Software Patents in the US

Under the US Patent Act, whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent.251 Patent is granted for an invention, if it is within the patentable subject matter under §101 of the Patent Act, and also satisfies the requirement of novelty, non-obviousness and full and particular description.252 The US Patent Act specifies four independent categories of inventions within the patentable subject matter: processes, machines, manufactures and compositions of matter. While inventions pertaining to computer hardware have been held to fall within the category of

machines or articles of manufacture, computer programs are considered either as processes or articles of manufacture. On the other hand, individual items of software

may be characterized as mathematical algorithms, which, in turn, are long held unpatentable under Gottschalk v. Benson.253 _{However, the exact standard for}

patentability of computer programs appears to be quite uncertain, both in the US and Europe. Like SCOTUS case law, also many patent laws in Europe exclude from the patentable subject matter also discoveries, theories, and mathematical methods as well as schemes, rules, and methods for performing mental acts or doing business and presentations of information. Therefore, despite the territorial nature of patent laws, the

247 _{§57 of the Patent Act of Finland.} 248 _{49:2 of the Penal Code of Finland.} 249 _{Oesch, Pihlajamaa, et. al. at 123-124.} 250 _{Haarmann at 178.}

251 _{35 U.S.C. §101. 1 Moy at §5:1 – 5-4 – 5.10.} 252 _{35 U.S.C. §102, §103 and §112.}

underlying questions pertaining to patentability of computer programs have these days many similarities in the US and Europe, often boiling down to the question of whether computer programs are protected only as part of a larger patentable process or a machine.254 Since the early SCOTUS case law introduced above in Section 2.2.1 (Emergence of Patent Protection for Computer Programs), SCOTUS has recently revisited the question of patentable subject matter twice in relation to computer programs, first in Bilski v. Kappos and then in Alice v. CLS Bank.255

SCOTUS reminded in Bilski v. Kappos that while Congress contemplated broad construction of the terms to give wide scope for patentable subject matter under §101, SCOTUS precedence lays down three exceptions constituting ineligible subject matter:

laws of nature, natural phenomena and abstract ideas.256 Accordingly, SCOTUS rejected Bilski's process patent applications on method of hedging risk on energy markets, stating that under Gottschalk v. Benson, Parker v. Flook and Diamond v. Diehr those concepts are not patentable processes, but merely abstract ideas. Unfortunately enough, SCOTUS did not define what actually constitutes a patentable process under §101, since the claimed invention was rejected already on unpatentability of abstract ideas. However, SCOTUS did note that that the machine or transformation test is not the exclusive test for determination of a patentable process as decided by CAFC in earlier instance.257 _{Namely, according to CAFC, a claimed process is patent-eligible}

under §101 only, if it meets the machine or transformation test, and thus, is either tied to a particular machine or apparatus, or transforms a particular article into a different state or thing. Also CAFC rejected patentability of Bilski's method, since it did not transform any article into different state or thing, nor was the pure mental process tied to any computer or other device.258

254 _{§1 of the Patent Act of Finland. 1 Raymond Nimmer §5:42 at 5-73 – 5-74.}

255 _{Bilski v. Kappos 561 U.S. 593 (2010). Alice Corporation Pty. Ltd v. CLS Bank International and} Others 134 S. Ct. 2347 U.S. 2014.

256 _{Bilski v. Kappos at 594-595.}

257 _{Bilski v. Kappos at 593-596. Bilski v. Kappos 545 F.3d. 943, 956 (Fed. Cir. 2008). 1 Chisum at} §1.03[6][a] – 1-182.

Had SCOTUS accepted the machine or transformation test as the sole inquiry for determining patentability of process claims, computer programs would constitute a patentable subject matter under the US Patent Act only if the computer program was tied to a particular machine and transformed an article into a different state or thing. Therefore, when certiorari was granted, the FOSS community in support of software freedom looked eagerly forward to clear guidelines from SCOTUS for patentability of computer programs. Software Freedom Law Center (SFLC) claimed in its Amicus Brief that software alone cannot be within the patentable subject matter of §101, because under the longstanding SCOTUS precedents, an idea itself cannot be patentable, and because SCOTUS had recently recognized that an abstract software code uninstalled in a machine is merely an idea without physical embodiment.259 SFLC stated that CAFC was right in its ruling that computer programs may be patented only if the program is combined with a special purpose machine or is used in a process that transforms a matter.260 If SCOTUS would have affirmed the Federal Circuit's holding, application of the machine or transformation test as the sole inquiry for patentable processes, the outcome would have substantially limited the patentability of computer programs. However, because SCOTUS did not affirm the said holding, to the FOSS community's disappointment, no further guidance was received on boundaries of patentability of computer programs. To the contrary, SCOTUS holding in Bilski v. Kappos was, unfortunately, "remarkably inconclusive" contribution to the law on patent-eligible subject matter under §101.261

