Thoughts on the Alice Corp v CLS Bank Decision

Software is big business in the 21st century. With over 400 billion dollars worth of revenue having been created in 2013 alone, and arguably the market is growing by the year, you can't help but understand the vehement defense of those interests even if it often seems to be for nothing but profit, and not the defense of a legitimate product or competitive edge. What gives software, and subsequently software patents (discussed in more detail here), a bad name are so-called 'patent trolls', or more officially Non-Practicing Entities (sometimes also called Patent Assertion Entities). The companies rarely produce or use the patents they control, but merely use them as a means to recover licensing fees, potentially affecting the marketplace and software development quite negatively. In light of this whether software should be patentable or not, and if so what the limits are, has been highly contentious and of interest to many. Finally the matter arrived in the open arms of the United States Supreme Court, which issued is ruling on the question a bit over a month ago (discussion of the earlier decision can be found here).

The case of Alice Corporation v CLS Bank International dealt with Alice Corporation's patented method of mitigating 'settlement risk', which is the uncertainty of whether only one party will pay what it owes to another, by the use of a third-party. The software or computer process creates 'shadow records' of the parties' debits and credits, effectively mirroring their payment capabilities within their real world finances. It then allows or denies any transactions based on those records, should they fall within the payment capabilities of the owing party, finally issuing the payment order to the bank responsible for that transaction. This mitigates the risk of such transactions for both parties, leaving much less uncertainty as to the other party's payment capabilities. The patent's claims in question are as follows: "...(1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims)" - all of which are handled through a computer. CLS Bank handle currency exchanges internationally, and sought a declaratory judgment to invalidate Alice Corporation's patent under 35 USC 101.

What abstract truly looks like

In determining whether Alice Corporation's patent is invalid, the Supreme Court had to decide whether it would fall under a patent ineligible category such as laws of nature or an abstract idea. This assessment, as expressed by Justice Thompson in the unanimous judgment of the court, would entail: "First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts... If so, we then ask, '[w]hat else is there in the claims before us?'" The second step entails an assessment of whether the patent is an 'inventive concept', or in other words, brings something more to the table than just the idea itself.

The Supreme Court in their judgment draw heavily from the case of Bilski v Kappos (more extensively discussed on this very blog). They aligned Bilski's method of hedging risk to Alice Corporation's mitigation method, and determined the patent was indeed an abstract idea and therefore ineligible for the patent. This is because, referring to the Bilski decision: "...all of the claims at issue were abstract ideas in the understanding that risk hedging was a ‘fundamental economic practice.’". As, according to Justice Thompson, there is no meaningful distinction between Alice Corporation's patent and Bilski's patent, the former can be concluded to be an abstract idea in the same vein.

Although the court did determine that the patent was ineligible it could still contain a transformative element which turns it into an 'inventive concept'.  To put into better terms, referring to Mayo Collaborative v Prometheus Labs: "A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea]". The mere addition of a computer into the process, as evident from the extensive precedent in this area, will not make non-patentable inventions into patentable ones unless the implementation via the computer is more extensive.

Alice Corporation's patent largely relies on a computerized method which handled the risk mitigation, and on the face of it, seems to fall within precedent as unpatentable. The court outright rejected Alice Corporation's argument that the computer plays a substantial and meaningful role and determined that the patent is not an 'inventive concept'. Expressed better by Justice Thompson: "...the claims at issue amount to “nothing significantly more” than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer". The Supreme Court therefore rejected the appeal and Alice Corporation's patent was deemed invalid.

The decision is very important, however is not necessarily the axe to the head of software patents on the block. Although the Supreme Court rejected patents which merely give instructions to a computer, if applied more thoroughly and in such a way that it solves a problem such as in Diamond v Diehr. This distinction was expressed incredibly well by David Kappos for SCOTUSBlog: "[t]he distinction between patentable software in Diamond v. Diehr and unpatentable software in Bilski and CLS Bank is not about software at all; rather, the difference is the presence or absence of a definitive invention versus abstraction. Diehr's new and useful process for curing rubber was held to be innately patentable – the fact that it happened to be manifest in a software language was tributary". To put into different terms, software patents should be a nuanced application, a solution to a distinct problem rather than a blanket cover for a larger area, stifling progression and potentially causing issues in the technological developments of the future. The reception of the decision has been wildly mixed, and rightfully so, since the decision does both good and bad things to the patent sphere in the US. What impact it will have remains to be seen more down the line, but hopefully this will tackle patent trolls more than it does legitimate businesses - regardless of your definition of 'legitimate'.

