Supreme Court to Rule on Patent Eligibility for Process Claims

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Last month, the Supreme Court heard oral argument in Alice Corporation v. CLS Bank. Many hope the Court’s decision in this case will help clarify the patent eligibly standard for process claims – particularly those process claims that are computer implemented and/or involve business method patents. Patent eligibility is based on 35 U.S.C. § 101 which allows any “process, machine, manufacture, or composition of matter” to be eligible for patent protection. However, laws of nature, natural phenomena, and abstract ideas are not eligible for patent protection. It is important to note that patent eligibility is distinct from patentability (novel, useful, definite, non-obvious, etc.). For example, a chemist who discovers a previously unknown element cannot patent that element because it is a natural phenomenon. It is ineligible for patent protection regardless of how new and useful it is. Traditionally, process claims were evaluated under the “machine-or-transformation test” which conferred patent eligibility on the process if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In the 1970s, broad claims to computer-implemented processes that utilized a mathematical algorithm or formula without meaningful limitations were held ineligible for patent protection under the abstract ideas exception despite requiring a computer in order to be performed. See Gottschalk v. Benson and Parker v. Flook. Four years ago, in Bilski v. Kappos, the Court affirmed the Federal Circuit’s ruling that the process of “hedging risk” in the commodities trading industry is also an abstract idea not eligible for patent protection. However, the Court went on to declare that the machine-or-transformation test is not dispositive of patent eligibility for claimed processes, especially in business method patents, but rather that the test is a “useful and important clue” in determining patent eligibility. Now, in CLS Bank, the Supreme Court is faced with the patent eligibility of certain method, media, and system claims of particular business method patents that utilize escrow to protect against financial risk. Although the Federal Circuit sitting en banc decided 7-3 that both the method and media claims were not directed to patent eligible subject matter, the 7-member majority was split 5-2 on the justification. On the question of patent eligibility of the system claims, the court evenly split 5-5. By its own admission, the Federal Circuit is “irreconcilably fractured” on the complex issue of patent eligibility for process claims – particularly those that are computer-implemented and those in business method patents. Without destroying the software or finance industries, the Court could strike a balance by simply holding that business method patents tied only to a computer do not receive the benefit of the “clue” that the traditional “machine-or-transformation” test provides; the “abstract ideas” exception is controlling. This would allow business methods to remain generally patent eligible, preserve the utility of the “machine-or-transformation” test, and prevent software patents from becoming wholesale ineligible. Perhaps later this summer, the Supreme Court will provide clearer guidance for the Federal Circuit and the District Courts.

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April 26th, 2014 at 5:17 pm

Virtual Reality Technology Going Mainstream?

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While the idea of virtual reality technology has been around for decades, it has yet to make any substantial progress. The roots for virtual reality reach back to the late 1950s when the idea emerged to use computers as tools for digital display rather than just fancy calculators. By the early 1960s, communications technology was intersecting with computing and graphics technology, and this laid the groundwork for computer graphics and eventually, virtual reality. Over the past three decades, virtual reality hasn’t made any particularly significant advances. It has always needed more computational power than was available on standard home computers, mobile phones, and gaming consoles. Because of this, it was not able to grow. The technology itself has also been slow at developing a high resolution, real life experience. However, in the last few years, technologists have been taking steps to find solutions to these issues, spurring discussions on virtual reality technology once again. Recently, Mark Zuckerberg, Facebook CEO, announced Facebook’s acquisition of Oculus VR for $2 billion, bringing virtual reality to the forefront of the news. Even with the strides being made in the technology, however, no one is ready to commit to a release date for a virtual reality platform. Jeremy Bailenson, director of Stanford University’s Virtual Human Interaction Lab, says the trade-off between performance and price may be partly to blame. Facebook is not the only major company anticipating a breakthrough in virtual reality technology. Sony made its own commitment to the technology with Project Morpheus at the Game Developer’s Conference (GDC) 2014. Richard Marks, head of the Magic Lab inside Sony PlayStation R&D, said the difference in virtual technology this time around is that technology has finally caught up with everyone’s long-awaited dreams of virtual reality. If things continue as expected, we are likely to see a drastic change in gaming, education, medicine, and nearly every other realm very soon.