Another recent ruling of SCOTUS regarding patentability of process claims was given in Alice v. CLS Bank. The main holding under Alice v. CLS Bank was that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Therefore, SCOTUS held that Alice's patents for the abstract idea of mitigating settlement risk in financial transactions by using a computer system as a third party intermediary were invalid, since intermediated settlement is a longstanding fundamental economic practice in system of commerce. SCOTUS

259 _{Microsoft v. AT&T 550 U.S. 437, 449 (2007).} 260 _{SFLC Amicus Brief 2009 at 2.}

emphasized that courts must distinguish abstract ideas from patent-eligible applications of those ideas, and determine whether there is patentable subject matter on top of ineligible abstract ideas. SCOTUS reminded that abstract ideas are basic tools of scientific and technological work, and monopolization of those tools would rather impede than promote innovation, thereby diluting the primary object of patent law.262 FOSS community joined its forces and represented by SFLC, FSF and OSI, jointly submitted Amicus Brief in Alice v. CLS Bank, arguing that patent-eligibility of computer-implemented inventions, (i.e. narrower category of subject matter than what was considered in Bilski v. Kappos) should be determined solely by the machine or transformation test, drawing an analogy to the idea/expression distinction of copyright law and the need to safeguard fair use of ideas in patent context the same way as the collision between copyright and free speech is mitigated in copyright context.263 However, SCOTUS did not establish the machine or transformation test as the sole test for patentability of computer-implemented inventions either in Alice v. CLS Bank. While the precise effect of the ruling may be yet hard to capture, the ruling in Alice v. CLS Bank does not result in rejection of computer implemented software patents or business methods. Alice holds that the fact that an invention is performed by computer is not enough to save a software patent claim. Instead, a special purpose is required for the computer-implemented invention.264 _{The post-Alice Federal Circuit decisions}

interpreting and applying Alice v. CLS Bank will show how the law develops on this question until the next SCOTUS decision in future. One of the post-Alice decision of CAFC on §101 patentable subject matter requirements for software related patents were given in Amdocs v. Openet Telecom. CAFC coined a two-step query for patentability and stated that it should be first considered if the patent claims are directed to patent- ineligible concepts (such as abstract ideeas) and if yes, then consider if there exists "an

inventive concept" i.e. an element or combination of elements that ensure that the patent

in practice amount to more than a patent on the ineligible concept. CAFC held that the

262 _{Alice v. CLS Bank at 2352, 2355-59. Merges, Menell, et. al. 2014 at 11-22.}

263 _{SFLC, FSF and OSI Amicus Brief 2014 at 4. For idea/expression distinction, see 1 Nimmer §2.03[D].} 264 _{35 U.S.C. §271. Stobbs §4.02[S] at 4-108.2. 1 Chisum at §1.03[6][o] – 1-330.148. 3 Moy at §12:15 –} §12-21.

software claims were patent eligible since they recited a technological solution to a

technological problem.265 However, it may concluded that today computer programs fall within the patent-eligible subject matter under §101 of the US Patent Act, although the exact test for patentability is yet to develop.

When it comes to the exclusive rights of patent holder in the US, patent holder has the right to exclude others from making, using, offering to sell or selling the patented invention within the US, as well as importing the patented invention into the US during the term of the patent. As in terms of European patents, the right to exclude does not include an affirmative right to use, make or sell the patented invention. There may exist blocking patents owned by others or exploitation of the invention may be restricted by operation of state or federal laws in the US.266 Further, as mandated by the TRIPS Agreement, the US patent expires, subject to payment of all applicable fees, at 20 years from the date of filing the patent application.267 _{It is important to remember that unlike}

in copyright context, the US Patent Act does not include provisions regarding transfer of employee inventions, but the assignment is based on state law and hired to invent- concept. However, in order to increase certainty of ownership in various types of employee inventions, usually it is wise to expressly agree on assignment of inventions in employee contracts.268

Further, whoever without the patent holder's authority commits any of the acts within the exclusive rights of patent holder, infringes the patent (direct patent infringement). In addition to the category of direct patent infringement, there are two other categories of infringement: inducement of infringement as well as contributory infringement. Also actively inducing infringement constitutes patent infringement (inducement of

infringement), and so does sale within or importation to the US a component of a

patented machine or material or an apparatus for use in practicing of a patented process, provided however, that such component, material or apparatus constitutes a material

265 _{Amdocs (Israel), Ltd. V. Openet Telecom, Inc. (Fed.Cir. 2016) at 8, 22, 24, 28 and 34.} 266 _{5 Chisum at §16.02[1] – 16.13-16.14.}

267 _{35 U.S.C. §154(b). 3 Moy §11:3.}

part of the invention (contributory infringement).269 Accordingly, use of software patent without license or outside the scope of the license granted by the patent holder constitutes an infringement, irrespective of whether the patent license is proprietary or a FOSS license.