Source: The Verge

Patenting Drugs - The Case of Marijuana

Drugs are very much a sensitive subject, especially when the law is concerned. Yet, with the ever-growing movement to legalize marijuana, which is gaining a lot of head-wind in the United States, the topic has to be considered from the perspective of business much rather than the perspective of disdain. This would entail revisiting the patentability of at least some sub-sets of drugs in the name of protecting the legitimate business interests of marijuana growers. Would such a change be desirable, and is it possible under today's laws?

In the States of Colorado, where marijuana was legalized in February of this year, sales have been incredible, with the business raking in over 20 million dollars in the first 6 months alone and some estimates seeing it grow to over 100 million dollars in the full year of 2014. Clearly business is booming, and could be argued to only grow if more States enact similar laws. In the market right now there are at least dozens of different strains of cannabis, and much like other commercial products with distinct features of their own, could merit protecting to ensure their viability in the marketplace.

Under 35 USC 161: "Whoever invents or discovers and asexually reproduces any distinct and new variety of plant... may obtain a patent [for that plant]". On the face of it, one could easily argue that cannabis plants could be patentable subject matter. This is overshadowed by the fact that marijuana still remains a controlled substance federally under 21 USC 812. It is because of this a federal patent cannot be issued over marijuana plants, effectively making them unpatentable. As the public perception and acceptance of cannabis and its use change, the laws might allow for the patenting of cannabis plants and plant varieties; however this change seems unlikely in the immediate future.

Alan was confused why the police asked about his bag of oregano

Plant varieties could be protected through trademarks, albeit only in name. The USPTO briefly added a category for marijuana in 2010, promptly removing it stating it was "...a mistake". Nevertheless marijuana strains could potentially be protected under trademark legislation, which was well explained by Kal Raustiala: "...trademark protection under both state and federal law does not require registration of the trademark with the government, but merely that the mark actually be used in commerce to identify the source of a particular product or service". Simply put protection is possible, but whether protection would be afforded by the courts is a question that will remain to be answered. One still has to note that trademark protection does not protect the plant strain itself, but merely the name as a badge of origin for that particular product. Trademarks will not necessarily prevent a competitor from using the plant strain and selling it, as long as they use a different name for the product.

As one can see, cannabis is, and will be, a hot-button issue in IP for years to come, and it'll be truly interesting to see where the law will go especially when considering the movement to legalize the substances gains more momentum. From a purely pragmatic, business point of view, the law should accommodate the change and allow for such plant variations to be protected. Whether this will happen will remain to be seen, but this writer for one sees it as almost an inevitability.

Source: Bloomberg

Sherlock Holmes Stays in the Public Domain, Yet Again

A case which this blog has discussed quite extensively during its life cycle in the United States' courts (early discussion can be found here, some more here), is the Sherlock Holmes case, where a long and arduous battle has been waged over the protectability of the crime fighting genius. battered, beaten and discussed at length, the case could have finally come to its end, and it seems that Mr. Holmes could be more usable to all of us as a result, after the US Court of Appeals published its decision almost a month ago.

For the uninitiated, the case of Leslie Klinger v Conan Doyle Estate dealt with Leslie Klinger, who intended to publish a book called In the Company of Sherlock Holmes; a sequel to his book A Study in Sherlock Holmes, a book very much written under the blessing of the Conan Arthur Doyle Estate (through a gracious licensing agreement, surely). As a result the book was refused by its publisher Pegasus, and instead of yielding and seeking a licence from the Estate Mr. Klinger sought a declaratory judgment from the court stating that Sherlock Holmes belongs in the public domain, and would therefore be free for everyone to use. At first instance Mr. Klinger was granted the summary judgment he had sought, however this resulted in the Estate appealing the decision, which landed softly on the Court of Appeals' lap.

