1. IPO Section 101 Revisions (Patentable Subject Matter)
Michael Taylor
March 1, 2017

2. OUTLINE 35 U.S.C. §101 - Patentable Subject Matter
The Importance of Alice Corp. v. CLS Bank Int’l
USPTO Interim Guidance on Subject Matter Eligibility After Alice
(i) 2-Step Analysis For Patent Subject Matter Eligibility
Federal Circuit Cases After Alice
The Need for Changing 35 U.S.C. §101
About IPO
IPO Proposed Amendments
Discussions on the IPO Proposed Amendments

3. 35 U.S.C. §101 Defines Patent-Eligible Subject Matter
Whoever invents or discovers any new and useful
process,
machine,
manufacture, or
composition of matter, or
any new and useful improvement thereof,
may obtain a patent therefor.
There are 3 primary judicial exceptions: laws of nature, natural phenomena, and abstract ideas

4. The Importance of Alice Corp. v. CLS Bank Int’l
Alice was a 2014 decision of the US Supreme Court about patentable subject matter.
The issue in the case was whether certain claims about a computer-implemented, electronic escrow service for facilitating financial tractions covered abstract ideas ineligible for patent protection.
The patents were held to be invalid because the claims were drawn to an abstract idea, and implementing those claims on a computer was not enough to transform that idea into patentable subject matter.
Although the Alice opinion did not directly mention software, the case was widely considered as a decision on software patents or patents on software for business methods.

5. The Alice Corp. v. CLS Bank Int’l Decision
The patent in Alice Corp.:
System and method of mitigating settlement risk (the risk that only one party to a transaction will satisfy its obligation).
- For example, a method of exchanging obligations… comprising:
-- Creating shadow credit and debit records…
-- Obtaining from each financial institution start-of-day balances for each record…
-- Having a supervisory institution make certain adjustments to the shadow records, in chronological order…
-- Having the supervisory institution, at end-of-day, issue certain instructions for the exchange of credits and debits.

6. The Alice Corp. v. CLS Bank Int’l Decision Cont’d
CLS Bank Int’l operates a global network that facilitates currency transactions, and filed suit against Alice Corp., arguing that the patent claims at issue are invalid, unenforceable, or not infringed.
The Supreme Court affirmed June 19, 2014 that Alice’s patents were invalid because the claims were drawn to an abstract idea, and implementing those claims on a computer was not enough to transform that idea into patentable subject matter.

7. USPTO Interim Guidance on Subject Matter Eligibility After Alice Corp.
USPTO published guidance for patent Examiners to follow when determining whether claims recite patent-eligible subject matter:
- December 2014 Interim Guidance on Patent Subject Matter
Eligibility,
- July 2015 Update: Subject Matter Eligibility, and
- May 2016 Memorandum.
The 2014 Interim Eligibility Guidance provided a 2-step analysis for patent subject matter eligibility.
The July 2015 Update also addressed comments that were solicited from the public on the 2014 Interim Eligibility Guidance.
The May 2016 Memorandum provided updated instructions to assist examiners in applying the 2014 Interim Guidance and the July 2015 Update.

8. 2-Step Analysis For Patent Subject Matter Eligibility
2014 Interim Eligibility Guidance: 
Step 1: the claimed invention ‘‘must be directed to one of the four statutory categories’’ and
Step 2: the claimed invention ‘‘must not be wholly directed to subject matter encompassing a judicially recognized exception.’’
- Step 2 is the subject of the 2014 Interim Eligibility Guidance.
- Step 2 is the 2-partanalysis from Alice (also called the Mayo test) for claims directed to laws of nature, natural phenomena, and abstract ideas (the judicially recognized exceptions).
A flowchart titled Subject Matter Eligibility Test for Products and Processes was provided by the 2014 Interim Eligibility Guidance.

