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Intellectual Property Rights Applicable to Software - Part 1

Software is a unique technology, in that it comprises rights that are protectable under copyright law, patent law (including both utility and design patents), and trade secret law. These multiple protections arise because software can be a work of authorship as well as a business process or the key “component” in the functionality of a machine. Set forth below is a brief overview of the three primary types of intellectual property rights provided for under U.S. law that are applicable to software.

(a) Patents

(i) What Is a Utility Patent?

In most contexts, the word “patent” is used in the context of utility patents. Utility patents are granted on “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” 35 U.S.C. § 101. A patent is an exclusive right to practice an invention granted by the government. Anyone else who practices the invention without a license from the patent holder is infringing the patent. 35 U.S.C. § 121.

In return for granting a patent, the government requires the inventor to disclose the invention to the public in full, clear, and exact terms. 35 U.S.C. § 112. While the inventor has the exclusive right to practice the invention, anyone can examine the patent and understand the invention.

(ii) What is a Design Patent?

Although not as prominent as utility patents, software related inventions can also be subject to design patent protection. Under 35 U.S.C. § 171, “[w]however invents any new, original, and ornamental design for an article of manufacture may obtain a [design] patent.” User interfaces, icons, fonts, menus, patterns, and other ornamental subject matter used in computer software can be patented. The vast majority of patents asserted in the litigation between Apple and Samsung were design patents, not utility patents. Design patents tend to be narrower than utility patents, but they benefit from (i) high success rates at the USPTO; (ii) quicker pendency periods at the USPTO; and (ii) being less expensive relative to utility patents.

(iii) Software Patents

The USPTO issued the world’s first software patent in 1963 with U.S. Patent Number 3,380,029 directed to a sorting system. Nonetheless, the patenting of software was considered controversial and unsettled for many years, with the validity of the patent often depending on the degree to which the software was couched in terms of hardware or the degree to which the software was considered transformational. Compare Gottchalk v. Benson, 405 U.S. 63, 72 (1972) (patent invalidated because “in practical effect” the patent covered a “mathematical formula”) with In re Alappat, 33 F.3d 1526, 1545 (Fed. Cir. 1994) (“[w]e have held that such programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.”).

The U.S. Supreme Court in Diamond v. Chakrabarty famously held that “anything under the sun that is made by man” is patentable subject matter. 447 U.S. 303, 315 (1980). That broad rule is subject to important exclusions for “laws of nature, natural phenomena and abstract ideas.” Diamond v. Diehr, 450 U.S. 175, 185 (1981). The physicality of the claimed subject matter became an important requirement under the Freeman-Walter-Abele test. See In re Freeman, 573 F.2d 1237 (C.C.P.A. 1978); In re Walter, 618 F.2d 758 (C.C.P.A. 1980); In re Abele, 684 F.2d 902 (C.C.P.A. 1982).

The difference between an unpatentable “manipulation of abstract ideas” (see In re Warmerdam, 33 F.3d 1354, 1360 (Fed. Cir. 1994)) and “a specific machine to produce a useful, concrete, and tangible result” (see In re Alappat at 1544) was often difficult for even seasoned patent practitioners to discern. Further complicating matters was the “business method exception” of Hotel Security Checking Co. v. Lorraine Co., 160 F. 467 (2d Cir. 1908). In Hotel Security Checking, the Second Circuit. Court of Appeals held that systems for transacting business, such as a bookkeeping system, were unpatentable.

The business method exception was eliminated in 1998, when the Federal Circuit issued its opinion in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). In State Street court granted summary judgment invalidating a patent governing a data processing system, relying in part on the “business method” exception to patentable subject matter. Id. at 1375. The theory behind the “business method” exception was that merely doing business did not qualify as patentable subject matter. Id. The Federal Circuit reversed the district court’s decision that a data processing system did not qualify as patentable subject matter and it eliminated the business method exception, opening the floodgates on software patents.

Although the State Street Bank opinion did a lot to open the doors for future software and business method patents, business method patents have been around in one form or another going back to at least 1840. See O’Reilly v. Morse, 56 U.S. 52 (1854).

Many commentators have complained that the Supreme Court in Bilski v. Kappos, 561 U.S. 593 (2010) further complicated the patentable subject matter requirements for software and business method patents when it held that the “machine-or-transformation test is a useful and important clue . . . but is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” The Bilski opinion never even attempts to provide a comprehensive definitive test for patentability. To the contrary, it repudiates the exclusive applicability of various Federal Circuit formulations without repudiating the formulations themselves. The ultimate impact of Bilski may be best evaluated by the language below:

Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in § 100(b) and looking to the guideposts in Benson, Flook, and Diehr. And nothing in today’s opinion should be read as endorsing interpretations of § 101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F.3d at 1373; AT&T Corp., 172 F.3d at 1357. It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

Id. at 612.

