Software-related patent applications have been in a legal flux for a number of years, with a lack of clarity and predictability over what exactly qualifies as patent eligible subject matter. Many technology enterprises have been hesitant to file patent applications due to this lack of stability, and others who have filed are weary of the seemingly random changes in the law. However, following recent Federal Circuit case law and new guidance from the USPTO, examination quality and predictability appears to be improving, justifying some measure of optimism for software-related industries.

On April 23, 2020, the USPTO’s Office of the Chief Economist issued a report analyzing patent examination outcomes following the Supreme Court’s 2014 decision on patent subject matter eligibility in Alice Corp. v. CLS Bank International¹. The Alice decision held patent claims directed to a computer-implemented financial settlement system to be a patent-ineligible “abstract idea,” without defining that term, potentially implicating thousands of issued patents and tens of thousands of patent applications in software-related industries. In the 18 months following that decision, the probability of software-related patent applications receiving an “abstract idea” rejection increased 31%. Worse, due to the ambiguous boundaries of what exactly qualifies as an “abstract idea”, the variability in the likelihood of any particular patent examiner issuing such rejections increased by 26%. This variability made it difficult, if not impossible, to predict whether a patent application would be considered eligible or not, even with the same patent applicant, same industry, and same examiner.

In 2018, the Federal Circuit’s decision in Berkheimer v. HP Inc.² reversed this trend, requiring rejections that considered patent claim elements to be well-understood, routine, or conventional activity to be supported by factual evidence. The USPTO provided guidance³ and training to the Examiners in April of 2018 on the Berkheimer decision, and subsequently published the January 2019 Revised Patent Subject Matter Eligibility Guidance memo (2019 PEG)⁴, laying out a new and more explicit procedure for determining patent subject matter eligibility: (i) patent claims must be directed to a statutory category; (iia) the claims must not recite a judicial exception, or if it does, (iib) any exception must be integrated into a practical application; and (iii) if the claims are directed to a judicial exception and not integrated into a practical application, they must include limitations that amount to significantly more than the exception.

The Chief Economist’s Report found that the likelihood of receiving an eligibility rejection in a first action on a software-related technology decreased from a peak of approximately 35% before the USPTO’s Berkheimer memo to under 20% following the 2019 PEG. Crucially, the variation in receiving an eligibility rejection from a particular patent examiner decreased over 40% in this time period, improving predictability in prosecution and decreasing uncertainty for the legal and business communities.

While Alice and subject matter eligibility is still an important consideration for patent applicants and attorneys, the Report provides statistical evidence that examination quality is improving, with fewer and more predictable eligibility rejections and less individual examiner variability.

The Chief Economist’s Report is available here. 

-------------------------------------------------------

¹ Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014).

² Berkheimer v. HP Inc., 881 F.3d 1360 (Fed. Cir. 2018).

³ “Change in Examination Procedure Pertaining to Subject Matter Eligibility, Recent Subject Matter Eligibility Decision (Berkheimer v. HP, Inc.)” (USPTO, April 19, 2018).

⁴ “2019 Revised Patent Subject Matter Eligibility Guidance”, 84 FR 50 (USPTO, January 7, 2019).