Eligibility guidance in the wake of Alice: Clarity at the examiner stage, uncertainty in the Federal Circuit

Subject matter eligibility is an ongoing concern among applicants seeking patent protection. The United States Patent and Trademark Office (USPTO) has made strides to clarify subject matter eligibility issues at the examination phase. But, for many patent holders that were able to successfully overcome or avoid a subject matter challenge during examination, recent Federal Circuit decisions still fail to provide certainty during enforcement.  In this article, we look at the competing approaches to patent-eligible subject matter at the Federal Circuit and the USPTO and identify implications for patent prosecutors, litigation practitioners, and patentholders.

The basis for the difference in analysis between the USPTO and the Federal Circuit lies in each party’s interpretation of Alice and its progeny. In 2019, the USPTO provided more structure to the two-step Alice process to give applicants a clearer idea of what constitutes an abstract idea and the differences between claims merely reciting ineligible subject matter compared to claims that are directed to ineligible subject matter. In comparison, the Federal Circuit has continued to work in a more esoteric way, by adhering to a broader and more abstract interpretation of Alice. 

As a result, while the USPTO has provided structure to the subject matter analysis that has aided applicants in successfully navigating the waters of eligibility, this same level of clarity is absent from recent Federal Circuit case law, thus creating uncertainty for patentees.

USPTO Guidance on patent-eligible subject matter

In 2019, the USPTO published two sets of eligibility guidelines that lowered the bar for eligibility – the 2019 Revised Patent Subject Matter Eligibility Guidance (the 2019 Guidance) and the October 2019 Update: Subject Matter Eligibility (the October Update). In the 2019 Guidance, the USPTO set forth new guidelines for subject matter eligibility that aimed to increase predictability and consistency in the patent eligibility analysis. Under the 2019 Guidance, the USPTO revised Step 2A of the subject matter eligibility to emphasize that the analysis is to determine, not merely whether a claim recites an abstract idea, but whether the claim is directed to an abstract idea. See 2019 Guidance, pp. 15-18. 

In the revised Step 2A analysis, to determine whether a claim is directed to a judicial exception, examiners must evaluate whether the claim applies, relies on, or uses the judicial exception in a manner that imposes a meaningful limitation on the claimed subject matter. See 2019 Guidance, p. 18. In other words, mere recitation of an abstract idea (eg, a mathematical concept, certain methods of organizing human activity, or mental process) is not enough to support an ineligibility finding. Rather, if the claim includes additional elements that go beyond the alleged judicial exception, those elements may integrate the judicial exception into a practical application and thus result in a patent-eligible claim. 

While the 2019 Guidance laid the framework for a more structured approach to the Step 2A analysis, applicants and examiners alike struggled with what exactly constitutes a “practical application.” In response, the USPTO aimed to provide further structure to the analysis in the October Update, which provides a more explicit explanation for what constitutes a “practical application” for purposes of the Step 2A analysis. In essence, the USPTO established a two-part test for Step 2A. Specifically, the October Update provides that “[a]n important consideration to evaluate when determining whether the claim as a whole integrates a judicial exception into a practical application is whether the claimed invention improves the functioning of a computer or other technology.” See October Update, p. 12. To do so, examiners are advised to (1) evaluate the specification to determine if the disclosure provides sufficient details such that one of ordinary skill in the art would recognize the claimed invention as providing an improvement; and (2) evaluate the claims to ensure that the claim itself reflects the disclosed improvement. In this manner, the USPTO placed a larger emphasis on an applicant’s specification for determining eligibility.

Both the 2019 Guidance and the October Update were successful in clarifying the subject matter analysis before the USPTO. USPTO-released metrics show a 25 percent decrease in likelihood of Alice-affected technologies receiving a first office action with a rejection for patent-ineligible subject matter one year after the 2019 Guidance.¹ Further, uncertainty in patent examination for Alice-affected technologies decreased by 44 percent in the first year following the 2019 Guidance.² As such, there is quantifiable evidence that the USPTO’s steps to provide more clarity and structure to the subject matter analysis were successful.

The Federal Circuit muddies the water and rejects deference to USPTO eligibility guidance

While the USPTO has provided clarity for applicants at the examination stage, increased uncertainty still remains at the Federal Circuit relating to the eligibility issues. This increased uncertainty may be attributed to inconsistent rationales for affirming or reversing eligibility rulings, as well as a rejection of the USPTO’s interpretation of eligibility in the 2019 Guidance and October Update. 

