Patents covering software for use in the financial industry are increasingly being invalidated by the courts. Because of the Supreme Court’s decision in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), district courts are holding these patents invalid on the grounds that they are unpatentable abstract ideas, and the Federal Circuit Court of Appeals is affirming the district courts’ decisions.
Patents may cover one of four statutory categories of inventions: (1) machines; (2) articles of manufacture; (3) processes; and (4) compositions of matter. 35.U.S.C. §101. These types of inventions are called “patent-eligible subject matter.” The longstanding exceptions to these four categories are: natural phenomena, laws of nature, and abstract ideas. These types of inventions are called “patent-ineligible subject matter.”
In Alice Corp., the Supreme Court established a two-part test to determine the patentability of claims directed to patent-ineligible subject matter. The first step is to decide whether the claims in the patent are directed to patent ineligible subject matter, such as an abstract idea. If so, the second step is to determine whether the elements of the claim transform the abstract idea into a patent-eligible application.
Two recent cases illustrate the trend. In both cases, the claims covered software for use in the financial industry, as was true of the claims invalidated in Alice Corp.
In OIP Technologies, Inc. v. Amazon.com, Inc., 788 F.3d 1359 (Fed. Cir. 2015), the district court for the Northern District of California granted Amazon’s motion to dismiss OIP’s complaint on the grounds that OIP’s patent was directed to a patent-ineligible abstract idea. OIP’s patent covered a method for pricing a product for sale, using “offer-based price optimization.” In affirming the district court’s decision, the Federal Circuit held that the patent was invalid under the Alice Corp. test. The first step of the test was met because the claims were directed to a patent-ineligible abstract idea (offer-based price optimization). The second step of the test was met because the elements of the claims did not transform the claims into a patent-eligible application. The court stated that the claims “merely recite ‘well-understood, routine conventional activities,’ either by requiring conventional computer activities or routine data-gathering.” The court emphasized at 1093, that:
“At best, the claims describe the automation of the fundamental economic concept of offer-based price optimization through the use of generic-computer functions.
But relying on a computer to perform routine tasks more quickly or more accurately is insufficient to render a claim patent eligible.
These processes are well-understood, routine, conventional data-gathering activities that do not make the claims patent eligible.“
In Intellectual Ventures I LLC v. Capital One Bank, 2015 U.S. App. LEXIS 11537, the district court for the Eastern District of Virginia granted the defendant’s motion for summary judgment of invalidity of two patents. One patent covered methods of budgeting, including tracking and comparing a user’s purchase information to their budget. The other patent covered a method in which web page content was customized for the user based on the user’s prior Internet usage. The Federal Circuit affirmed the district court’s grant of summary judgment. As to the budgeting method patent, the court held that budgeting is clearly an abstract idea and that the other elements of the claim were generic computer elements which did not make the claims patentable. The court explained, at *11:
“[T]he budgeting calculations at issue here are unpatentable because they ‘could still be made using a pencil and paper’ with a simple notification device.”
As to the web page patent, the court found that the concept of tailoring information to the user is an “abstract, overly-broad concept, long practiced in our society” and that “merely adding computer functionality to increase the speed or efficiency of the process does confirm patent eligibility . . .”
These two cases are not unusual. In fact, they are becoming routine. Financial industry patents face serious problems. Because of Alice Corp., they are more difficult to obtain than patents for other types of inventions and they are much less likely to survive challenge.