The Supreme Court heard Alice v. CLS Bank – in 1976

As patent system followers eagerly await the outcome of Alice v. CLS Bank, it occurred to me that the Court has already heard this exact case – back in the 1970s. My prior discussion of Alice is here as background.

In Dann v. Johnston, the applicant sought a patent on software that allowed banks to report account spending by category (e.g. rent, utilities) rather than having customers calculate this themselves. This patent is little different than the patent in Alice in concept. The Alice patent covers software that allows banks to reconcile transactions through the use of “shadow” accounts kept in data records.

The Court took the case up on two questions: subject matter and obviousness. In the end, the Court dodged the subject matter question, but instead ruled that the patent was obvious, in large part because it simply implemented something that already existed in paper:

Under respondent’s system, what might previously have been separate accounts are treated as a single account, and the customer can see on a single statement the status and progress of each of his “sub-accounts.” Respondent’s “category code” scheme, see supra, at 221, is, we think, closely analogous to a bank’s offering its customers multiple accounts from which to choose for making a deposit or writing a check. Indeed, as noted by the Board, the addition of a category number, varying with the nature of the transaction, to the end of a bank customer’s regular account number, creates “in effect, a series of different and distinct account numbers. . . .” Pet. for Cert. 34A. Moreover, we note that banks have long segregated debits attributable to service charges within any given separate account and have rendered their customers subtotals for those charges.

The utilization of automatic data processing equipment in the traditional separate account system is, of course, somewhat different from the system encompassed by respondent’s invention. As the CCPA noted, respondent’s invention does something other than “provide a customer with . . . a summary sheet consisting of net totals of plural separate accounts which a customer may have at a bank.” 502 F. 2d, at 771. However, it must be remembered that the “obviousness” test of § 103 is not one which turns on whether an invention is equivalent to some element in the prior art but rather whether the difference between the prior art and the subject matter in question “is a difference sufficient to render the claimed subject matter unobvious to one skilled in the applicable art. . . .” Id., at 772 (Markey, C. J., dissenting).

You could cut something like this out and plop it right into the Alice opinion. Except now, obviousness is not on the table. The question is whether the Court got it wrong by not ruling on subject matter in 1976. I don’t think so, but I do think that Dann v. Johnston is the most underused Supreme Court opinion in the software area.

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.

3D Printing, Maybe It Is Magic

More and more 3D printing seems like it’s magic. In Patents, Meet Napster: 3D Printing and the Digitization of Things Gerard and I explain that it is not quite magic yet. And our argument is that the law can perhaps make sure the technology has a chance to reach a magical stage. That said each day we wrote a new report made me wonder at how quickly the technology is moving.

Forbes reports that a jewelry company is using 3D printing and Google Earth to print $250,000 jewelry. A couple weeks ago UC Hastings put on a Symposium to Illuminate Legal Issues Posed by 3D Printing Technology. I spoke and had a great time meeting more folks interested in the technology and in seeing it thrive. Mark Lemley gave the key note and is poking at many ideas that resonate with me and my work. He spoke about how technology is changing scarcity and will affect labor. The Forbes piece captures the shift:

Shoppers can completely customize their own design and have the finished product delivered in 3 or 4 days. “We’ve had a great deal of difficulty competing with cheap labor overseas,” said Bakhash, whose father Charlie founded American Pearl in New York’s diamond district in 1950.

“Now, with the advent of our platform, we’re no longer taking off-the-shelf parts and welding. There’s no jeweler at a bench with a blowtorch. The cost and labor savings is phenomenal. And we’re empowering consumers to make jewelry in real-time.”

The process starts on AmericanPearl.com, or its sister site AmericanDiamondShop.com, where a customer is able to create a unique piece, whether a $400 pair of earrings or a necklace that goes for six figures.

The Maker movement and the new wave of customized things is fascinating and exciting. But it may be that the hand-crafted, Etsy moment will be short-lived and the automated, design and print world will take over. I think that the result will be a hybrid. Folks will use the tech to produce more and to make customized goods for less cost. Some labor will be eliminated. Some labor such as design will be valuable. But just like the shifts in copyright, we will see strange and large shifts in who makes money and how it is made. Then again not all of us can be poets and also eat. More on that in another post.

3D Printing Train Continues, Interview on TakePart Live tonight

I will be on TakePart Livetonight at 9 p.m. Pacific/11 Central/12 Eastern, to talk about 3D printing and all the fun it brings. I will be joined by a 3D printer entrepreneur who runs Deezmaker, a comic, and of course the hosts Jacob Soboroff and Cara Santa Maria. I was on the show last fall to talk about privacy and data hoarding. The hosts and crew are HuffPo veterans and a blast. The show is part of Pivot TV, which is available on DirectTV and Dish as well as some cable carriers. Looking forward to great night.

More Patent Fun, New York Times and another DC event

My paper with Gerard Magliocca made the New York Times in a piece called “Beyond 3-D Printers’ Magic, Possible Legal Wrangling,” and the fun continues. With patent reform on the table (pdf to the bill), the New America Foundation is holding a conference called Just How Broken Is the Patent System?. I will be on the kick-off panel with my friend Adam Mossoff. After some jousting over patents, property, and more with the help of Annie Lowery, the day will turn to industry folks, policy wonks, and more professors, to get into health and patents, green innovation, patent assertion, fixes to the patent system, and a keynote by Maureen K. Ohlhausen, Commissioner, Federal Trade Commission.

It promises to be a fun day. Hope to see folks there.