In 2014, the US Supreme Court dealt a major blow to software patents. In their 9-0 ruling in Alice Corp v. CLS Bank, the justices made it clear that just adding fancy-sounding computer language to otherwise ordinary aspects of business and technology isn't enough to deserve a patent.
Since then, district court judges have invalidated hundreds of patents under Section 101 of the US patent laws, finding they're nothing more than abstract ideas that didn't deserve a patent in the first place. The great majority of software patents were unable to pass the basic test outlined by the Supreme Court. At the beginning of 2016, the nation's top patent court had heard dozens of appeals on computer-related patents that were challenged under the Alice precedent. DDR Holdings v. Hotels.com was the only case in which a Federal Circuit panel ruled in favor of a software patent-holder. The Alice ruling certainly didn't mean all software patents were dead on arrival—but it was unclear what a software patent would need to survive. Even DDR Holdings left a teeny-tiny target for patent owners to shoot at.
That all changed in 2016. Judges on the US Court of Appeals for the Federal Circuit found three more cases in which they believe that software patents were wrongly invalidated. What once looked like a small exception to the rule now looks like three big ones. The results of those cases could portend a coming year that will be friendlier to patent owners than the past few have been. As 2016 winds down, let's take a closer look at the details of these three software patent battles and how patent-holders kept their patents alive through the appeals court.
Enfish LLC v. Microsoft
Decided: May 12, 2016
Panel: Circuit Judges Kimberly Moore, Richard Taranto, Todd Hughes.
In 1993, Enfish Corporation was founded in Pasadena, California, by a former Gemstar executive who wanted to find a better way to track and sort e-mail, files, and other data. By 2000, when Enfish founder Louise Wannier was profiled in the Los Angeles Times, the company had 45 employees and had raised $20 million in capital. But Enfish still wasn't profitable. The "Enfish Find" desktop search tool, and other company products, got positive write-ups in PC World and were downloaded by more than 200,000 users. In the end, though, it wasn't enough. By 2005, Enfish was out of business.
The Enfish patents, though, lived on. By 2012, Wannier had formed Enfish LLC and decided to sue several huge software companies: Microsoft, Inuit, Sage Software, and financial tech heavyweights Fiserv and Jack Henry & Associates. The Enfish lawsuit (PDF) claimed that Microsoft's .NET Framework infringed two patents, numbered 6,151,604 and 6,163,775. Enfish claimed to have built a new type of "self-referential" database, with a priority date stretching back to 1995. The district court judge disagreed, though. He said a table is just a table. Emphasizing terms like "non-contiguous memory" (a ubiquitous method for computer storage) and "indexing" wasn't going to save the Enfish patents.
In his 2014 order, US District Judge Mariana Pfaelzer wrote:
For millennia, humans have used tables to store information. Tables continue to be elementary tools used by everyone from school children to scientists and programmers.... the fact that the patents claim a "logical table" demonstrates abstractness... Humans engaged in this sort of indexing long before this patent.
In May 2016, a Federal Circuit panel reversed Judge Pfaelzer. Software improvements are not "inherently abstract," the judges ruled (PDF). The Bilski and Alice cases were directed at processes "for which computers are merely invoked as a tool." Those cases didn't rule out a patent on a "specific asserted improvement in computer capabilities." The Enfish patent claims were "directed to a specific improvement to the way computers operate, embodied in the self-referential table." The self-referential table "is a specific type of data structure designed to improve the way a computer stores and retrieves memory," and thus deserves a patent.
The panel also shot down Pfaelzer's finding that the Enfish invention was rendered doubly invalid by Microsoft Excel 5.0, a database product that was in public use more than a year earlier than the Enfish patent was filed. With all five of the patent claims now patent-eligible again, the case was sent back to the lower court. Discovery is underway and a trial is scheduled for 2018.
For patent lawyers, the Enfish breakthrough was "like a ray of light at the end of a long dark tunnel," wrote one attorney at Fish & Richardson, the nation's biggest IP law firm, who analyzed the decision in a blog post. "Reaction by the patent bar was swift. Notices of additional authority and requests for reconsideration were submitted to district courts around the country."
McRO v. Bandai Namco Games America
Decided: September 13, 2016
Panel: Circuit Judges Jimmie Reyna, Richard Taranto, Kara Stoll.
For patent system defenders, the next case was clearly a hill to die upon. In its opening Federal Circuit brief, patent-holder McRO Inc., which does business under the name Planet Blue, told the judges that the district court's ruling against it "violates supreme court precedent and threatens all software patents."
Planet Blue was founded in 1988 by Maury Rosenfeld, a computer graphics and visual effects designer who worked for shows like Star Trek: The Next Generation, Max Headroom, and Pee Wee's Playhouse, according to his Federal Circuit brief (PDF). Rosenfeld's firm was hired by several video game companies "to work on animation and lip-synchronization projects." But, at some point, they clearly had a falling out.
Beginning in 2012, Planet Blue sued more than a dozen big video game companies, including Namco Bandai (PDF), Sega, Electronic Arts, Activision, Square Enix, Disney, Sony, Blizzard, and LucasArts. Several of those big players had been Rosenfeld clients before the lawsuits. The complaints said the companies infringed two Rosenfeld patents, US Patents No. 6,307,576 and 6,611,278, which describe a method of lip-synching animated characters. Earlier methods of animating lip synchronization and facial expressions, said Planet Blue lawyers, were too laborious and expensive.
