits but also become part of the public domain to wipe out other patent applications on weak inventions of the future. We need goalposts.

As for the actual subject matter of the patent, saying it is not an abstract idea is not a stretch. The broadest claim at issue is a system configured for settling multiparty transactions on a computer, getting information from a “device” and “generating instructions.” It’s written fancily, but it’s a pretty simple claim. Public Knowledge claims it can be implemented in 7 lines of Basic code. This is a bit of an exaggeration that takes some liberties with claim construction.

But that’s the point. First, we should probably construe what a claim covers before deciding that it’s an abstract idea. Oral argument at Alice, and general discussion in this area pays too little attention to the actual limitations of the patent claims. Second, the claims here include a device, a computer, a storage unit, etc. This is an application of how to do escrow, and not even the general idea of escrow, but a specific type of intermediated escrow. Yes, I understand that “Do idea x on a computer” is a claim we worry about, but we have cases like Dann v. Johnston that deal with that on obviousness, and if it wasn’t obvious to “Do idea x on a computer” then that might be the type of claim we want. Bonus trivia: cert. was granted in Dann on a subject matter challenge as well, and the court declined to rule on it, instead ruling only on the obviousness point.

Third, the patent has been attacked as simple and not doing anything earth shattering, but CLS Bank itself claims that this idea was a long time coming, some 20 years. If it could really be implemented with 7 lines of code, why didn’t CLS Bank just do it? Why did it take a couple years even after Alice sought patent protection to implement such an “abstract idea” that everyone claims to have known was necessary? Then again, maybe it’s just a simple invention and Alice was merely the first to write it down when computers and networks got faster. But these are all questions about obviousness – questions that we should be asking and that may well render the patent invalid. But just because we have a gut feel that something might be obvious, that doesn’t mean we should use hindsight many, many years after the patent filing to call it an abstract idea.

Admittedly, this is a broad claim. It might even satisfy our definition of “overly broad” from Life After Bilski and the factors of abstract idea that we identify there. But the Court did not adopt our framework. I worry that more harm than good will come of further nebulous definitions of abstract ideas, which will come until the Court affirms a borderline claim as good enough. Everyone watching this case, whether they favor broad patenting or limited patenting, thinks the lack of rule clarity is a problem. The Court should use this case to set the lowest bar for non-abstractness – it is the only way left to get some clarity.

Rules, Standards, and Patent Reform

Inspiration struck me today about patent reforms intended to curb troll, NPE, PAE, PME, PLE, etc., activity. Perhaps this insight is clear to everyone else, but a quick Google search tells me maybe not.

I tweeted today about two contradictory arguments made by Apple in two litigations (as Plaintiff arguing that no expert was necessary to testify, and as Defendant arguing that plaintiffs without experts were out of luck). My thoughts were that such activity is pretty normal for repeat, high stakes litigants, but perhaps under proposed “everything is frivolous” reform, there should be sanctions for taking such positions. After all, a frequent complaint about NPEs is that they seek more money than damages they can prove.

That’s when it struck me that this is a rules versus standards problem. This whole debate is. In addition to cultural cognition issues (whereby people with prior views undervalue contrary evidence), even when evidence is credited, the proposed solutions are at complete loggerheads because of the views about how rules and standards will play out.

Thus, those opposing reforms usually argue that while there are certainly bad actors, we should evaluate their behavior in each case and act accordingly. This is typical standards-like consideration. Generalized rules can be overinclusive, sweeping in activity that we might find desirable (consider the anti-software patent view, for example, or even the “you have to make a product or your patent is worthless” view). They can also be underinclusive and/or worked around, which is why many prior rules — like allowing licensees to challenge or the one defendant per suit rule — have had absolutely no effect on patent enforcement (and in some cases made life harder on defendants). This is not to say that there are no rules – we have some bright line rules, like novelty, that allow us to determine if patents are valid.

Those favoring reforms believe that standards are not enough. They are costly to administer (e.g. litigation) and the standards themselves allow too much wrongful activity (like the exceptional case standard for shifting fees, which allows a lot of sharp litigation tactics without shifting fees).

So, who is right? All of them, of course. If this were easy, it would be solved by now. What I think is driving the current patent reform push is grasping at some rule – any rule – that will have a beneficial effect without being overinclusive. The problem is that no one – to date, as far as I can tell – has actually framed the question in terms of rules v. standards tradeoffs.

An example: the heightened pleading requirement that essentially requires you put a claim chart into the complaint. This is a rule. The question is, is it overinclusive? Almost surely so. I don’t have evidence on people who file suits without an idea of why a product is infringing, but I bet it is really small. Why? Because that is a sure way to get hit with attorneys fees. When I talk to people who have been approached by patent trolls, their gripe is not that there is no claim chart. The worry is that they don’t like the claim chart. A pleading requirement will not fix that.The worst part of the rule is that it will increase administrative costs without any real benefit. Many courts require infringement contentions early. But the cost of 150 page long complaints seems really high for the benefit achieved.