In Tecsec, Inc. v. Adobe Inc., Nos. 2019-2192, 2019-2258 (Fed. Cir. October 23, 2020), the claims at issue were directed to a method for providing multi-level media security in a data network. The claims involved operations recited at a fairly high level of generality and focused on encrypting an object; labeling the encrypted object; determining access authorization based on the object label; and decrypting the object if authorization is granted. The patentee’s first independent claim was entirely devoid of hardware components and only recited a “data network” in the preamble and “an object-oriented key manager.” In finding that these claims were not directed to an abstract idea, the Federal Circuit relied heavily on the patentee’s specification, which described the limitations or deficiencies of conventional approaches to multi-level security through encryption and how the present approach improves upon those processes.  The Federal Circuit concluded that the specification did in fact illustrate that the claims at issue were directed to solving a problem “specific to computer data networks.” See Tecsec, p. 27.  So, despite the brevity of the patentee’s claim language, when interpreted in light of the specification, the Federal Circuit found the claims patent eligible.

In contrast, in American Axle & Manufacturing, Inc. v. Neapco Holdings, LLC, No. 2018-1763 (Fed. Cir. July 31, 2020), the claims at issue were directed to a method for manufacturing a shaft assembly of a driveline system. In finding that the claims were ineligible, the Federal Circuit stated that the claim simply requires the application of Hooke’s law to tune a prop shaft liner to dampen certain vibrations. This holding came despite the patentee’s specification, which, as stated by the Federal Circuit, described how prior art methods were not suitable for attenuating two vibration modes simultaneously, and that the claimed improved method would allow for such functionality. See American Axle, pp. 4-5.  The Federal Circuit appeared to dismiss the patentee’s specification because “[t]he specification describes tuning in terms of the results achieved, rather than the particular process by which the result is accomplished.” See American Axle, p. 14, footnote 6. Thus, despite the patentee’s description of an improvement to technology in the specification, the Federal Circuit still concluded that a portion of the claims were indeed ineligible.

In addition to inconsistent rationales for affirming or reversing eligibility rulings, the Federal Circuit has also rejected the USPTO’s interpretation of Alice and its progeny as set forth in the 2019 Guidance and October Update. In In Re Rudy. 956 F.3d 1379 (Fed. Cir. 2020), one dispute in the case was the petitioner’s contention that the Board applied the USPTO’s Guidance (ie, the 2019 Guidelines and the October Update) as if it were binding law. Despite affirming the Board’s invalidation of the petitioner’s claims as being patent ineligible, the Federal Circuit agreed with the petitioner’s argument that the USPTO’s Guidance does not carry the force of law. In particular, the Federal Circuit explicitly stated that “[w]e are not... bound by the Office Guidance, which cannot modify or supplant the Supreme Court’s law regarding patent eligibility, or our interpretation and application thereof.” See id. at 1383. Therefore, despite the advances provided by the USPTO for overcoming eligibility challenges, the Federal Circuit appears resistant to deferring to the USPTO on questions of patent eligibility, alleging that the portions of the Office Guidance allegedly contradict Federal Circuit case law. See id.

What does this mean for applicants?

The uncertainty at the Federal Circuit level should not deter applicants from continuing to seek patent protection on their software-based innovations. Applicants should, however, adjust their prosecution strategy to anticipate for eligibility challenges post grant. Despite the increase in allowance rates for Alice-affected innovations, applicants should continue to draft specifications as they would pre-2019 Guidelines. The USPTO and federal courts still rely on the specification for identifying whether the claimed invention is directed to an abstract idea. Additionally, a strong specification can also provide an applicant with the means to build out a patent family around an innovation. In this manner, applicants can not only vary scope of protection across several granted patents, but can also keep the patent family alive for a longer period of time.

Conclusion

While the USPTO has provided more structure and clarity to the subject matter eligibility analysis at the examination phase, subsequent case law from the Federal Circuit shows that this development is limited to issues arising at the Office. Patentees would be prudent, therefore, to consider both the USPTO’s guidance and the case law from federal courts when drafting claims and specifications, and to take steps to develop a robust portfolio around technology that may be prone to Alice challenges.