9. Subject Matter Eligibility Test For Products and Processes

10. Subject Matter Eligibility Test For Products and Processes
STEP 1 – Is the claim directed to a process, machine, manufacture or composition of matter?
NO – not eligible subject matter under
YES – go to step 2A
STEP 2A – Is the claim directed to a law of nature, a natural phenomenon, or an abstract idea (judicially recognized exceptions)?
NO – claim qualifies as eligible subject matter
YES – go to step 2B
STEP 2B – Does the claim recite additional elements that amount to significantly more than the judicial exception?
YES – claim qualifies as eligible subject matter

11. CASE 1 – DDR Holdings, LLC v. Hotels.com (Fed. Cir. 2014)
The Federal Circuit applied the framework articulated in Alice to uphold the validity of the patent on webpage display technology at issue in DDR.
The Federal Circuit recognized that “the claimed solution is necessarily rooted in computer technology to overcome a problem specifically arising in the realm of computer networks,” whereas the patents from earlier cited decisions claimed nothing more than the performance of abstract business practices on the Internet or using a generic computer.  
The '399 patent addresses a particular problem in the field of e-commerce when vendors advertise their products and services through a hosting page of an affiliate:
[Vendors] are able to lure visitor traffic away from the affiliate. Once a visitor clicks on an affiliate ad and enters an online store, that visitor has left the affiliate's site and is gone. [This presents] a fundamental drawback of the affiliate programs--the loss of the visitor to the vendor.

12. CASE 1 – DDR Holdings, LLC v. Hotels.com Cont’d
A brief snippet of technical disclosure from the DDR patent illustrates the level of detail provided in the patent specification:
- The Link Generator allows host to create and maintain the shopping opportunities that they can then place on their site. Each Link is assigned a unique Link ID. The Link ID identifies who the host is, who the merchant is, and what commerce object (catalog, category, product or dynamic selection) is linked to.
- The first time a host builds a Link to a merchant’s product, category or catalog, an approval of that host for that merchant may be made. Until the host is approved, they cannot see the Link ID that has been assigned to the newly created Link.

13. CASE 1 – DDR Holdings, LLC v. Hotels.com Cont’d
- The code the host embeds on their web site is as follows: < !—BEGIN NEXCHANGE LINK—> < !—For more information go to < !—The following 2 lines MUST NOT BE CHANGED to ensure proper crediting—> < IMG BORDER=‘0’ SRC=‘ < a href=‘ < !—Substitute your own text or image below—> **YOUR TEXT OR IMAGE HERE**</a> < !—END NEXCHANGE LINK—>
This, along with many other examples of software-based technical disclosure in the patent specification, supports the Federal Circuit’s conclusion that the DDR patent claims “specify how interactions with the Internet are manipulated to yield a desired result” and “recite an invention that is not merely the routine or conventional use of the Internet.” (DDR at pp ). 
In other words, the DDR patent claims, while relating to a business challenge, are simply not directed to an abstract idea under the Alice test.

14. CASE 2 – McRO v. Bandai Namco, et al. (Fed. Cir. 2016)
The Federal Circuit reversed the lower court and ruled that McRO’s software claims are not directed to an abstract idea.
In its decision, the Federal Circuit holds “that the ordered combination of claimed steps, using unconventional rules that relate sub-sequences of phonemes, timings, and morph weight sets, is patent-eligible subject matter.
The Federal Circuit addressed the meaning of “abstract,” and attempts to provide a rough framework based upon the idea of preemption. The court looked particularly for (1) specific limitations that help avoid preemption; and (2) more than merely automation of existing human activity. The court also emphasized that the eligibility analysis must consider the claim as a whole.
When looked at as a whole, claim 1 is directed to a patentable, technological improvement over the existing, manual 3-D animation techniques. The claim uses the limited rules in a process specifically designed to achieve an improved technological result in conventional industry practice. 

15. CASE 2 – McRO v. Bandai Namco, et al. Cont’d
Representative Claim 1 of US Patent no. 6,307,576:
1. A method for automatically animating lip synchronization and facial expression of three-dimensional characters comprising:
obtaining a first set of rules that define output morph weight set stream as a function of phoneme sequence and time of said phoneme sequence;
obtaining a timed data file of phonemes having a plurality of sub-sequences;
generating an intermediate stream of output morph weight sets and a plurality of transition parameters between two adjacent morph weight sets by evaluating said plurality of sub-sequences against said first set of rules;
generating a final stream of output morph weight sets at a desired frame rate from said intermediate stream of output morph weight sets and said plurality of transition parameters; and
applying said final stream of output morph weight sets to a sequence of animated characters to produce lip synchronization and facial expression control of said animated characters.

16. CASE 3 – Enfish v. Microsoft (Fed. Cir. 2016)
The Federal Circuit reversed the lower court and ruled that Enfish’s “self-referential” database software and data-structure invention is not directed to an abstract idea.
The Federal Circuit found that the claims at issue are not directed to an abstract idea within the meaning of Alice. Rather, they are directed to a specific improvement to the way computers operate, embodied in the self-referential table.
In thinking through abstract idea step-one, the court considered Microsoft’s proposal that the claims are directed to “the concepts of organizing data into a logical table with identified columns and rows where one or more rows are used to store an index or information defining columns.”  The Federal Circuit rejected this as too “high level of abstraction” that is “untethered from the language of the claims.”  

