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Updates in Patent Litigation: Patent Eligibility, Or Bad News for Patent Trolls

Updates in Patent Litigation: Patent Eligibility, Or Bad News for Patent Trolls
Hendershot Cowart, P.C.

35 U.S. Code § 101 - Inventions Patentable

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Last week we focused on patent troll defense litigation. This week, we take it back a few years to when the Supreme Court upheld a district court ruling in Alice Corp vs. CLS Bank. CLS Bank is a global network that facilitates currency transactions. Alice Corp. is an assignee of several patents of a computer-generated method of mitigating settlement risk.

How the case unfolded...

In 2011, Alice Corp. claimed CLS Bank was utilizing an electronic business method of which they held a patent. CLS, in turn, filed suit to have the patent invalidated on the basis that it was a concept and therefore too abstract to be protected as a patent.

The District Court ruled in favor of CLS and stipulated that the patent held by Alice Corp. was ineligible because it is an abstract idea. Alice Corp. appealed the decision. Following a hearing in the Federal Circuit, which decided to reverse the District Court's ruling, and re-hearing en banc, the District Court's judgment was ultimately upheld.

Alice Corp. then appealed to the U.S. Supreme Court, which agreed to hear the case. Justice Thomas delivered the opinion, which held that "the claims at issue [were] drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention." In other words, the U.S. Supreme Court affirmed the original judgment.

Why should you care about this case?

  • It's a landmark case because it further defines patent eligibility.

This case judicially created an exception to 35 U.S.C. § 101 Patent Protection. The Supreme Court emphasized that the focus of this exception is "to prevent a monopoly over the basic tools of scientific and technological work" because "[m]onopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it, thereby thwarted the primary object of the patent laws," (Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 573 U.S. __ (2014) (slip op., at 6) (internal quotation omitted).

  • It sets a precedent in business method and software patent eligibility.

After the Alice verdict, the USPTO issued new guidelines to patent examiners, implementing tougher scrutiny on patent applications, therefore granting fewer patents on business methods and software-related inventions. Additionally, the courts created a two-step inquiry in deciding patent eligibility. First, does the patent consist of a majority part of patent-ineligible concepts, such as abstract ideas? If so, does the remaining portion of the patent have an "inventive concept?" A patent is determined eligible or not based upon the abstraction/inventiveness ratio.

Bad News for Patent Trolls

These new rules haven't been good for patent trolls. In the wake of Alice, courts can now rule on patent eligibility early on in litigation, which gives defendants the opportunity to end a case before incurring large discovery costs in litigation. This doesn't fare well for NPEs as they're often filing suit to collect large sums of money. Early ineligibility determination helps prevent them from getting these large settlements from defendants and is a solid defense when you're up against a patent troll.