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April 22nd, 2014 at 10:16 am

Obama administration takes first steps to limit NSA data collection but is it enough?

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Last week, President Obama announced that the government would halt its bulk collection of telephone records under the controversial NSA program. Instead the data will remain with the phone companies and government investigators can request judicial approval to release the records. President Obama's announcement comes almost a year after former NSA Contractor Edward Snowden leaked information to the press. Some privacy advocates such as the ACLU are heralding the decision as a crucial first step in replacing the NSA's dragnet surveillance methods with a more targeted program. Although the President and a House committee support changes to the current system, the exact details remain to be finalized in Congress. However, at least one commentator has noted that the proposal may not have much significance to the NSA. Phone companies already routinely collect logs of incoming and outgoings numbers and call length. The proposal also looks strikingly similar to existing procedures in the law for obtaining electronic data. For example, the federal pen register statute allows the government to obtain a court order for logs of outgoing phone numbers or email headers. The government must show only that the information is likely relevant to an ongoing criminal investigation. Similarly, the Stored Communications Act permits the government to obtain records or subscriber data based on specific facts that show there is reasonable grounds to believe that the records would be relevant to an ongoing criminal investigation. Although these investigative techniques are used primarily in criminal matters, they can provide a guideline for national security issues. Even a "reasonable suspicion" standard that an individual may be connected to a national security risk or harm may go a long way in limiting dragnet government surveillance. On the other hand, the proposal only places a procedural "speed bump" by requiring the government to get a court order before accessing the records. Given the importance of national security and the ease by which it justifies government action, the proposal may be more about appearance than in actual substance. Some members of Congress even gained political capital just by calling for reform in this arena. Overall, any step towards tighter scrutiny is positive and hopefully the public will benefit from more transparency.

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April 10th, 2014 at 3:43 pm

IRS Ruling Declares Bitcoin Will Be Taxed As Property

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On March 25, 2014, the Internal Revenue Service issued a ruling declaring that it will tax virtual currencies, such as Bitcoin, as property. This ruling could have significant effects on the way that consumers use Bitcoin. The implication of the ruling is that Bitcoin can no longer operate as an alternative form of currency because any transaction using Bitcoin as consideration will lead to a capital gain or loss for the person paying with Bitcoin. Bitcoin fluctuates drastically in value, which means that almost every transaction using Bitcoin will result in some sort of gain or loss which will now be taxable at capital gains rates. So, for example, if a person buys a Bitcoin for $10 and uses it to purchase an item for $15, he or she will be required to pay capital gains tax on the $5 increase in value. The extreme value fluctuation, however, also explains why the IRS’s ruling may not be as extreme as some commentators suggest. It is, in fact, this value fluctuation which has led consumers to use Bitcoin primarily as an investment medium, like gold, silver, and other commodities, rather than as actual currency. The rapidly changing value of Bitcoin provides plenty of room for investors to try to maximize value by betting on the increase or decrease of the technological commodity. There are also significant administrative restrictions which will make the IRS’s ruling difficult, if not impossible, to enforce, at least with respect to the average individual. In order to determine the amount of capital gains tax an individual owes to the U.S. government, he or she will have to carefully track all of the purchases made with Bitcoin over the course of the year. If individuals are making multiple purchases with Bitcoin, this will prove to be a very tedious and complicated requirement and is likely to discourage individuals from using Bitcoin as currency in the first place. In addition to being difficult for individuals to monitor their capital gains, it will be just as complicated for the IRS to figure out how much it should be receiving in taxes from these individuals. Bitcoin’s original purpose was to provide a type of currency that was completely anonymous, which is why it has often been used in funding illegal transactions. The virtual wallets which house Bitcoins are not tied to individuals; this will make it very difficult for the IRS to monitor how much capital gains tax individuals owe on their Bitcoin transactions. This administrative monitoring gap may provide a new venue for entrepreneurs to develop a platform which provides tracking of an individual’s basis in and purchases using Bitcoin in order to properly determine how much capital gains tax they owe in connection with Bitcoin transactions. But without this type of platform, it is unclear how the IRS will effectively enforce its new ruling. Sources:
  • http://money.cnn.com/2014/03/31/technology/irs-bitcoin/
  • http://techcitynews.com/2014/03/28/bitcoin-is-property-not-currency-rules-irs/
  • http://techcrunch.com/2014/03/30/bitcoin-slips-in-the-wake-of-the-irss-tax-decision/
  • http://www.coindesk.com/irs-bitcoin-ruling-may-bright-side/
  • http://www.inman.com/2014/03/31/irss-bitcoin-guidance-turns-every-transaction-into-a-reportable-capital-gain-or-loss-at-tax-time/
  • http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
  • http://www.theatlantic.com/technology/archive/2014/03/why-bitcoin-can-no-longer-work-as-a-virtual-currency-in-1-paragraph/359648/
  • http://www.theguardian.com/technology/2014/mar/31/bitcoin-legally-property-irs-currency