Patent holder may bring a civil action against the alleged infringer for patent infringement.270 If the alleged infringer does not discontinue the infringing activities, for example, after a cease and desist letter, the patent holder must prepare and file a complaint for patent infringement.271 Remedies for patent infringement include injunctions and damages.272 Court may grant injunctions in accordance with the

principles of equity as the courts deem reasonable.273 If patent infringement is established, the court may award the patent holder damages to compensate for the infringement. The amount of damages shall amount at least to a reasonable royalty together with interests and costs.274 _{The aim is to compensate the patent holder for}

amount which is equal to the damage, in order to place the patent holder as near to the situation had the wrong not been committed. However, as the purpose is to restore the financial position where the patent holder would have been but for the patent infringement, overlapping or double damages for the same injury are not allowed. Therefore, the purpose is to award damages compensating for the patent holder's lost profits or established royalty, but in no event less than a reasonable royalty.275

Liability for patent infringement is strict. Knowledge and intent of the alleged infringer are not decisive: Direct patent infringement may be committed even without being aware of the existence of the patent not to mention intention to violate the patent.276 To

269 _{35 U.S.C. §271(a), (b) and (c). 5 Moy §15:15 and §15:12.} 270 _{35 U.S.C. §281.}

271 _{Battersby & Grimes §3.03[A] at 3-73-8.} 272 _{35 U.S.C. §283 and §284.}

273 _{35 U.S.C. §283.}

274 _{35 U.S.C. §284. 1 Raymond Nimmer §2:45 at 2-108 – 2-109.}

275 _{Mills, Reiley, et. al. at 18-168. 7 Chisum §20.03 at 20-63 – 20-74. 1 Raymond Nimmer §2:45 at 2-} 107.

the contrary, when proving the elements of liability for inducement or contributory infringement, knowledge on the patent violation is essential.277 While mere innocent infringement of a patent may lead to liability for damages in case of direct patent infringement, willful patent infringement may result in enhanced damages. Namely, the court may, in certain circumstances, increase the damages up to three times.278

If the infringer has knowingly, intentionally or willfully infringed the patent (willful

infringement), the patent holder may be entitled to enhanced damages up to three times

the actual damages, despite that the primary recovery of patent infringement is merely compensatory damages. Thus, the enhanced damages are supposed to serve as a penalty for willful infringement. Whether the standard for willful infringement is met and thus liability for enhanced damages is triggered, depends on whether the infringer, acting in good faith and upon due inquiry, had reason to believe that it had the right to act in the manner that was deemed infringing. Even if willfulness would be found, and thus sufficient basis for award of enhanced damages is established, court is not compelled to award of such damages.279 _{Monetary damages and injunctions are deemed sufficient}

remedies for patent infringement. Thus, unlike infringement of copyrights, patent infringement is not subject to criminal sanctions under 18 U.S.C. Part I Crimes, Chapter 113 (Stolen Property).

Like the Patent Act of Finland, also the US Patent Act includes a time limitation for recovering damages due to patent infringement. While the time bar for the right to compensation under the Patent Act of Finland is five years prior to institution of the proceedings,280 under the US Patent Act, the patent holder will have no recovery for any infringement committed more than six years prior to filing the complaint or

277 _{35 U.S.C. §271(b) and 35 U.S.C. §271(c). 5 Moy §15:20 and §15:24.}

278 _{35 U.S.C. §284. 1 Raymond Nimmer §2:45 at 2-107. Stobbs II at United States of America – 383.} 279 _{Mills, Reiley, et. al. at 18-200 – 18-201. 7 Chisum §20.03 at 20-77 and §20.03[4][b] at 20-330 – 20-} 337.

counterclaim for infringement in the action.281 Thus, in the US, the patent holder may recover compensation for one year longer compared to patent infringement in Finland. The court may order an injunctive relief, either in the form of a preliminary or a permanent injunction. Under the standard set by SCOTUS in eBay v. MercExchange, the equitable grounds to be taken into account in considering permanent injunction include: (1) irreparable injury suffered by the patent holder in the absence of injunction; (2) remedies available at law, such as monetary damages, are inadequate to compensate for the injury; (3) considering the balancing of the parties' relative hardships, a remedy in equity is warranted; and (4) whether the public interest would be served by a permanent injunction.282 Finally, in exceptional cases only, the court may also award reasonable attorney's fees to the prevailing party.283 As noted above in Section 2.1.2 (Software Copyrights in Europe), the rules regarding award of attorney's fees are different in Finland: The main rule under the Code Judicial Procedure of Finland is that the losing party must pay the prevailing party's reasonable legal costs, unless otherwise provided in another act.284