In the court's decision, delivered by Justice Posner, the Estate appealed the summary judgment under two grounds: that the court did not have jurisdiction over the matter as there was no dispute to be decided, and should they be decided to have jurisdiction, the Estate argued that the 'complex character' of Sherlock Holmes, cultivated over the years of story telling in the character's universe, would only be out of copyright once the latter stories have seen their copyright protection period end, as many former stories have already fallen out of copyright protection. The latter argument was well presented by Justice Posner: "...[even though the] early stories... are already in the public domain does not permit their less than fully "complexified" characters in the early stories to be copied even though the stories themselves are in the public domain".

Even Sherlock was tired of this constant bickering

Justice Posner first tackled the issue of jurisdiction which, under 28 USC section 2201, is limited to only cases which pertain to an 'actual controversy'. This relates to declaratory judgments alone, and as Mr. Klinger sought such a declaration, his matter would have to pertain to a controversy (i.e. a legal dispute) for the court to be able to give the aforementioned declaration. Due to Mr. Klinger's prior knowledge of the Estate's actions should he publish the book, he had intimate knowledge of a potential dispute, giving jurisdiction to the court to give a declaratory judgment as there was a true legal dispute.

The meat of the case was in whether a 'complex' character could bring protectability to earlier works, or to the character as a whole in the series through his or her development in that particular series. Justice Posner rightfully opened with the notion that, under US law currently, there is no possibility to extend copyright protection on something which has ceased to be protected, even if the character lives on in the series and in works which are under copyright still. Quoting Silverman v CBS, Justice Posner stated that "[t]he copyrights on the derivative works, corresponding to the copyrights on the ten last Sherlock Holmes stories, were not extended by virtue of the incremental additions of originality in the derivative works". The latter ten works, which are still under copyright, remain protectable only to those part which have been added and are truly original to the author or authors of those parts; the rest remain unprotectable.

Although the Estate argued that, should copyright protection not be afforded to character which are developed in a longer span of time, there will be less incentive for authors to create those works. Justice Posner effectively rejected this notion, and put forth that the dissemination of works and the incentive to do so even with materials which are in the public domain, is important as well and should not be wholly dissuaded by law. Even though the characters were, through the Estates argument, 'rounded off' in the later issues of the Sherlock Holmes saga, this does not extend their copyright protection to the entire 'complex' character even in the former parts of the series. Justice Posner affirmed the prior decision, and Sherlock Holmes effectively stayed in the public domain as a result.

The Estate's argument was indeed a novel one, and did provoke at least this humble writer to ponder whether complexity is defined through longevity, as opposed to the initial originality. Incremental developments of characters and stories happen all the time, almost organically, yet that does not mean the essence of the very character you first met on those first few pages was somehow altered beyond recognition. Who and what Sherlock and his companions were will not cease to exist the moment they're created upon and added to by others, but they'll live on stronger, renewed and revitalized, and I for one am sure that younger generations will appreciate those works just as much as Sit Doyle's works.

Source: IPKat

Retrospective - Trademarks and the Internet

The Internet has shaped our world in too many ways to even count, and the law and its application has not been exempt from this radical change. What had to apply in only a largely physical and restricted world, now has to operate in one which knows practically no physical or territorial bounds. Through this the use of intellectual property has become international, and the law's confides of struggle to fill the gaps left in this transition to a digital domain. An example of this is the use of trademarks, and whether their use online can infringe on the mark of others, even if done in a different jurisdiction. The answer, at least on the outset, is not an obvious one, but was faced by the United Kingdom Court of Appeals over a decade ago.

The case in question is 1-800 Flowers Inc v Phonenames Ltd, decided in the very first year of the second millennium, which dealt with the phone number "800-FLOWERS", registered in the US as a trademark in the mid 1980s by the company 800-Flowers Inc. The company ran a floral telemarketing company, selling flowers and floral products via telephone to those who called the number 1-800-FLOWERS (or numerically 1-800-356-9377), via the Internet and through physical locations, to destinations both in the US and outside of the country. Phonenames were a business which dealt with alpha-numerical phone numbers in the UK, much like the one above, acquiring them and selling them on to business who wish to use them. Phonenames acquired the number which equated to 800-FLOWERS in the early 1990s from British Telecom, although ownership of the number still remained with BT. 800-Flowers had applied for the same number prior to Phonenames, failing to acquire it while still advertising the new service in newspapers. 800-Flowers then appealed the issuing of the phone number, arguing it would lead to confusion as they could establish a firm presence and goodwill within the US. The matter was ultimately appealed to the Court of Appeals for a final decision.