17. CASE 3 – Enfish v. Microsoft Cont’d
Claim 17 of the ‘604 Patent simply requires a means for creating and indexing a self-referential logical table.
17. A data storage and retrieval system for a computer memory, comprising:
means for configuring said memory according to a logical table, said logical table including: a plurality of logical rows, each said logical row including an object identification number (OID) to identify each said logical row, each said logical row corresponding to a record of information; a plurality of logical columns intersecting said plurality of logical rows to define a plurality of logical cells, each said logical column including an OID to identify each said logical column; and
means for indexing data stored in said table.
In considering the claim, the Federal Circuit found that “the self-referential table recited in the claims … is a specific type of data structure designed to improve the way a computer stores and retrieves data in memory.”  As such, it is not an abstract idea.

18. CASE 4 – Affinity Labs of Tex. v. DirectTV, LLC (Fed. Cir. 2016)
The Federal Circuit affirmed the lower court that Affinity Labs’ claims are directed to an abstract idea.
The claim “is directed to a network-based media system with a customized user interface, in which the system delivers streaming content from a network-based resource upon demand to a handheld wireless electronic device having a graphical user interface.”
Abstract Idea: Analyzing the claimed invention, the court found that the claims are directed to a high level of generality “describing a desired function or outcome, without providing any limiting detail that confines the claim to a particular solution to an identified problem. The purely functional nature of the claim confirms that it is directed to an abstract idea, not to a concrete embodiment of that idea.”  

19. CASE 4 – Affinity Labs of Tex. v. DirectTV, LLC Cont’d
Burden Shifting for Step Two?:  Once a patent is deemed to be directed to an abstract idea, the burden appears to shift against the patentee to show that the claim includes “something more” such as an “innovative concept” that goes beyond the ineligible abstract idea.  
Claim 14: A media system, comprising:
a network based media managing system that maintains a library of content that a given user has a right to access and a customized user interface page for the given user;
a collection of instructions stored in a nontransitory storage medium and configured for execution by a processor of a handheld wireless device, the collection of instructions operable when executed: (1) to initiate presentation of a graphical user interface for the network based media managing system; (2) to facilitate a user selection of content included in the library; and (3) to send a request for a streaming delivery of the content; and
a network based delivery resource maintaining a list of network locations for at least a portion of the content, the network based delivery resource configured to respond to the request by retrieving the portion from an appropriate network location and streaming a representation of the portion to the handheld wireless device.

20. The Need for Changing 35 U.S.C. §101
The §101 Decisions Have Had a Broad and Deep Impact in the USPTO and the Courts.
The impact of the §101 Decisions in both the courts and the USPTO is evident. As of December 31, 2016, the courts have granted 67% of various types of ineligibility motions, invalidating hundreds of patents and thousands of claims, while the PTAB has invalidated 97% of the patents under Covered Business Method reviews based on section §101 challenges.

21. The Need for Changing 35 U.S.C. §101 Cont’d
Here is the current trend:

22. About IPO
Intellectual Property Owners Association (IPO), established in 1972, is a trade association for owners of patents, trademarks, copyrights and trade secrets.  IPO serves all intellectual property owners in all industries and all fields of technology.
IPO advocates for effective and affordable IP ownership rights and provides a wide array of services to members, including: supporting member interests relating to legislative and international issues; analyzing current IP issues; information and educational services; and disseminating information to the general public on the importance of intellectual property rights.

23. About IPO Cont’d
The IPO is run primarily by a group of 50 top intellectual property counsel (usually patent-focused) from many of the largest global innovative companies – all deeply involved in the patent system as patent holders and many as accused-infringers as well.  Patent attorneys from various law firms serve in a support role for the organization.  
The IPO created a special 101 legislative task force headed by IBM’s Marian Underweiser with Vice-Support from Bob Sachs (Fenwick & the BilskiBlog) whose proposal has now been released and fully adopted by the IPO Board.
The IPO 101 Task Force proposes legislation to address recent Supreme Court decisions that have dramatically narrowed the scope of patent protection for life sciences and software technology by significantly expanding the judicially-created exceptions to patent eligible subject matter.

