Last month, Senator Tillis (R-N.C.) introduced a bill to change the rules that govern what can be patented. Briefly, current patent eligibility law prevents companies from trying to own basic ideas and from trying to preclude others from building new businesses or innovations that rely on those underlying ideas. For the past decade, patent eligibility law has played an important role in combating abusive litigation practices and protecting startups from frivolous lawsuits. The bill introduced last month, the Patent Eligibility Restoration Act of 2022 (PERA), would change that. Below we unpack some of the proposed changes that would establish new definitions for what could be patented, giving rise to concerns that PERA would allow patents on abstract ideas that tie up innovation, create confusion about patent eligibility, and increase the amount and cost of patent lawsuits.
Background:
To follow what is happening with this new bill, it is important to understand how current patent eligibility law works, how it applies in ways that benefit startups and small businesses, and how we got here.
Patent eligibility law is rooted in § 101 of the Patent Act, which precludes people from obtaining or enforcing patents on abstract ideas, laws of nature, and natural phenomena. For example, a patent owner cannot claim (or seek to own) the idea of scheduling medical appointments using a computer; the idea of filtering e-mail; or the act of collecting, analyzing, and displaying certain data. This is also the area of law that says you cannot patent human genes.
How does it work? When patent examiners or courts consider whether something is eligible for patent protection, they first ask whether the claims at issue are directed to an abstract idea, law of nature, or natural phenomena. If so, the claims might be ineligible. But if they articulate a further “inventive concept”—that is significantly more than the mere idea or phenomena itself—that can be eligible. This ensures that “that the patent in practice amounts to significantly more than a patent upon the [abstract idea] itself.”
A hypothetical based on a real case helps illustrate this. Consider an invention related to looking at health records and making a medical diagnosis. If a patent application just claimed inputting medical records into a generic computer, comparing those records with a database of treatment options, and generating a list of possible treatments—that would be ineligible because it’s an abstract idea with a totally generic, functional implementation. However, if a patent claimed specific, improved technology for the operation of computers that aid in medical diagnosis, that could be eligible.
Why does it matter to startups? First, if we allowed patents to tie-up abstract ideas, that would harm innovation and competition by allowing a single patent holder—who contributed nothing truly inventive—to stop other innovators and entrepreneurs from using those ideas. Second, eligibility law plays a critical role in litigation by providing a way to weed-out the type of low-quality patents that are routinely asserted against scores of startups and small businesses. Broad, preemptive patents on basic ideas or concepts (as opposed to specific inventions) would, by their nature, often be assertable against numerous companies. But under current law, those accused infringers can raise patent eligibility as a defense very early in litigation, resolving frivolous cases before expensive discovery kicks in.
How did we get here and why are startups (still) dealing with these lawsuits? Historically, courts recognized a rule against patenting abstract ideas, laws of nature, and natural phenomena. But after a few controversial appeals court decisions in the 1990s, patent eligibility law started being applied in a new way that ultimately opened the door to weak, overbroad software and business method patents. You might think it’s obvious that no one should be able to own the idea of budgeting using a computer or of classifying and storing digital images; but one court started to allow those through (and they don’t expire for 20 years). We saw these types of patents often litigated and imposing costs on businesses. Fortunately, the Supreme Court eventually stepped in to correct this, deciding a series of cases which again confirmed the rule against patenting abstract ideas.
Now there is a push from some stakeholders and policymakers to effectively “restore” the misguided approach from the 1990s. Below are some of the changes being proposed today and why they matter.
What’s in the PERA bill?
Lower thresholds for patenting abstract ideas 🡪PERA would replace the broad prohibition against patenting abstract ideas with a weaker exclusion that would only bar a narrow list of ideas from patent eligibility. And it would change that “inventive concept” requirement, opening a loophole that would allow patenting these ideas by merely adding generic or functional language.
New categories of patent (in)eligibility 🡪The bill purports to prohibit patenting mathematical formulas; non-technological economic, financial, business, social, cultural or artistic processes; mental processes performed solely in the mind; processes that occur in nature totally independent of human activity; or unmodified human genes or natural materials. As discussed below, the catch is that the prohibition only applies if something within this list is “claimed as such.”