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April 8th, 2014 at 10:27 am

Should Regulations Adapt to New Technology, or the Other Way Around?

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This past week, Texas Governor Rick Perry came out in favor of changing Texas’ so-called “antiquated” laws prohibiting automobile manufacturers from selling directly to consumers. [i] In states across the country, these laws have come into recent controversy because they effectively prohibit Tesla Motors from selling their vehicles: for a variety of reasons, Tesla does not sell through an automotive dealer and instead sells their vehicles directly. This situation presents a classic question that has arisen throughout the history of the regulatory state. Should regulations adapt to new technology, or should new technology adapt to regulations? For the developer of the new technology, the answer is of course the former. Tesla Motors CEO Elon Musk has discussed several barriers to Tesla being able to adjust its sales model to utilize dealerships. For example, Musk has noted that dealers would be incapable of adequately explaining Tesla’s technology to consumers. He has also argued that dealers selling both Tesla’s and gas powered vehicles would have a conflict of interest. The incentive for dealers would be to perpetuate reliance on gas-powered vehicles, since most of their fleet is comprised of those vehicles. Finally, Musk has stated that the failures of other electric vehicle manufacturers prove that the dealership sales model is impractical for emerging manufacturers. Because these regulatory barriers are practically insurmountable to Tesla, Musk argues that they should be removed. Competitors to an emerging technology company counter that changing a regulation to adjust to a new technology in a way that hurts established companies is unfair. They have played by the regulatory rules and are now possibly being put at a competitive disadvantage for doing so. Government, and the public at large, may also oppose changing the regulations. Changing the regulations may be better for widespread proliferation of new technology, but may result in net loss of jobs or decreased tax revenue. Regulators should weigh these factors in order to determine whether to adjust regulations to a new technology. In the case of Tesla Motors, there are compelling reasons to think that states should adjust their dealership regulations. In 2006 Tesla Motors introduced the Tesla Roadster, the first production battery electric vehicle to travel over 200 miles per charge. [ii] Seven years, 2,400 Roadsters, and 13,000 Model S Sedans later, business is booming for Tesla. Their stock is up over 400% this year alone. [iii] In 2014 the company expects to sell 30,000 of their 265 mile-per-charge Model S’s, [iv] and to start production on the Model X; [v] a 270 mile-per-charge crossover vehicle. Tesla is also developing a factory that will aim to produce 500,000 lithium-ion batteries a year by 2020, more than were produced worldwide in 2013. [vi] All of this shows that there are several significant benefits to the public of ensuring Tesla’s continued technological progress. Moreover, as Elon Musk has pointed out, the dealership requirement has proven to be an insurmountable barrier to entry for other electric vehicle manufacturers. Prohibitive barriers to entry created by regulations may stagnate industry progress by preserving the status quo.

