Are software inventions patentable? Basically, the short answer is “yes, but it also depends.” Software that merely takes a known process and makes it operate on a “general purpose computer” is per se unpatentable. On the other hand, good software patents tend to have a number of common features:
- Reduces human interaction with the computer;
- Makes intelligent choices for the user;
- Pulls external data and applies logic to it;
- Changes the way the computer itself operates; and/or
- Meaningfully transforms data into something new and useful.
Twenty Two Years of Software Patents
My career in patent law has seen the ups and downs of patenting software inventions. Moreover, the very year I started as a patent attorney was 1998 and coincided with the Federal Circuit decision in State Street Bank. Thereafter, State Street opened the door to patenting “methods of doing business” and set a relatively low bar to patent eligibility. Consequently, the Federal Circuit held inventions were patentable that involved some practical application and produced “a useful, concrete and tangible result.”
This coincided with the dot-com boom (and eventual “bust”) that lasted between 1995 and March 2000. During that time, the Nasdaq rose 400% only to fall nearly 80% from its peak by October 2002.
It was possible for small startups to go “public” and raise millions (even if unprofitable). A primary form of collateral for securing funding …patents. Therefore, many of these startups used large patent portfolios to secure investment and funding.
Leftover Software Patents from Dot-Com Bust
A series of events occurring in short sequence led to the dot-com bust in 2000. These events included: (1) raising of federal interest rates; (2) Japan falling into a recession; and (3) anti-trust findings against Microsoft alleging monopolization of its Internet Explorer browser. By Fall of 2002, stocks had lost $5 trillion in market capitalization. However, few assets survived the bust. These included outdated computer monitors, Aeron chairs and large portfolios of software patents.
The Patent Trolls Emerge
For many now-bankrupt software companies, the only asset left was their patent portfolio. Due largely in part to the expansive patent eligibility defined in State Street Bank, many of these patents were of dubious validity. Nevertheless, companies monetized these holdings by asserting them against operating companies. Defendants deemed these patent holding companies non-practicing entities (NPEs) or “patent trolls.” Accordingly, patent litigation became rampant. Venue rules allowed NPEs to sue deep-pocket defendants like Microsoft in patent-friendly courts. For example, the Eastern District Court of Texas was famous for fast-tracking patent litigation. For example, companies sued Samsung so many times in Marshall, Texas it built the only outdoor skating rink in Texas hoping to earn goodwill with potential jurors in patent cases.
Software Patent Litigation Reaches Tipping Point
Meanwhile, for the next ten years from the dot-com bust in 2002, NPEs filed thousands of patent infringement lawsuits. For example, in 2012 plaintiffs filed 2,900 patent infringement cases in the United States. In addition, courts and jurors granted multi-million dollar awards for infringement. However, in 2011, the U.S. Supreme Court unanimously affirmed a $300 million patent infringement claim. The claim was filed against Microsoft for using XML technology in its word processing software. The Court held patents valid by a high “clear and convincing standard.” This award induced Microsoft to defensively acquire nearly 800 patents from AOL in April 2012. Microsoft paid AOL $1 billion or $1.24 million per patent. Consequently, lawmakers responded with the America Invents Act (AIA). Congress passed the AIA on September 2011 reforming US patent law and giving patent owners new administrative venues and options to fight NPEs.
The Machine or Transformation Test
Unfortunately, defendants asserted many excessively broad patents during much of the NPE litigation. Notably, these patents claimed “abstract ideas.” Abstract ideas are ineligible for patent protection under Title 35 United States Code Section 101. In 2008, the Federal Circuit (the highest court of patent appeals under the U.S. Supreme Court) reaffirmed a test for Section 101. It found patents valid under the machine-or-transformation test if they claimed a process that:
- Is implemented by a particular machine in a non-conventional and non-trivial manner; or
- transforms an article from one state to another.
The Federal Circuit stated the machine or transformation test the sole test to be used. Furthermore, it overruled State Street Bank. Two years later, the U.S. Supreme Court corrected the Federal Circuit’s ruling. As a result, the machine or transformation test was no longer the sole test to be used in determining patent eligibility. The Court also held open the possibility business methods were patentable. Accordingly, software inventions were deemed patentable and continued to thrive post-Bilski.
Supreme Court Drops the Hammer
In Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014), the Supreme Court issued a highly ambiguous ruling on patent eligibility. The issue in the case was whether certain claims about an electronic escrow service covered abstract ideas ineligible for patent protection. The opinion in Alice did not expressly address software. However, the case is widely considered as a decision on software patents. One of the most widely criticized aspects of the opinion is that it gave virtually no practical guidance as to what is patentable.
USPTO Weighs in with Guidance Memos
Luckily, all was not lost. Patent examiners were still receiving applications in the software field. Many applications claimed inventions far less abstract than those invalided in precedential decisions. The USPTO created page devoted to subject matter eligibility, providing public access to the memorandums and guidance it gives its patent examiners. Some of the key considerations in drafting a patentable software process under USPTO guidance include:
- Does it improve the functioning of the computer itself?
- Do meaningful limitations avoid over-breath in scope?
- Does a particular machine implement the invention (as opposed to a generic computer)?
- Is it specific to a field of use or precise technological environment?
- Does it transform data, output, display, hardware in some way?
Yes, Software Inventions are Patentable
While patent practitioners have a heightened bar when drafting software claims, the right candidates are certainly patentable under current law. To illustrate, here are just a few patents recently secured in the software field as of August 27, 2020:
- U.S. Patent 10,743,177 granted August 11, 2020 for a Method and Apparatus to Provide Mobile Intelligence.
- U.S. Patent 10,740,540 granted August 11, 2020 for Techniques for Programmatic Magnification of Visible Content Elements of Markup Language Documents.
- U.S. Patent 10,740,755 granted August 11, 2020 for Payment card reconciliation by authorization code.
- U.S. Patent 10,726,092 granted July 28, 2020 for a Method of Improving Web Page Loading Time Using Scannable Indicia.
- U.S. Patent 10,708,537 granted July 7, 2020 for a system and method for reducing ghost images in a laser imaging system.
In conclusion, look to develop a long-term relationship with your patent attorney. Above all, make sure they are comfortable with software code and architecture. We maintain a complete list of our patent grants online.