Software is considered to be patentable if the claims are not directed at an abstract idea. Alice Corp. Pty. Ltd. V. CLS Bank Intern., 573 U.S. 208 (2014). In Alice, the United States Supreme Court upheld the longstanding exceptions that “[l]aws of nature, natural phenomenon, and abstract ideas are not patentable.” Id. at 2350. It stated:

We have described the concern that drives this exclusionary principle as one of pre-emption. Laws of nature, natural phenomena, and abstract ideas are “the basic tools of scientific and technological work.” “[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 thwarting the primary object of the patent laws. We have “repeatedly emphasized this . . . concern that patent law not inhibit further discovery by improperly tying up the future use of ” these building blocks of human ingenuity. Alice, 134 S. Ct. at 2354 (citations omitted).

To avoid being characterized as merely the computer implementation of an “abstract idea” a software-related invention must be “transformative.” The court explained:

At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law. At some level, “all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.” Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept. “[A]pplication[s]” of such concepts “‘to a new and useful end,’” we have said, remain eligible for patent protection.

Accordingly, in applying the § 101 exception, we must distinguish between patents that claim the “‘buildin[g] block[s]’” of human ingenuity and those that integrate the building blocks into something more, thereby “transform[ing]” them into a patent-eligible invention. The former “would risk disproportionately tying up the use of the underlying” ideas, and are therefore ineligible for patent protection. The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.

Alice, 134 S. Ct. at 2354–55 (citations omitted).

To provide clarity to the test set forth by the Supreme Court in Alice, the United States Patent and Trademark Office issued the 2019 Revised Patent Subject Matter Eligibility Guidelines (“Guidelines”). The Guidelines set forth an expanded process for determining patentability:

Step 1: Is the claim to a process, machine, manufacture or composition of matter?

Step 2: Alice two-part analysis:

Step 2A: Determine whether a claim is “directed to” an exception.

Prong 1: Does the claim recite an abstract idea, law of nature or natural phenomenon?

Prong 2: Does the claim recite additional elements that integrate the judicial exception into a practical application?

Step 2B: Evaluate whether the claim recites additional elements that amount to an inventive concept (aka “significantly more”) than the recited judicial exception.

The citation of Alice has been ubiquitous in the litigation of software patents, but the application of Alice is often inconsistent and thus difficult to predict. Former Federal Circuit Chief Judge Paul Michel testified before a Senate committee in 2019 that Alice has resulted in “excessively incoherent, inconsistent, and chaotic” caselaw. Former USPTO Director David Kappos similarly testified that the current state of patent eligibility “truly is a mess” and that courts “are spinning their wheels on decisions that are irreconcilable, incoherent and against our national interest.” Time will tell if Congress decides to enact legislation that addresses the apparent randomness of post-Alice decisions. Patents issued by the USPTO post-Alice will presumably be less vulnerable to invalidity challenges under 35. U.S.C. § 101.

(iv) Period of Protection

In the United States, the term of a patent depends upon when it was filed. For patents issued before June 8, 1995, and patent applications that were pending on that date, the patent term is the longer of either 17 years from the issue date or 20 years from the earliest claimed filing date, the longer term applying. 35 U.S.C. § 154. For applications filed on or after June 8, 1995, the patent term is 20 years from the earliest claimed filing date. Id. Generally, a patent holder may not enforce a patent license beyond the term of the patent. Brulotte v. Thys Co., 379 U.S. 29 (1964). Thus, theoretically, a software licensor could have difficulty enforcing a license to its patented software after the expiration of the patent term. Pragmatically, however, a licensor can also protect its software via copyright. As discussed above, the patentability of software is subject to a significant degree of confusion and scrutiny. At least one commentator believes the Supreme Court is poised to roll back several previous decisions involving software patents. Scarsi, Shifting Landscape of Software Protection, Nat. L.J., Jan. 21, 2008, at S1, S9.

(v) Ownership

Under United States patent law, the inventor owns the right to patent any invention even if the invention was created within the scope of their employment. Unlike copyright law, there is no “work for hire” doctrine for patents and thus employers should be proactive in having employees execute written assignments of patent rights before starting work. Joint ownership arises if there is more than one inventor and each owner may unilaterally exploit the patent by licensing it to a third party without having account to the other owner(s). All owners, however, must participate in any action to enforce an infringement claim against a third party.

For an overview of the history of patenting software, see The History of Software Patents, See also, Walden & Dennhardt, Copyright and Patent Protection for Computer Software: How Has The Landscape Changed?, Intell. Prop. Today 32 (Apr. 2015).

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