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April 4th, 2014 at 2:56 pm

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Keurig Walls Off the Garden by Shutting Out Third Party K-cups

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Keurig, the single serve coffee machine produced by Green Mountain, is nearly ubiquitous in offices, homes, and schools around the country. The device rose to popularity on the back of the K-cup, the single serve pods produced by Green Mountain that allowed a single cup of hundreds of different coffee, tea, and chocolate drinks to be brewed in a matter of seconds. Green Mountain made $3.9 billion in sales in 2012, with 2.7 billion coming from K-cup sales. Keurig was able to maintain strong sales of its K-cups because of several patents on the design and features of the K-cup. However, in September 2012, U.S. Patent Nos. 5,353,765 and 5,840,189 expired. These two patents covered the original K-cup design. Their expiry has opened the door for generic knockoff K-cups to flood the market. Green Mountain claims that the design covered by these patents is outdated and has been superseded by new and improved designs covered under patents that are still in force, including, U.S. Patent Nos. 6,645,537 and the still pending Application No. 20050051478. However, many generic K-cups are already on the market and work in Keurig’s brewing machines. While Keurig claims that generic K-cups will continue to make up less than 15% of the total K-cup market and stress that their current design is superior to any competing product, Green Mountain is clearly worried about the generic threat. In early March of this year Green Mountain announced “Keurig 2.0,” an improved brewing device that would be launching as early as the fall of 2014. Among other changes over previous models, the new Keurig brewer will contain technology that prevents generic K-cups from being used. Green Mountain is the latest to introduce protections for their propriety technology, following in the footsteps of Hewlett-Packard and other printer manufacturers who have added technology to their printers preventing generic printer cartridges from being used, or software companies that have added Digital Rights Management (DRM) to their software to prevent piracy. It is unclear exactly what sort of form this proprietary protection will take, but past forms used in printers include RFID tags. In any case, Green Mountain has made clear that they will still allow third parties to produce K-cups so long as they obtain a license from Green Mountain. Already, a legal fight is brewing over Green Mountain’s proposed move. TreeHouse Foods and Rogers Family are already suing Green Mountain on antitrust grounds. Besides the antitrust concerns, Green Mountain may have difficulty stopping third parties that circumvent their protections. In 2012, Lexmark installed technology to prohibit generic printer ink refills in their printers and lost an appeal in the 6th Circuit for a copyright and DMCA claim against a company that developed a work around for the protection technology for their generic ink refills. In the near future, the legal precedents set by these cases could have far-reaching effects on DRM and physical proprietary protections across the market.