A better rule might be to require claim construction orders on a more timely basis; this, to me, is the unexplored problem with much of patent litigation – courts that delay claim construction orders. That rule might speed things along, especially when coupled with the proposed rule to limit discovery until claim construction. However, if you have the rule that discovery is limited until claim construction without a rule requiring timely claim construction, you create an overinclusive rule that essentially delays justice for as long as the judge decides to wait. This turns the rule into a standard, and one without any real recourse to the litigants.

The takeaway, for me at least, is that we must consider each of these proposed reforms from a rules v. standards perspective. If it is a standard, is it one that is less costly to administer? Is it a rule in standard’s clothing? If it is a rule, is it one that is over or under inclusive? Is it less costly than a standard? Is it easily avoided? Will it change behavior of those who were the intended beneficiaries? Will it come in to play in every case or will it be irrelevant in all but the few cases that go to trial? Without this type of analysis, patent reforms are doomed to fail in a way that many already have.

A quick update:

A colleague asked me about proposals that would carve out pharmaceuticals, often in a way that seems doctrinally unsubstantiated. On the one hand, this is a clear public choice type issue: eliminating a dissenting voice by providing exclusions to patent reform so that the voice will be unaffected.

On the other hand, there is still a rules issue there. If the dissenting voice complained that the rules would be overinclusive and harm innovation, then it might make sense to have such exclusions, even at the cost of doctrinal complexity (or even doctrinal incoherence). Then again, if the rules were overinclusive for one innovative segment (phamaceuticals), it’s unclear why they would not be overinclusive for other, non-excluded segments (e.g. research & development companies that make no products).

This, I think, was my colleague’s concern, that reforms are being bandied about, hoping one of them sticks, without some real consideration of the effects. It’s my concern as well. And while excluding one group might be justifiable from a rules based perspective, the failure to consider other groups (or weigh the costs of rules against standards) is not.

Some Takeaways from “When Patents Attack! – Part 2″

I listened to This American Life’s new show on patents today; it’s a followup to the original, widely heralded show from two years ago. I think it was well reported, and worth a listen. Despite concerns about NPEs being worse now than two years ago, I thought the show was oddly more balanced than the last time (even though nearly half the show is just a replay of a portion of the original). The part of the show I want to focus on is a patent granted to Crawford based on a 1993 filing date, which claims a large part of the online backup business model/technology (depending on how you look at it).

In the original show, it was revealed that Intellectual Ventures (IV) purchased the patent in 2007, sold it to a shell company in Marshall, Texas, called Oasis in 2010, but retained a “back end” percentage of any settlements/litigation winnings. Oasis sued a bunch of online backup companies, settled with most, and then lost against the holdouts when a jury found that Crawford actually co-invented the patent but failed to include the other inventor on the patent application. In this part, we learn that IV’s back end percentage is 90%, and that Crawford got about 18% of IV’s take. In short, Oasis got 10% as an enforcement agent. I have a lot to say about this topic, but only a short amount of time now, due to deadlines on three different papers (who says professors take the summer off). I did want to note three takeaways:

1. The Intellectual Ventures part of the story is actually the least surprising/interesting part of the story. I think it’s a great piece of reporting; IV made a real gaffe by pointing to Crawford as its model inventor, and This American Life dug and found some answers. But the answer isn’t all that new if you’ve been following this area. At the time Oasis filed its suit, the conventional wisdom was that IV was mounting several lawsuits through shell companies. Maybe this was due to earlier IV statements that they preferred not to litigate, much like people never die at Disneyland.

It appears that the Oasis lawsuit featured in the show is one of those shell lawsuits, though I have no idea whether IV ceded control when it transferred the patent or retained control about who pursue. To this, I ask the same question I asked in my Wired op-ed: does it matter? Would we view this lawsuit or the patent differently if it were brought by IV? If IV had a 10% backend instead of 90%? If Crawford brought the suit? If Crawford’s company survived to bring suit? My answer is generally not, other than having concerns about misinformation and secrecy. Perhaps others feel differently.

2. Many software patents are too broad. This is nothing new, of course, but the show illustrates it nicely. I’ll discuss the Crawford patent below, but the first part of the show nicely illustrates this point with a segment on the podcasting patent. The show argues that the inventors never could make podcasting work, and resorted to audiocassette distribution; the argument is that the inventor merely invented the “idea” of podcasting.

This type of attack on the patent falls under a few different legal rules: written description (claiming more than the inventor actually invented), enablement (claiming more than the inventor actually taught), and functional claiming (claiming the function divorced from the way it was implemented). Further, in Life After Bilski we argue that an idea that is so broad that it is unmoored from any specific application might be an unpatentable abstract idea.

I don’t know where the podcasting patent stands, but my first read of it makes me think it’s pretty broad.