The case included deliberations on sections 10, 11 and 17 of the Trade Marks Act 1938. Section 10, which deal with whether the mark is capable of distinguishing the 800-Flowers' service in the UK, allowing for its protection, was the first consideration. Lord Justice Parker saw that the usage of alpha-numerical numbers was foreseeable in the UK during the number's registration in 1993, however even then the number was only just that; a phone number, and would not be capable of distinguishing the appellant's services from others in purely that form. The appeal also failed under section 11, as there could not be any confusion since the appellant had not used the number in the UK, creating no prior use which consumers could reasonably believe would be the appellant's service.

What is more relevant to the question posed is under section 17. Under the provision a mark has to be used in the UK (emphasis the court's) to be considered a 'proprietor', defined more specifically under section 68. If no use is found, the appellant cannot be considered to owning the trademark in the UK. This is very important in the proposed Internet context, as the Internet spans vastly beyond the origin country where a website is ran or owned. Lord Justice Parker indicated a website does not necessarily in itself cause for there to be use in the UK, specifying that "...the evidence (such as it is) concerning the Applicant's internet website [is not] sufficient to justify the conclusion that accessing the website amounts to use of the mark at the point of access". Among other considerations, Lord Justice Parker refused the appeal, as there was no sufficient use on 800-FLOWER's part within the UK, even with the existence of the phone number and a website.

Lord Justice Buxton further considered the Internet in his deliberations, still agreeing with the majority's decision. In his mind the matter is still quite open, and needed to be addressed directly:

"The implications of internet use for issues of jurisdiction are clearly wide-ranging, and will need to be worked out with care both in domestic and in private international law... I do venture to suggest that the essence of the problem is to fit the factual circumstances of internet use into the substantive rules of law applying to the many and very different legal issues that the internet affects. It is therefore unlikely, and it is nowhere suggested, that there will be one uniform rule, specific to the internet, that can be applied in all cases of internet use. That consideration is of importance in our present case, because it was a significant part of the applicant's submissions that, for instance, "publication" of statements in a particular jurisdiction by downloading from the internet according to the rules of the law of defamation or of misrepresentation was of at least strong analogical relevance to whether a trade mark downloaded from the internet had been "used" in the jurisdiction to which it was downloaded; and, even more directly, that when A placed a mark on the internet that was downloaded by B, the same criteria should apply in determining whether A thereby used the mark as determine whether A thereby infringed the same mark in the jurisdiction where B was located."

Greg now understood that she wanted flowers, not carrots - a typical mistake

His honor finally rejected the potential notion that use on the Internet would amount to use in every jurisdiction the mark might be potentially accessed from, even via the net: "I would wish to approach these arguments, and particularly the last of them, with caution. There is something inherently unrealistic in saying that A "uses" his mark in the United Kingdom when all that he does is to place the mark on the internet, from a location outside the United Kingdom, and simply wait in the hope that someone from the United Kingdom will download it and thereby create use on the part of A". One can easily agree with Lord Justice Buxton, and as he further states, 'use' should entail a more active component than just passively placing in in a sphere where it is easily accessed from, even by accident. The active part could be an advertisement in that country, or something which encourages the use of the web facilities. To summarize one can quote Justice Jacob in the case's first appeal in the High Court: "...the mere fact that websites can be accessed anywhere in the world does not mean, for trade mark purposes that the law should be regarded as being used everywhere in the world. It all depends upon the circumstances, particularly the intention of the website owner and what the reader will understand if he accesses the site. In other fields of law, publication on a website may well amount to universal publication".

As one can see the Internet poses an interesting sphere where trademarks present their owners with an abundance of opportunities for exposure; however this has to be balanced with regulation and limiting the Internet's scope in terms of use. The Lords above are quite correct, but one can say the Internet has not had its last impact on trademarks.