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April 2nd, 2014 at 4:22 pm

3D & 403: Using 3D Printing in Litigation

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3D printing has received attention for its potential to lead to litigation, but little has been said about using 3D printing during litigation. Yes, 3D printing raises a number of legal issues that may result in lawsuits. But the rapid pace of development and the corresponding increase in affordability hints at another potential development: the incorporation of 3D printing into opening statements, witness examinations, and closing arguments. 3D printing has been recently used to create replicas of the human liver to help surgeons during operations, to reconstruct a man’s face after a serious motorcycle accident, and even to create food in the shape of space shuttles and tractors. The possibilities are endless. And 3D printing could easily be applied during litigation as well. For example, a 3D scan of a stabbing victim’s injuries could be used to reproduce the wound and to show a match with the knife found on the defendant. In the realm of civil litigation, a 3D scan and model of two cars involved in a collision could be used to help the jury in determining which driver caused the accident. As the cost and time needed to print objects decrease and the number of available materials and colors increase, 3D printing could become a mainstay in any polished litigator’s toolbox. That said, the trial potential of 3D printing does not mean we should all immediately jump on the bandwagon. There are a number of speed bumps potentially preventing a full-blown revolution in exhibit presentation. Judges are notoriously resistant to change, and working 3D representations into trial presentations in an era where some courtrooms are still without television screens and electronic presentations may be difficult. Furthermore, some judges sitting in courtrooms with electronic presentation capabilities may be weary of reverting back to the cumbersome presentation of physical evidence in the form of 3D models (and replacing existing televisions with the still-developing technology of 3D televisions seems unlikely given budgetary constraints). Perhaps more importantly, Federal Rule of Evidence 403 and its state-level counterparts may create evidentiary challenges. For example, in Commonwealth v. Serge the Supreme Court of Pennsylvania encountered a challenge to the use of a computer-generated animation used at trial to depict the prosecution’s theory of the fatal shooting. 586 Pa. 671. According to the defendant/appellant, the cost of creating the animation and its use of a combat-style crouch were unfairly prejudicial. While the challenge was unsuccessful, similar challenges could come up in the use of a 3D model. The cost of 3D printing could pose problems for indigent defendants in criminal cases in the near future, but there are two reasons why such a challenge will be unlikely to succeed. First, the similar challenge to cost was unsuccessful in Serge, and the price tag (between $10,000 and $20,000) in that case was significantly more than the cost of entire 3D printers (and that does not include adjustment for inflation). Second, unlike the case in Serge, there would not be a need to create an opposing 3D model because 3D printing would involve scanning and recreating actual objects. The more plausible challenges to the use of 3D printing, is that it may potentially confuse the jury and waste time. The introduction of a model could focus the jury more on the model than on the issues of fact in the case. Alternatively, any disagreement on the accuracy of the model could lead to mini-trials on whether to admit the model as evidence or to permit it to be shown to the jury during trial. 3D printing is likely going to cause litigation, but its use during litigation and the corresponding evidentiary issues that it presents should not go under the radar.

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March 31st, 2014 at 9:32 am

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Patent protection is essential yet insufficient for the success of a startup

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Pebble has successfully run the largest Kickstarter campaign, raising more than $ 10.2 million in 2012 [1] [2]. However, Pebble’s future might not be so bright. First, the USPTO recently issued a final rejection to Pebble Technology’s only US patent application (US Patent Application Number 13/511,531 titled System and Method for Alerting a User on an External Device of Notifications or Alerts Originating from a Network-Connected Device) on March 10, 2014 [3]. In contrast, Apple has filed at least 79 patents related to smart watches [4]. Second, large companies have the resources to defend themselves against non-practicing entities while a startup such as Pebble Technology does not. Fortunately for Pebble Technology, this concern is somewhat alleviated by the 2013 Obama Executive Order on Patent Trolls. But Pebble is also facing strong competition from established consumer electronics giants such as Sony. In addition, other companies such as Google and HTC are eager to enter the market. Furthermore, cheaper alternatives such as Fitbit may be more attractive to some consumers. Clearly, the wearable technology space is not short of impressive design and technologies [5] [6]. Navigating a crowded technology space is definitely not easy for a startup. To be successful, a startup needs to be innovative, to have a strong business plan and strategy, and to have intellectual property protection. And Pebble Technology might need help in all these areas.

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March 30th, 2014 at 11:39 am