3. My favorite part of the show was the story about how Crawford obtained the patent. While the ending is not so great (invalidity due to non-joinder of inventor), the story itself is one that is rarely told in today’s patent bashing news cycle.  It turns out that Crawford and friends came up with the idea for online backup with passwords back in 1991, as part of a failed business venture to solve a very real problem that consumers faced – an easy way to back up data offsite. The story describes how the friends swapped floppy disks, but remember that 1991 was before writeable CDs, and floppy drives were 1.44MB. The average 20MB hard drive (can you imagine? how did we live like that?) would take many floppy disks.

Thus, they came up with a solution. Was it obvious? I don’t know. The first When Patents Attack show implied as much, but the patent survived whatever challenges the litigants brought on that front. For all the talk about many other patents in the same area, it might just be that those patents were improvements on this pioneering patent. It wouldn’t be the first time, but I don’t really have any idea.

The point I want to make, though, is that this is patent law working exactly as it was supposed to. It was people getting together to solve a problem, coming up with a solution, and attempting to protect it. (Well, there was one hiccup, which is that the inventors didn’t get together and file, apparently – but it was invalidated for that reason. This isn’t the case most of the time.) Indeed, the show confirms a key point that IV has always maintained, that a significant amount of money was paid to the inventor. That money might stimulate further investment in the invention in the future.

But another thing happened that often happens; the inventors were too early. They came up with a solution that wasn’t commercially viable yet. The world of 2400 baud modems where users pay for bandwidth by the minute was simply not ready for the online solution, and the business failed to materialize. Indeed, my own firm tried something similar in 1997 working with a Sparcstation and a client who was a Sun engineer; it was still too slow to use in-house, let alone online. Technology needed to catch up.

This is one reason why we often see patent assertions much later in a patent’s life, especially in software. Many really great software solutions–both in patents and in research–implement ideas nobody ever thought of on equipment that’s just barely ready to handle it. It’s not until years later that the solutions seem obvious because the enabling technology makes it commercially feasible.

The question is, what do we do about this? In other areas of patent law, we tolerate long delays. We would prefer not to have them, of course. Indeed, one side benefit of the current assertion trend is that patentees are getting more savvy about commercializing earlier. For example, Crawford and friends could have approached folks with fast networks and computers – universities – with their solution back in the early 1990s. Maybe today they would have, and might have found some early adopters.

But even if patents are not exploited, other patent areas treat this as a feature of the system; most calls to reform the system to avoid this problem have been to commercialize earlier, not to kill off  the patents (so long as the patent is not hidden for too long). Software patents seem to be different, though. The collective wisdom seems to be less tolerant of this delay for software. I think the reason for this stems from my second point, above. Because software patents can be so broad, the concern is that a single broad patent –even a valid one– can render an entire industry infringers. Furthermore, patents filed in the early 1990s expire seventeen years after grant, not 20 years after filing. This effectively extended their life, perhaps for too long.

I’ll end by saying that I share these concerns about software patents, but I’m not so sure that they are so different from the rest of the patent world. There have been plenty of broad overarching patents in a variety of industries over time. Some had poor outcomes that stunted industries, and some fueled industries. People disagree about the software industry, I think.

These were my primary takeaways. I wish I had a clever solution, but I don’t; the show is worth listening to, however, with an open mind.

Is a broadcast to everyone private under the Copyright Act?

For the final post in my copyright series, I want to focus on another example in my series of discussions about formalism vs. policy in copyright. Today’s case is WNET v. Aereo, which allowed continued operation of a creative television streaming service. As I’ll discuss below, the case pretty clearly complies with the statutory scheme, much to the relief of those who believe content is overprotected and that new digital distribution methods should be allowed. This time, the policy opposition is best demonstrated by Judge Chin’s dissent in the case.

In the end, though, the case shows what all of the cases I’ve discussed show: copyright was not really developed with digital content storage and streaming in mind. While some rules fit nicely, others seem like creaky old constructs that can barely hold the weight of the future. The result is a set of highly formalistic rules that lead to services purposely designed inefficiently to either follow or avoid the letter of the law. This problem is not going to get any better with time, though my ownguess hope is that the pressure will cause providers to create some better solutions that leave everyone better off.

Continue reading

On Policy and Plain Meaning in Copyright Law

As noted in my last post, there have been several important copyright decisions in the last couple months. I want to focus on two of them here: Viacom v. YouTube and UMG v. Escape Media. Both relate to the DMCA safe harbors of online providers who receive copyrighted material from their users – Section 512 of the Copyright Act. Their opposing outcomes illustrate the key point I want to make: separating interpretation from policy is hard, and I tend to favor following the statute rather than rewriting it when I don’t like the policy outcome. This is not an earthshattering observation – Solum and Chiang make a similar argument in their article on patent claim interpretation. Nevertheless, I think it bears some discussion with respect to the safe harbors.

Continue reading