Client Resources New Report From the USPTO Concludes Patenting Software in the United States Has Become Easier and More Predictable

In April 2020, the United States Patent and Trademark Office (USPTO) released a report[1] from a recent study of Section 101 rejections in U.S. patent applications. The study concluded that for technology areas that typically receive Section 101 rejections, changes to USPTO examiner guidance have resulted in a 25% decrease in the likelihood of receiving a Section 101 rejection and a 44% decrease in examination uncertainty. The recent report suggests the pendulum is swinging back from the high rate of rejections and uncertainty following the Supreme Court’s Alice Corp. v. CLS Bank decision[2] and the current environment is much more conducive to patenting software and computer-implemented inventions.

Section 101 of the Patent Act defines the subject matter eligible for patent protection, namely, new and useful processes, apparatuses, and compositions of matter.[3] The courts have identified three implicit exceptions to these eligibility categories – that laws of nature, natural phenomena, and abstract ideas are not patentable. Abstract ideas are not patentable because they are the basic building blocks of innovation and allowing a limited few to tie them up with patents would hinder rather than promote the progress of science and technology by preempting entire fields of invention where the abstract ideas could be practically applied.

Section 101 came to the forefront as a possible tool to combat “patent trolls” that were viewed as using vague, overbroad, and obvious business method and software patents to extort money out of businesses.[4] Such patents were susceptible to invalidation under Section 101 if they merely claimed an abstract idea, such as performing a traditional and well known method of doing business on generic computer components. The Supreme Court’s 2010 Bilski v Kappos decision[5] invalidated a patent claiming a computerized method of hedging against financial risk and provided some guidance. In 2014 the Alice decision expanded on Bilski and other Section 101 decisions and set forth a two-part test for determining whether a claim is abstract and therefore ineligible. First, determine whether the claim is directed to a patent-ineligible concept and if so, second, determine “whether it contains an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.”[6]

The Alice Report shows the Alice decision had a significant and immediate impact on patent applications in “Alice-affected technologies” [7] resulting in a 31% increase in the likelihood of a Section 101 rejection in the 18 months following the decision.[8] Following Alice there was also a 26% increase in examination uncertainty reflecting a high degree of variability across examiners, which the report attributes to the open ended nature of the Alice test. The increased rate of rejections and uncertainty increased patent examination costs and led to the abandonment of many patent applications.

The Alice decision had an even larger impact on litigation. In the five years following Alice, there was a 1056% increase in federal court decisions finding a patent claim invalid under Section 101.[9] And in AIA trails before the USPTO Patent Trial and Appeal Board (PTAB) in the five years following Alice, there was a 88% likelihood a claim challenged under Section 101 would be found invalid.[10] The developing caselaw appears to be creating somewhat of a safe harbor for software inventions that can be characterized as improving the computer itself, but significant uncertainty and variability across decisions remains for software inventions that use computers as a tool.

In an effort to bring greater clarity and predictability to the patent examination process, the USPTO issued revised guidance for examiners in January 2019.[11] Key changes in the January 2019 guidance included focusing and constraining the identification of an abstract idea and creating a new step that allowed for a determination of eligibility if a claim recites a practical application of an abstract idea without consideration of whether the claim recites an inventive concept. The Alice Report concludes the January 2019 guidance had a significant impact. As noted above, the study found the guidance resulted in a 25% decrease in the likelihood of receiving a Section 101 rejection in technology areas where those rejections are most-often issued and perhaps more importantly, a 44% decrease in uncertainty in examination in those same technology areas.[12] The Alice Report concludes the new guidance resulted in a more consistent and predictable examination process which should help members of the business and scientific communities make decisions on investment in technology development. Anecdotally, I have seen this personally in my practice and my colleagues report the same. We have seen a noticeable reduction in Section 101 rejections and in cases that do receive rejections, the evolving USPTO guidance has made it easier to overcome the rejections.

While uncertainty with patent applications claiming business method and software inventions remains, the caselaw and recent USPTO guidance provide a roadmap that experienced practitioners can use to prepare patent applications designed to pass the evolving Section 101 standard and to overcome Section 101 rejections. The recent developments over the past 18 months have brought some welcomed predictability to patent applications for computer-implemented inventions that technology companies should find encouraging as they make investment decisions on research and development and technology licensing.