Software Patentability Revisited

On May 12, 2016, the Court of Appeals for the Federal Circuit (“CAFC”) issued an opinion Enfish LLC. v. Microsoft Corporation upholding validity of software patent claims on  35 U.S.C. § 101 grounds.  The patents at issue, U.S. Patents Nos. 6,151,604 and 6,163,775, cover a self-referential table for a computer database.  Compared to traditional relational tables, where each entity modeled is provided in a separate table, in the self-referential model, all data entities are in a single table, with column definitions provided by rows in that same table.  The specification of the patents at issue recited advantages of the self-referential model compared to the relational model, including faster searching of data, more effective storage of data, and more flexibility in configuring the database.

While the District Court of Central District of California ruled the claims of these patents too abstract to be valid, CAFC reached a different conclusion.  CAFC held that the claims are not directed to an abstract idea within the meaning of Alice Corp., but are rather directed to a specific improvement to the way computers operate.  CAFC further clarified how the analysis of software claim validity under the two-step Alice Corp. test should take place.  In particular, the court ruled that not all claims directed to improvements in software are directed to an abstract idea, and thus may not need to be analyzed under the step of Alice Corp. test covering whether the claims amount to significantly more than the abstract ideaFurther, the court ruled that an invention’s ability to run on a general-purpose computer does not preclude patentability of the claims covering the invention and neither does the improvement not being defined by reference to physical components.

The Enfish decision is the second CAFC decision since Alice Corp. that upheld patentability of software patent claims under the 35 U.S.C. § 101.  While the decision may still be overturned either by an en banc CAFC decision or a Supreme Court decision, for now, the decision provides a ray of hope for software patent and patent application owners.

Will he back? James Cameron and Termination of a Grant of Rights

While the Terminator is now one of the most recognizable film characters, this success was hard to predict when the first film in the Terminator franchise was being produced. Thus, James Cameron is reported to have sold his rights to the Terminator to the producer Gale Anne Hurd for a single dollar on the condition that he will be the director of the film. James Cameron left the franchise after directing the first two films and was no longer able to directly influence the creation of the sequel films, having no rights to the franchise, which some say negatively impacted the quality of the later Terminator movies.

Not all hope is lost for the fans of the original two Terminator movies. Under U.S. copyright law, unless a work was made for hire, such as by an employee in the scope of his or her employment, an author of the work can, appropriately enough, terminate an earlier grant of rights to the work after a certain number of years (35-40 years, depending on whether the right to publication was included in the grant). The time for James Cameron to terminate the grant of rights to the franchise that he made back in the 1980s is coming up in 2019. If Mr. Cameron chooses to exercise his right and take control of the future production, then the Terminator may indeed be back.

Infringe once, shame on you, infringe twice…

When can a court’s judgment for intellectual property infringement prevent a party for being sued again for the same type of conduct? In Marcel Fashions Group v. Lucky Brand Dungarees, Inc., the Second Circuit Court of Appeals explored such an issue. Both parties to the case make jeans, with the plaintiff (“Marcel”) owning a federal registration for the mark “Get Lucky” and the defendant (“Lucky Brand”) owning a federal registration for the trademark “Lucky Brand.”

The parties have been previously involved in multiple rounds of litigation over the Lucky Brand’s infringement of the mark “Get Lucky.” In 2003, this litigation resulted in a settlement forbidding Lucky Brand from using the mark “Get Lucky.” In 2005, another litigation ensued over Lucky Brand’s breach of the settlement agreement – Marcel emerged victorious, obtaining money damages against Lucky Brand for all breaches of the settlement since 2003 and a court injunction prohibiting Lucky Brand from using the mark “Get Lucky”; Marcel nevertheless failed to obtain injunctions against Lucky Brand’s use of other trademarks that include the word “lucky,” such as “Lucky Brand.” Leading to the present decision, Marcel and Lucky Brand clashed in litigation again in 2011, with Marcel once again suing Lucky Brand for money damages for infringement of the “Get Lucky” mark and seeking an injunction against the use of the mark “Lucky Brand”.   Lucky Brand argued that all claims in this litigation have already been decided in 2005 – that Marcel has already been compensated for all breaches of the 2003 settlement and that Marcel already tried, but failed, to obtain the injunction; accordingly, Lucky Brand argued, the lawsuit should be dismissed.

The Court of Appeals refuted Lucky Brand’s arguments and allowed the case to proceed forward. First, the Court reasoned, there is no sense in construing the 2005 decision as awarding damages for acts of infringement that have not occurred yet at that point of time. The Court also ruled that failing to obtain an injunction in a prior action does not prevent one from seeking the injunction in a later case; on the contrary, if money damages are not enough to stop infringement, the need for the injunction becomes clearer.   Thus, being found liable for infringement once does not immunize a party from being sued for new alleged acts of the same type of conduct.



Free Speech and Publicity Rights

While protection of free speech under the First Amendment remains one of the foundations of American society, the First Amendment is not always a defense against suits for violation of intellectual property, such as the rights to a person’s likeness (publicity rights), as the Ninth Circuit Court of Appeals recently illustrated in the Davis v. Electronic Arts case.  Electronic Arts (“EA”) makes the “NFL Madden” football videogame, which allows a player to control virtual likenesses of past and present NFL players. While EA pays significant royalties to NFL for the use of current player’s likenesses, EA does not have a license to use the likenesses of former NFL players.  When the former players sued EA for violation of their publicity rights, EA attempted to raise defenses based on the First Amendment, which the court rejected.