US District Judge George Wu ruled against Planet Blue in September 2014. He acknowledged that Rosenfeld may have been an innovator, but his patents were nonetheless invalid because they claimed an abstract idea. The patents would have preempted any lip synchronization that used a "rules-based morph target approach."
On appeal, the case was immediately seen as one to watch, in part because Rosenfeld was seen as a real innovator in his field. "The patents utilize complex and seemingly specific computer-implemented techniques," wrote Patently-O blogger Prof. Dennis Crouch. "An initial read of the claims in the Planet Blue patents seems to be a far cry from basic method claims."
BSA—aka the Software Alliance, a trade group that includes Microsoft and other big software companies—weighed in on the case by filing an amicus brief (PDF) in favor of Planet Blue. The asserted claims weren't abstract, BSA argued. The district court judge, BSA said, had "imported" questions about obviousness into his analysis when he should have only considered a strict Section 101 analysis about abstraction. In BSA's view, the big swath of patents being thrown out in the post-Alice era should "not include claims directed to technological problems specific to the digital environment."
The battle was joined on the other side, too. The Electronic Frontier Foundation and Public Knowledge jointly submitting a brief (PDF) arguing in favor of the video-game defendants. "The claims embody nothing more than the concept of applying numerical rules—that is, equations—to numerical inputs to obtain numerical outputs," wrote Public Knowledge attorney Charles Duan. "Since the law rejects Appellant’s theories of patentability, Appellant resorts to whitewashing its broad claims by extensively discussing the specification and implementing software. This is totally irrelevant," as it is the claims that are important.
When the Federal Circuit found in Planet Blue's favor in September, it was the biggest win yet for software patentees in the post-Alice era. The three-judge panel held that the claims were "limited to rules with specific characteristics." Quoting the specification, they held that "the claimed improvement here is allowing computers to produce 'accurate and realistic lip synchronization and facial expressions in animated characters,' which could previously only have been produced by human animators."
The judges didn't buy the defense argument that there was nothing new in having computer-based rules for animation. "Defendants concede an animator's process was driven by subjective determination rather than specific, limited mathematical rules."
BSA was jubilant about Planet Blue's win. BSA President Victoria Espinel wrote:
The Federal Circuit’s opinion reaffirms that software is worthy of patent protection just as any other field of technology. Software is a major component of today’s greatest innovations, and it is imperative that our patent system continues to encourage innovators in all fields of technology. Today’s Federal Circuit’s decision is a step in the right direction.
McRO v. Namco Bandai is now back in Wu's Los Angeles courtroom, awaiting a scheduling conference for the litigation to go forward.
Amdocs v. Openet Telecom
Decided: November 1, 2016.
Panel: Circuit Judges S. Jay Plager, Pauline Newman, Jimmie Reyna (dissenting).
Israel-based Amdocs went to US courts to sue (PDF) an Irish company, Openet Telecom, in 2010. Amdocs asserted that four patents related to online accounting and billing methods were all derived from the same original application: Nos. 7,631,065; 7,412,510; 6,947,984; and 6,836,797. The patents all describe the same system, which allows network operators to account and bill for internet protocol (IP) traffic. Claim 1 of the '065 patent claims computer code for "receiving... a network accounting record," then correlating the record with other accounting information, then computer code that uses that information to "enhance the first network accounting record."
The district court found that Amdocs' claim wasn't much more than the abstract idea of correlating two networks. The court tossed the patent. And the Federal Circuit majority recognized that, in other cases, "somewhat... similar claims" had been thrown out under § 101—but then the Circuit majority went on to say that, despite that, the patent should have been allowed.
"[T]his claim entails an unconventional technological solution (enhancing data in a distributed fashion) to a technological problem (massive record flows that previously required massive databases)," wrote US Circuit Judge S. Jay Plager. "The components needed were "arguably generic" but had been used in such an "unconventional manner" that they led to "an improvement in computer functionality."
The Amdocs saga isn't back in the lower courts quite yet. Defendant Openet has filed a petition for rehearing by the whole court. However it turns out, these three decisions mean that anyone seeking to enforce a software patent will come into 2017 in a far better position than they were a year ago.
The Federal Circuit is continuing to debate the patent-eligibility of software. The random draw of judges on a Federal Circuit panel is increasingly looking like the most important factor on whether a patent prevails or dies at the appeals court. As Crouch notes in his analysis, two of the three judges that made up the majority in the Amdocs case can be seen as being in the minority of the court as a whole, since they pushed against the Alice patent.
How such a split will be reconciled isn't clear. Crouch points out there may be two or three vacancies on the Federal Circuit during Trump's first term, and the Supreme Court has shown a continued interest in taking up patent cases. But looking back at the key decisions of 2016, anyone wanting to enforce software patents is in a far better position than they were a year ago, thanks to the three decisions above. 2016 may go down in history as the year that saved software patents.
Correction: An earlier version of this article incorrectly stated that the district court Enfish v. Microsoft opinion was written by US District Judge George Wu. In fact, the Enfish opinion was written by the late US District Judge Mariana Pfaelzer. Judge Pfaelzer passed away in May 2015. Now that the Enfish case is back in district court, it is being overseen by Judge Wu.
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