24. About IPO Cont’d The proposed legislation will:
reverse the recent Supreme Court rulings and restore the scope of subject matter
eligibility to that intended by Congress in the passage of the Patent Act of 1952;
(b) define subject matter eligibility more clearly and in a technology-neutral manner;
(c) require an evaluation of subject matter eligibility for the invention as a whole; and
(d) simplify the subject matter eligibility analysis for the Patent Office, courts, patent applicants, patentees, and the public by prohibiting consideration of “inventiveness” and patentability issues under 35 U.S.C. §§ 102, 103, and 112 in the § 101 analysis.

25. IPO Proposed Amendment
101(a) ELIGIBLE SUBJECT MATTER Whoever invents or discovers, and claims as an invention, any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereto, may obtain shall be entitled to a patent for a claimed invention thereof, subject only to the exceptions, conditions, and requirements of set forth in this Title. 101(b) SOLE EXCEPTION TO SUBJECT MATTER ELIGIBILITY A claimed invention is ineligible under subsection (a) if and only if the claimed invention as a whole, as understood by a person having ordinary skill in the art to which the claimed invention pertains, exists in nature independently of and prior to any human activity, or exists solely in the human mind. 101(c) SOLE ELIGIBILITY STANDARD The eligibility of a claimed invention under subsections (a) and (b) shall be determined without regard as to the requirements or conditions of sections 102, 103, and 112 of this Title, the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.

26. IPO Proposed Amendment Cont’d
In a statement announcing the proposed statutory language, IPO explained:
IPO supports legislation because the patent eligibility test created by the U.S. Supreme Court is difficult to apply and has yielded unpredictable results for patent owners in the courts and at the USPTO.
IPO’s proposed legislative language would address these concerns by reversing the Supreme Court decisions and restoring the scope of subject matter eligibility to that intended by Congress in passing the Patent Act of 1952;
defining the scope of subject matter eligibility more clearly and in a technology-neutral manner;
requiring evaluation of subject matter eligibility for the invention as a whole; and
simplifying the subject matter eligibility analysis for the USPTO, courts, patent applicants, patentees, practitioners, and the public by preventing any consideration of “inventive concept” and patentability requirements under sections 102, 103, and 112 in the eligibility analysis.

27. Discussions on the IPO Proposed Amendment
There are many important paths of discussion stemming from this proposal.  
One is that the proposal’s focus would remove subject matter eligibility from the courts policy-toolkit and instead make the doctrine fully a creature of statute.  
Although not required for its proposed change, the Board also proposed  eliminating the word “new” from the requirements of Section 101 — further elimination of the requirement that the individual claiming to be the inventor actually invented.  
The proposal includes several further subtle (and not-so-subtle) changes including “entitlement” to a patent of the claimed invention; express separation of 101 analysis from “the requirements or conditions of sections 102, 103, and 112;” statement that eligibility is not impacted by “the manner in which the claimed invention was made or discovered, or the claimed invention’s inventive concept.”  

28. Discussions on the IPO Proposed Amendment Cont’d
The IPO proposed language is obviously an attempt to overrule the Supreme Court’s decision in Mayo v. Prometheus. In Mayo, the Supreme Court ignored Diamond v. Diehr, which forbade interjecting questions of novelty into the patent eligibility determination under § 101. Simply stated, the Mayo Court intentionally conflated § 101 with § 102, § 103 and § 112. 
After Mayo, decision-makers on all levels, whether patent examiners, Administrative Patent Judges, district court judges, or Federal Circuit judges are tasked with considering whether a claim directed to a judicial exception (i.e., abstract idea, law of nature, or natural phenomenon) adds only conventional items or steps, or whether it adds significantly more.
- This inquiry is a novelty inquiry that is taking place under § 101 without the application of any prior art, which means the § 101 test adopted by the Supreme Court is purely subjective.

29. Discussions on the IPO Proposed Amendment Cont’d
The IPO language is an attempt to significantly curtail the so-called judicial exceptions to patentability, created by the Supreme Court despite the fact that there is no authority or power for the Court to have done that which can be found anywhere in the statute.
It is worth noting that the sole exception to patent eligibility is a very narrow reading of the law of nature exception, and that the IPO language would do away with the abstract idea exception.
Doing away with the abstract idea exception is much needed given: (1) no courts, including the Supreme Court who gave us the exception, have ever defined the term “abstract idea”; and (2) every invention must necessarily start with an idea.

30. The End