One of the defenses was that the use of the players’ likenesses was “transformative,” adding significant creative elements that transform the game into something more than a celebrity imitation; however, as the game replicates physical characteristics of the players and shows the players doing what they are famous for (playing football), the court rejected this defense.  Likewise, the court also rejected EA’s statutory and common law “public interest” defenses, which are based on the protection of publishing information in the interest of the public, because “NFL Madden” is not a reference source or a collection of facts about football but rather a game.  Likewise, the court rejected EA’s argument that the Roger’s test, a test that limits trademark rights when First Amendment rights are involved, should be extended to publicity rights.  Finally, the court rejected EA’s argument that the use of the players’ likenesses was protected as being “incidental” because accurate depictions of the players are central to the game.

Interestingly enough, EA previously brought up most of these arguments, and lost, in a similar case that involved NCAA Football games.  EA recycled these arguments to preserve them for a rehearing by the Ninth Circuit Court of Appeals en banc or by the Supreme Court, and whether the arguments gain any traction further in the appeal process remains to be seen.

Patentability under three standards

In the last five years, we have seen multiple decisions Supreme Court decisions impacting patentability of software under section 101 and a recent Court of Appeals for the Federal Circuit (CAFC) case of Ultramercial v. Hulu is a good illustration of how the standards set by these decisions differ. The case concerns U.S. patent no. 7,346,545, which covers a method of distributing copyrighted media to consumers over the Internet in exchange for having the consumers view advertisements. CAFC had to consider the validity of this patent on section 101 grounds for a total of three times, in 2011, 2013, and 2014, with the Supreme Court vacating CAFC decisions and remanding the case for reconsideration as additional Supreme Court cases were decided. Initially, CAFC decided the case under the law as set by Bilski v. Kappos, and held the patent valid due to the patent claims requiring an extensive computer interface and complex computer programming. CAFC reconsidered and again upheld the patent for similar reasons under the standard set by the Supreme Court decision of Mayo v. Prometheus, concluding that the claims of the patent were not abstract enough as to be patent ineligible. When faced with the patent for the third time, now under the law set by Alice Corp., CAFC struck down the patent as invalid, ruling that the claims were directed towards an abstract idea and did not have additional elements necessary to transform the claims into a patent eligible application of the idea. CAFC also held that the claim did not satisfy the machine-or-transformation due to not being tied to a novel machine or apparatus and not covering a transformation of a physical matter or something that represents the physical matter.

Court decisions shape patent examination policies and as this case illustrates, the law guiding such policies can change within a few years, and a patent application written with one standard in mind may be examined under a different set of rules. Accordingly, one writing a patent application would be wise to attempt to anticipate a possible tightening of section 101 examination standard and put sufficient support into the specification to allow for claim amendments necessary in light of such a tightening.

Breaking the Trend: Software Patent Survives Challenge

While many post-Alice Corp. decisions regarding patentability of software were grim news for patent owners, a recent case from the U.S. District Court for the Northern District of Illinois goes against this trend. In Card Verification Solutions, LLC. v. Citigroup Inc., the court considered a motion to dismiss a patent infringement lawsuit complaint for failure to state a claim. The motion was based on the patent at issue, U.S. Patent No. 5,826,245, being allegedly directed to an abstract idea and thus being invalid. The claims of the patent cover a method for verification of information in a transaction between two parties, such as between a merchant and a customer.

The court applied a two-pronged test to evaluate patentability of the claims. First, the court asked whether the claims are directed towards an abstract idea, and concluded that verifying transaction information is a fundamental economic practice and indeed an abstract idea. The court then asked whether additional elements transform the nature of the claims into a patent-eligible application of the abstract idea and found that such a transformation is present for several reasons. First, the court reasoned that while the claims do not specifically recite any machinery, a plausible interpretation of the patent suggests that computer hardware would be necessary to use the invention, and invalidating the claims for lack of specific recitation of the hardware would be overly formalistic. The court also noted that while deciding whether the method could be performed by a human with a pen and paper was premature at this stage of the litigation, a reasonable inference could be drawn that a human could not perform the method due to the method including steps of generating pseudorandom numerical tags. Finally, the court applied the machine-or-transformation test and found that the method was transformative due to including steps of adding the pseudorandom tags to other information involved in the transaction. Accordingly, the court upheld the validity of the patent and denied the motion.

While the legal standard based upon which the motion was decided heavily favored the patent owner, the decision nevertheless remains significant for upholding the validity of a software patent in the post-Alice Corp. world. The decision may still eventually be overturned in higher courts, but, for now, software patent owners may take hope that the decision represents a new trend in evaluating software patentability.

Patentability of computer software

On June 19, 2014, the U.S. Supreme Court revisited the question of the patentability of computer software in Alice Corp. PTY. LTD. v. CLS Bank Int’l et al. The patent in suit covered a scheme of mitigating settlement risks in a financial transaction, as implemented on a computer. The Court analyzed whether the recitation of a computer to perform the scheme made the claims patent-eligible and concluded that the invention neither improved the functioning of the computer nor any other technology or technological field. The Court found that the scheme was a non-statutory abstract idea, a fundamental practice in commerce, and “a building block of modern economy.” Relying on earlier precedent, the Court held that the claims merely recited a generic computer implementation of an abstract idea, which failed to transform that abstract idea into a patent-eligible invention.

Although the Court did not establish a bright-line test for the patentability of computer software, the Court has signaled that computer software may now be required to improve the functioning of the computer involved in the execution of the software to qualify as patentable subject matter. The decision also appears to be a step towards European patent practice, where an advantageous technical effect may be necessary to support the showing of an inventive step.

In light of Alice Corp., claims should recite improvements to avoid being construed as “a generic computer to perform generic computer functions” that are “well-understood, routine, [and] conventional.” Improvements either to the computer proper or to “any other technology or technological field” ought to be clearly set forth in the specification to ensure ample support to the claims.