Intellectual Property Directions

Keeping your invention as a trade secret just got a lot less risky under the new patent laws – assuming, that is, that your invention is a process or apparatus that you use internally to  make a product or perform a service for a customer. On the other hand, if your secret is embedded in what you are selling – enterprise software sold/licensed under non-disclosure, for example – then you are probably still at risk of being sued for infringement should someone later patent your invention.

Let’s be clear about what the trade secret risk was, prior to September. Perhaps you had invented a manufacturing technique that allowed you to produce widgets significantly faster/better/cheaper than any other manufacturer. From the finished product, no one could reverse engineer your internal manufacturing technique. Typically you would try to keep the details of your technique as a trade secret instead of filing a patent application. Why? You kept it as a trade secret because your patent application, by definition, reveals your secret process and yet it is hard to enforce your patent since you would not be able to tell from your competitor’s finished products if they are infringing your patent.

The risk, however, is that a competitor who independently invented the same technique after you did was (and still is) free to patent it. And once his patent issued, you would be an infringer. Of course, it’s true that it’s hard for your competitor to enforce his patent rights against you, since your finished products don’t reveal your infringing activities. But nevertheless, you were put at risk of being sued for infringement even though you had invented the invention first and had been using it for perhaps many years.

But at last the new patent law has removed this Catch-22, at least in most cases. Under the new law, your prior commercial use of your invention will serve as a defense against an infringement suit. To make use of this defense , generally, you must be able to prove that you were using the invention “commercially” at least one year prior to the filing date of the patent application. Essentially you have to be using that great manufacturing technique to actually make and sell products.

Notice that these “prior user rights” only protect you from an infringement suit for using the invention. It does not allow you to sell copies of the invention to other manufacturers. But as of this past September, you can feel a little less paranoid about being on the losing end of an infringement suit for using your own trade secret invention. As always, it is a good idea to discuss your patent strategy with your patent attorney to understand how the details of the law affect your situation.

Uncharacteristically, I remember the punch line to a joke making the rounds when I was in elementary school – I’ll spare you the joke but the punch line went something like “[my dog] used to an alligator before I cut off his tail and painted him yellow”. Well, now I’m out of elementary school but I still see many patent attorneys who think that you can change something’s essence by just painting it yellow. Happily, the Court of Appeals for the Federal Circuit is willing to set them straight.

For example, CyberSource Corp. had an issued patent on a “system” for detecting credit card fraud during internet transactions. It sued Retail Decisions, Inc. for infringement, only to find its patent invalided in court because their “system” was not eligible for patenting. Although the patent statues broadly define what can be patented, the courts have repeated made three clear exceptions; laws of nature, physical phenomena, and “abstract ideas”. CyberSource’s system was judged to fall into the abstract idea category – essentially the system was nothing more than thinking about the observed the IP addresses from which credit card transactions originated and deciding if any particular transaction was likely to be fraudulent.

Pure mental activities – abstract ideas – are not patentable subject matter, so many software, internet, and business methods inventions – inherently non-physical inventions – have a hurdle to get over; do they contain “patent eligible subject matter”  Hardware based inventions have no problem but usually the non-physical inventions are considered to be processes that, perhaps, are “just” mental activities.

Patent attorneys, being clever, have tried to convert non-physical processes into a patent-eligible physical embodiments (and therefor not purely mental activities). One way to do this, as CyberSource’s attorneys did, is to write a claim for “a computer readable medium containing program instructions for…[the otherwise purely mental  process]“. Their argument was that a computer readable medium is clearly NOT a patent-ineliglible  law of nature, physical phenomenon, or abstract idea. An argument that is technically true but sophistic and disingenuous. As the Court of Appeals said:

Regardless of what statutory category a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.  Here, it is clear that the invention [...] is a method for detecting credit card fraud, not a[n article of] manufacture for storing computer-readable information.

In other words, don’t bother to cut off your alligator’s tail and paint him yellow; it will still be deadly.

And don’t waste your money prosecuting a patent if that’s the basis for your claim. “Getting” a claim allowed by the examiner doesn’t mean you will be able to use the patent to add value to your company…as CyberSource learned.

“Are system claims better than method claims for computer-implemented inventions?” asked Karen Hazzah in the blog All Things Pros. If you have a computer-implemented invention, are method claims more valuable than system claims, or vice versa? Karen submits that system claims are the clear winner, at least since January 2011. She points out that

• Method claims are clearly subject to scrutiny under Bilski. (Bilski v. Kappos, 30 S. Ct. 3218, (2010).) But it’s possible that courts won’t apply Bilski to other types of claims – the question is still open. Score: System 1; Method 0.
• Direct infringement of a method claim requires that a single party performs all steps. Joint liability for multiple parties is possible, but the standard is high under Akamai Techs., Inc. v. Limelight Networks, Inc. (December 20, 2010): Score: System 2; Method 0.
• In contrast, the Federal Circuit recently held that system claims which include elements in the possession of more than one actor are analyzed differently. In Centillion Data Sys., L.L.C. v. Qwest Commc’ns Intl, Inc. (January 20, 2011), the court held that “to ‘use’ a system for purposes of infringement, a party must  control the system as a whole and obtain benefit from it.” Score: System 3; Method 0.

My personal prejudice is that systems claims are always better than “methods” claims, except where the invention is truly a process. Systems claims (should) point to tangible (therefore identifiable for infringement purposes) elements. Methods claims, particularly business methods, tend to point to human actions.

Of course, I’m generally prejudiced against “methods” claims in general. I sort of reject the now-accepted equivalence of a method (a way of doing something) and a process (the actual doing). Again, “methods” are what humans do (perhaps assisted by a machine) while machines often are the actors in a process. That’s why factories have process control systems, not method control systems.

But that’s a discussion for another time.

I have never liked so-called business methods patents (in fact, I dislike a majority of “methods” patents). Today the Supreme Court hand down its ruling on the Bilski case, upholding the USPTO’s rejection of Bilski’s patent application on “101″ grounds. That is, the PTO rejected the application because the claimed invention did not address a patentable subject. Specifically the Court ruled that Bilski’s application was an attempt to patent an abstract idea – a catagory that has long been ruled not subject to patenting.

Many people, myself included, had been hoping that the Supreme Court would address the patentablity of software and business methods at a broader level since there has been much huffing and puffing on the topic of should business methods as a class and should software as a class be patent eligible. Unfortunately we will have to wait until, perhaps, the Congress acts since the Court explicitly said it:

… declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected underour precedents on the unpatentability of abstract ideas.The Court, therefore, need not define further what constitutes a patentable “process”…

In effect, the Court said that if Congress didn’t like the way the PTO was defining a patentable process then Congress can amend the patent statutes.