In other Ocean Tomo Insights posts, I have discussed uncertainty in the intellectual property system. In the patent system, one of the sources of uncertainty is the question of validity. A recent publication by my former colleagues in the Office of the Chief Economist at the US Patent and Trademark Office addresses uncertainty that resulted from the US Supreme Court decision in Alice v. CLS Bank International. Significantly, their paper is the first to quantify the uncertainty resulting from the decision.
What’s the issue?
Practitioners will know that the four patents-in-suit related were business methods patents related to banking. While the district court found that the patents were invalid because each of the patents covered “abstract ideas” – which are, not in and of themselves, patent eligible – previous case law had provided somewhat of a safe harbor if the ideas are “electronically implemented” in a “computer- readable-medium.” However, the Federal Circuit decision was of little help, with a ten-judge panel providing opinions that were, frankly, all over the place. It did not provide a majority decision on validity, nor a clear test for validity.
The case was appealed to the Supreme Court, where it was watched with great interest by parties in the software industry. In the end, the Supreme Court invalidated the patents, finding that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.”
Why does it matter?
While most commentators agree that the invalidity decision was correct, there was a widely held belief that the court did not provide enough clarity in the law to delineate patentable subject matter within business methods and software, more generally. Our hope as legal scholars is that the resolution of novel cases should bring more clarity to the law. In the Alice case, this clearly did not happen. But, while there is agreement that the Alice decision has led to greater uncertainty in patent rights, the research by the USPTO is the first to quantify that uncertainty. What did they find?
The research1 recently accepted in the Journal of Economics and Management Strategy, uses examiner decisions in Alice-affected patent applications. They use the fact that the variance (standard deviation) of allowance decisions increased substantially after Alice to argue that legal uncertainty has persistently increased. “[W]e find that the Alice decision reduced favorable patent eligibility decisions by 31% and significantly and persistently increased legal uncertainty in patent examination by 26% for a broad set of technologies.” The authors of the research further point out that increased uncertainty in patent rights “affects upstream investments supporting invention and downstream innovations fueling growth.”
1Jesse Frumkin, Nicholas Pairolero, Asrat Tesfayesus, and Andrew Toole (2024, forthcoming). Patent eligibility after Alice: Evidence from USPTO patent examination. Journal of Economics and Management Strategy. https://onlinelibrary.wiley.com/doi/epdf/10.1111/jems.12592
