THESIS - RESEARCH MASTER INFORMATION LAW

Error 52(2)(3)/101: as (Un)Patentable Subject Matter A comparative analysis of the legal standards for software protection in Europe and the United States.

Abstract This thesis discusses the of software in both Europe and the United States. The main question to be addressed is whether the exclusion of software from patent protection is still meaningful in light of its historical development and current application, and whether there is still room for improvement. After an analysis of the history and current legal standards under which software can be patented, this thesis turns to a comparison of both legal systems and finds that their overall historical development is surprisingly similar. This thesis will also show that, contrary to general belief, it is currently more difficult to obtain patent protection for software in the United States than in Europe. Ultimately, this thesis concludes that the exclusion of software from patent protection is outdated and leads to unnecessary complexities. In this regard, various problems related to software , such as the monopolization of building blocks, patent thickets and high litigation risks are discussed as well. In light of the aforementioned, the final part of this thesis discusses possible improvements to both patent systems in order to reduce “bad software patents” and to enhance legal certainty.

AUTHOR: Alexander D. de Leeuw DATE: 3rd of December, 2014 STUDENT NR: 6039944 SUPERVISOR: Sven J.R. Bostyn

TABLE OF CONTENTS 1. INTRODUCTION ………………………………………………………….…………..………. 5 2. RESEARCH FRAMEWORK ………………………………………………………….……… 8 2.1. Research Question …………………...………………..……………..……….………. 8 2.2. Hypothesis ……………………………………………………………………………. 9 2.3. What is Software? ………………...……………….…………………………….……. 10 2.3.1. Mathematical Methods ……………..…..…………..……………………… 11 2.3.2. Methods for Doing Business .……..…………………………….…….….… 12 2.3.3. Machine Software versus Business Method Software ………….………….. 13 2.4. Interim Conclusion …………………………………………………….………………14 3. LEGAL FRAMEWORK IN EUROPE AND THE UNITED STATES ……………….……. 15 3.1. Legal Framework in Europe ………………………………………………………….. 15 3.1.1. Statutory Exclusion of Software: Art.52 EPC ……..….…..….……….…… 15 3.1.2. Non-Patentable Subject Matter “As Such” …….....…………………….….. 17 3.1.3. Background of the “As Such” Provision ……...... ……………………..…... 18 3.2. Legal Framework in the United States …………………………………………...……21 3.2.1. United States Patent Act / 35 U.S.C. .….……………….……………..…… 22 3.2.2. History of 35 U.S.C. 101 …………….………….………….……………… 23 3.2.3. Diamond v. Chakrabarty: Broad Interpretation of § 101 …….………….… 25 3.2.4. Judicial Exclusion: Laws of Nature, Physical Phenomena and Abstract Ideas …………………………………………………………………..… 26 3.3. Interim Conclusion ………………………………………………………………...….. 29 4. DEVELOPMENT AND CURRENT LEGAL STANDARD IN EUROPE …...………….… 32 4.1. Interpretation of Article 52 by the European Patent Office …………………...... …. 32 4.1.1. Technical Character ………………………………………………………... 32 4.1.2. Technical Contribution to the Prior Art …….…………..…………...... 33 4.1.3. Technical Effect ……………………………………………………..……... 35 4.1.4. Further Technical Effect ……………………………………………..…….. 36 4.1.5. Combination of Software and Hardware ………………….……..……….... 38 4.1.6. Contradictions & Other Relevant Considerations .. ………………………... 42 4.2. Enlarged Board of Appeal in G 3/08 …………………………………………………. 43 4.2.1. Difference v. Divergence …………………………………………………... 44 4.2.2. Assessment of Contribution Approach …. ………. ………………………... 45 4.2.3. Assessment of Combination Approach …. ……………………………….... 46 4.2.4. Assessment of Further Technical Effect Approach ………………………... 46 4.3. What is the Current Legal Standard? ……………………….…..…………...... 47 4.4. Business Method Software …………………………………………………………… 49