Heavily Redacted: Warner Bros. Fights to Keep its Anti-Piracy Practices Secret

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Have you ever wondered how a massive Hollywood studio like Warner Bros. combats online piracy?  (A team of ninjas with computer science degrees, perhaps?)  Well, if Warner Bros. has their way, you won’t be finding out anytime soon.  Warner Brothers is fighting the Electronic Frontier Foundation’s (“EFF”) motion asking a Florida federal court to unseal documents from Disney  v. Hotfile (S.D. Fla., Jul. 8, 2011) that describe Warner Brothers’ anti-piracy practices. The EFF is looking to unseal information about Warner Bros.’ system for sending takedown notices to websites following the Digital Millennium Copyright Act (“DMCA”) notice-and-takedown system.  In light of Congressional requests for input about the notice-and-takedown system established under the DMCA, the EFF feels that information about the practices of large copyright holders is critical for meaningful public dialogue about the DMCA.  In particular, the EFF hopes the documents in question will reveal which of Warner Bros. actions might have been in violation of 512(f) of the DMCA, which prohibits copyright holders from sending takedown notices absent a basis for believing the material is infringing. Warner Bros., filing in opposition to EFF’s motion, asserts that if the court releases information about its DMCA enforcement practices to the public the information will enable those committing online piracy to “evade detection.”  In a declaration in support of Warner Bros.’ request to keep the documents sealed, Warner Bros.’ Senior Vice President of Anti-Piracy operations David Kaplan stated that those familiar with Warner Bros.’ piracy detection practices could “infringe without fear of detection.”  Warner further asserts that EFF’s claim that the records should be unsealed for the public interest are a “thinly-veiled effort to gain…tactical advantage in private litigation that EFF regularly brings against copyright owners.” The decision regarding whether or not to unseal the documents is now in the hands of Judge Kathleen Williams, who must balance the respective interests of the EFF and Warner Bros.  Her decision could have serious implications for the future of litigation under the DMCA and, potentially, the future of the DMCA itself.  If she elects to keep the records sealed, the specifics of Warner Bros. anti-piracy practices under the DMCA will remain private.  But if you still want to know the details, consider the saying “If you can’t beat them, join them.”

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March 29th, 2014 at 11:04 am

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Lawsuit against Aereo heads to the Supreme Court

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The New York-based startup Aereo has recently been making waves in the digital television world by creating a low-cost option for consumers to watch and record live broadcast television, providing a service similar to Internet-based streaming websites such as Hulu. Aereo, however, stands apart from these services: Aereo leases to each subscriber an individual remote antenna, allowing these subscribers to view and record certain live television broadcasts on Internet-connected devices without having to purchase a subscription to the entire broadcast packages offered by cable companies. Although Aereo has enjoyed tremendous success in the two years since its founding, Aereo has recently been embroiled in legal battles over whether its business model constitutes a public performance, which would legally require Aereo to obtain retransmission consent from the content providers. Last month, the District Court of Utah became the first to temporarily shut down the service. Judge Dale A. Kimball of the District Court of Utah granted a preliminary injunction sought by broadcasting companies such as Fox claiming that Aereo is stealing their broadcast signals for profit, shutting down Aereo’s services in Salt Lake City and Denver. Such injunctions have been previously denied in the New York and Boston. Aereo founder and CEO Chet Kanojia states that the television industry is terrified of Aereo, and that the company was “extremely disappointed” in the recent decision. Kanojia claims that the antennas used in this service must be treated the same as antennas that people use to pull TV signals for free. This argument rings true in one deep respect – any individual can travel to Radio Shack and upgrade their television antenna. Yet, retransmission is currently illegal, and Aereo has created a service that works around this by renting antennas and virtual connections, a method that is hanging on by a mere technicality. Broadcasting companies such as ABC, Fox, NBC, and CBS have the highest stake in seeing Aereo fall; they currently claim that Aereo is stealing their content, and that their practice could even lead to the end of broadcast television. Major broadcasters have expressed concern that cable providers, who currently pay broadcasters to the tune of $4 billion in transmission fees per year, may set up services similar to Aereo and will no longer pay fees, depriving broadcasters of all profit. American Broadcasting Companies v. Aereo will be heard in front of the Supreme Court in April, featuring “two American archetypes in a battle that could upend the television industry.” As the New York Times states, this decision will have “far-reaching implications for a television industry already in upheaval, facing challenges from online streaming, Internet-enabled TVs, ad-skipping devices, and now, the tiny antennas that Aereo uses to capture broadcast signals." The Aereo issue demonstrates the fundamental difficulty in technology and law – technology is outpacing law faster than ever, while legal standards struggle to keep up with ever-evolving industries.

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