So what? It is unclear what would—and would not—be eligible for patent protection based on this list of undefined terms, and that would feed more and more expensive patent litigation and less clarity in examination. While some of the bill’s language, like “mental processes,” is similar to current eligibility law, PERA would shrink the concept of “abstract ideas” and create space for patenting ideas that are not enumerated. Importantly, the bill also leaves us wondering where the lines for eligibility would be drawn. It would necessitate years (likely decades) of courts and patent examiners defining, on a case-by-case basis, terms like “economic” and “social” processes. That uncertainty would prolong litigation and drive costs higher. And by making it harder to identify and weed-out ineligible patent claims, it would re-open doors to abusive practices in which patent owners wielding abstract patents are able to leverage the length and cost of litigation to coerce startups and small businesses.
Just appending generic, functional language might be enough to get a patent 🡪 PERA would prohibit patenting of mathematical formulas or mental processes performed solely in the human mind only if they are “claimed as such” (i.e., if only the idea and nothing else is claimed). If the same mathematical formula or mental process were just implemented on a generic computer, that would presumably become eligible. And there is a different rule for economic, financial, business, social, cultural, or artistic processes: for those, just adding a computer or a generic, functional implementation would not automatically make them patent eligible. There is a second step: if the machine implementing those processes is “merely storing and executing the steps of the process,” then it would not be eligible.
So what? The bill’s multi-tiered structure for assessing eligibility would allow weak, overbroad patents (e.g., overbroad software patents, those claiming basic data collection and analysis) to slip through the cracks, some of which would in turn be asserted against tech-enabled small businesses across the country. As noted, current law bars people from evading patent eligibility standards by merely dressing up a patent on math or a mental process with generic or functional language. PERA would allow patent applicants to get those patents on mathematical formulas and mental processes if they simply mention, e.g., a generic computer processor, “telephone unit,” or off-the-shelf neural net. Importantly for startups, this would erase a long line of cases saying you cannot patent things like collecting, storing, analyzing, and displaying data using a computer. Those sorts of patents, when they have improperly been issued, have been used to prop up litigation campaigns affecting lots of companies.
The bill could also lead to more prolonged patent lawsuits 🡪PERA explicitly states patent eligibility can be decided at the summary judgment stage of a lawsuit, allowing courts to determine eligibility “on motion of a party when there are no genuine issues of material fact.”
So what? While it is unclear what this language seeks to accomplish, it could be interpreted in ways that needlessly prolong litigation. Right now, patent eligibility defenses can be raised at the very start of a lawsuit, on a motion to dismiss filed in the early days or months of a case. Summary judgment, on the other hand, happens many months—sometimes years—after a case starts, and requires parties to complete a lot of costly fact and expert discovery. Since PERA signals that courts can decide eligibility at summary judgment, it could impose additional uncertainty and costs by casting doubt on deciding clear-cut cases even earlier.
Why is this happening and where is this bill headed?
The push for changes to patent eligibility are coming from a few directions, but proponents appear to have a hard time agreeing on exactly why—and how—the law should change.
For example, some argue that the current law of eligibility is too uncertain. Certainty in the law is absolutely essential, especially for startups who cannot afford teams of lawyers to make close judgment calls on everything they do. And when it comes to patent eligibility, most cases deciding patent eligibility are pretty predictable—even though there are surely some close, disputed cases that are cited as evidence of uncertainty. In any event, if a major driver for this legislative proposal is purported legal uncertainty—taking our current eligibility law, that has been subject to decades of interpretation by courts and examiners, and replacing it with new statutory language that would have to be interpreted from scratch is likely to increase rather than decrease uncertainty. And that cannot deliver the certainty and clarity innovators and small businesses need.
Relatedly, some argue that current patent eligibility law has caused there to be less innovation in the U.S. Engine has done our own research, and looked at data from Census, PitchBook, and others, which shows an increase in the amount of money invested in startups and R&D across the country and the innovation economy. And because current patent eligibility law prevents weak, overbroad patents from preempting valuable innovation or standing in the way of entrepreneurs, and it is useful to curtail the money spent on frivolous litigation, there are plenty of examples where current law has been good for startup innovators.
Where does this leave us? There is not much time left this Congress for new legislation to move, so it seems unlikely we will see new rules for patent eligibility this year. But this is an issue that keeps coming up, and PERA’s proposals could set the stage for what happens next Congress. So it is still important for lawmakers and their constituents to understand how current eligibility law impacts startups, and it is critical that any legislative proposals preserve the good parts of our law and avoid reinvigorating abusive practices that had been fading.
Disclaimer: This post provides general information related to the law. It does not, and is not intended to, provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.
