Software Patents Are Resilient in the Wake of Alice Corp. vs. CLS Bank

With the one year anniversary of the Supreme Court’s ruling in Alice Corp. v. CLS Bank Int’l. (decided on June 19, 2014) recently passed, Envision IP and The Patent Box, LLC  have collaborated to analyze the impact of the decision on patent application filings from the technology, financial services, and automotive sectors.

In the first part of what we anticipate will be a multi-part series investigating the impact of the Alice Corp. decision we start by taking a big picture look at overall patent issuance (grant) data in the technology, automotive and financial sectors. We started our analysis by gathering US patent issuance data from various software and business methods-related classes, where the issue dates were six months prior to, and six months post, the Alice Corp. decision.  The specific U.S. patents classes used for our data set include: 700-708, 715, 717, 726 and 902.

At a high level, we have found that the technology and automotive industries have fared well in the early days of the post-Alice Corp. era. The companies in these sectors that we reviewed all experienced an increase in issuances for software and business methods patents in the six months following the Alice Corp. decision, versus the first half of 2014. On the other hand, the financial services sector overall saw a slight decrease in the number of issuances of the same.

From January 1, 2014 to June 19, 2014 (Pre-Alice Corp.), the technology companies we reviewed were issued 2,344 software/business methods related patents. In the six months following the Alice Corp. decision (Post-Alice Corp.), these companies were issued 2,794 software patents, equating to a ~19% increase in issuances.

Similarly, the automotive companies we reviewed were issued 572 software patents Pre-Alice Corp., and 730 Post-Alice Corp., representing a ~27% increase in issuances.

The financial services companies we reviewed were issued 738 software/business methods patents Pre-Alice Corp., and 703 Post-Alice Corp. Though not a significant decrease in issuances (~5%), it is interesting to see that the financial services sector did not have as much success as a whole in receiving software patents Post-Alice Corp., when technology and automotive companies experienced a significant increase in issuances.

AliceCorp_Issuances_Pre_Post

However, when looking strictly at Class 705, which is designated as the business methods classification by the USPTO, all three sectors experienced significant decreases in issuances Post-Alice Corp. It is important to note that in terms of volume, the technology and financial services sectors had significantly larger numbers of patents in Class 705 than the automotive sectors. That being said however, the technology companies as a whole experienced a ~20% decline in patents issued in Class 705 Post-Alice Corp., while the financial services companies experienced a ~35% decline of the same.

AliceCorp_Issuances_Pre_Post_Class_705

While our analysis suggests that the Alice Corp. decision reduced the number of issuances for patents in Class 705, companies in all three sectors were still able to obtain patents with business methods claims. The decline in issuances for Class 705 patents is not as dramatic as expected, and it appears that Alice Corp. has only made it marginally difficult to obtain business methods patents, but certainly not impossible.

In addition, the ability to obtain software patents in general has not been dramatically affected either, aside from the financial services companies which experienced a slight 5% decrease in issuances Post-Alice Corp.

Taking a look at each specific sector, the data varies on a company-to-company basis as well. Among the technology companies that we reviewed, Google, IBM, and Apple all experienced a double-digit increase in software patents Post-Alice Corp. Amazon showed the slightest increase, with ~3%.

Technology_Post_Alice_Corp_Issances

Within the group of financial services companies that we reviewed, a few companies actually experienced an increase in Post-Alice Corp. issuances for software patents. Morgan Stanley and Capital One saw double-digit increases, on par with many of their technology company peers. Fidelity also showed an increase Post-Alice Corp. The remaining firms that we reviewed however all showed double-digit declines in software patent issuances Post-Alice Corp.

Financial_Services_Post_Alice_Corp_Issances

Similar to the technology companies we reviewed, each of the automotive companies on our list experienced an increase in Post-Alice Corp. software patent issuances. Hyundai showed the most significant increase among all companies that we reviewed, with a staggering 170% increase in software patent issuances. Looking at actual numbers, Hyundai received 36 software patents Pre-Alice Corp., and 98 Post-Alice Corp.

Automotive_Services_Post_Alice_Corp_Issances

Overall, each sector includes companies which have been able to navigate the Alice Corp. decision favorably, as the chart below indicates. Surprisingly, it is automotive companies and a financial services company that have had the highest success in receiving software patents at the Supreme Court decision, even more so than Google and IBM.

Post_Alice_Corp_Highest_Issuance_Rates

Taking a look at all issuances across the software and business methods classes during the same period, there was a general increase in issuances in the first quarter of 2014. However, the issuances dropped by ~10% between April to mid-June, when the Alice Corp. decision was handed down. Interestingly, issuances subsequently spiked to a yearly high of 4,161 issuances in July. The trend is somewhat inconsistent for the remainder of the year, with issuances dropping to 3,507 in August, spiking again in September to 4,088, and then falling to a low of 2,882 in November before slightly rebounding in December.

The drop towards the end of 2014 in issuances for software and business methods-related patents may be attributed to the USPTO’s Guidance on Subject Matter Eligibility which was issued on December 16, 2014.

The trend is similar when we look solely at issuances in Class 705, with an initial spike in July, followed by a general downtrend which bottoms in November with 241 issuances. Compared to an average monthly issuance rate of >600 patents in the first quarter of 2014, and a high of 902 issuances in April.

The overall trend for all software issuances is positive for 2014, while the trend is negative for patents in Class 705 specifically (looking strictly at the companies mentioned in this article, and not all patent issuances in Class 705 and other software/methods classes).

Issuance_Trends_Pre_and_Post_Alice

In summary, software-related patents in general have not been negatively affected by the Alice Corp. ruling, and in fact, we have seen a rise in software patent issuances for FY 2014. However, patent issuances in Class 705, the business methods class, have seen a dramatic decrease of nearly 50% for FY 2014. It is important to note however that obtaining a patent from the USPTO is just half of the battle for patent owners. With an increasing negative environment for software and business method patents in the Federal Circuit and before the PTAB, successfully combating an invalidity attack may prove to be a challenge.

In follow-on posts we will expand our data set to include the most recent 6-month period.  This will allow us to see the impact of more recent Examiner guidelines.  We will also leverage The Patent Box to look more carefully at the prosecution histories of cases from a random sampling of file wrappers within out set, in hopes of understanding how the path to allowance has changed in the wake of the Alice Corp. decision.

More about Envision IP: Envision IP LLC is law firm specializing in high-stakes prior art invalidity and clearance searching, patent portfolio valuation and transaction due diligence. Envision IP’s clients include Global 500 patent holders, national and regional law firms and institutional investors and patent-focused fund managers.

More about The Patent Box, LLC:  The Patent Box, located in Philadelphia, PA, offers a powerful US patent file wrapper search engine, custom analytics and competitor monitoring that each offers meaningful insight on patent tactics and trends.  The firm was founded in 2010 by Paul Dougherty, a US Patent Agent and former USPTO Patent Examiner.  Paul can be contacted at: paul@thepatentbox.com

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