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4.4.1. Business Method Software under the Combination Approach …………….. 49 4.4.2. Business Method Software under the Further Technical Effect Approach ……………………………………………………………. 50 4.5. Interim Conclusion ……………………………………………………………….…… 51 5. DEVELOPMENT AND CURRENT LEGAL STANDARD IN THE UNITED STATES .... 52 5.1. Interpretation of 35 U.S.C. 101 by U.S. Courts …………...... ….………….... 52 5.1.1. Point of Novelty Approach ……………………………………………….... 53 5.1.2. Freeman-Walter-Abele Approach ………………………………………….. 55 5.1.3. Machine-or-Transformation Approach …………………………………….. 58 5.1.4. Useful, Concrete and Tangible Result Approach ………………………….. 60 5.1.5. Significant Additional Features Approach ……………………………….... 64 5.1.6. Most Recent Ruling: Alice Corporation v. CLS Bank ………………..……. 67 5.2. What is the Current Legal Standard? …………………………………………...…….. 70 5.3. Business Method Software …………………………………………………………… 71 5.3.1. Business Method Software under the Machine-or-Transformation Test ……………….……………………………………………………………….. 71 5.3.2. Business Method Software under the Significant Additional Features Approach ………………………………………………………………………..… 72 5.4. Interim Conclusion ……..………………………………………..………………...…..74 6. COMPARISON OF BOTH LEGAL SYSTEMS ..………….………...... ………..……….…. 75 6.1. Comparison of Legal Standards ……………………………...... …………………... 75 6.1.1. The General Historical Development of Software Patentability ……...…… 75 6.1.2. The Specific Characteristics of Both Legal Systems ……………..………... 77 6.1.3. Comparison of the Current Legal Standards …………………………….….79 6.2. Is the EPC Exclusion Clause Eroded? ………………………………………………... 81 6.2.1. Original Intention Behind the Exclusion Clause – Travaux Préparatoires ……………………………………………………………………... 81 6.2.2. Original Intention Behind the Exclusion Clause – Case Law …………..…. 83 6.2.3. Has the Exclusion Clause Become Meaningless? ….…………….………... 84 6.3. Is § 101 of the U.S. Patent Eroded? …………...……………….....…….…………….. 85 6.3.1. Original Intention Behind § 101 – Case Law ……………………………… 85 6.3.2. Has the U.S. Invention Hurdle Become Meaningless? ..……….....……...... 87 6.4. Problems Faced in Both Legal Systems ……………………………………………….88 6.4.1. Overly Broad Patents ………...…………………………………..………… 88 6.4.2. Patent Thickets and Patent Trolls ……………………...…………………... 91 6.4.3. Defensive Patenting and Litigation Risks ……………………..…………… 92 6.4.4. Lack of Interference by Lawmakers ………..……………………………… 95

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6.4.5. How to Formulate a Clear-Cut Legal Standard ……………………………. 96 6.5. Interim Conclusion ……..………………………………………………….…………..97 7. POSSIBLE IMPROVEMENTS TO PATENT LAW ………………...……………………… 99 7.1. Further Limiting Patent Protection for Software …………..………..…………...…… 99 7.2. Abandon the Exclusion of Software ……...... …………..……...... ……. 101 7.3. Exclude Subject Matter Through Other Patentability Requirements ……………...…. 103 7.4. Combination of Improvements ……………………………………………………….. 106 7.5. Interim Conclusion ……………………………………………………………………. 109 8. CONCLUSION ………………………………………………………………………...………. 111 9. BIBLIOGRAPHY ……………………………………………………………………...………. 115 10. APPENDIX I ………………………………………………………………………………….. 131

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1. INTRODUCTION Smartphones, computers and other electronically operated devices play an increasingly important role in society, and represent an area of technology in which there is vast progress and an ever accelerating pace of innovation. Take smartphones for example: new models are presented on a yearly basis, there are high expectations of which and how many new features are included, and many people are keen on getting their hands on these latest models. The hardware in these devices is without a doubt patentable if it lives up to the three basic requirements of novelty, inventiveness and industrial applicability. Patent law was originally created to protect such tangible inventions. For another, and increasingly large part, the innovation in such devices lies in the software, or a combination of software and hardware, that is used to operate them. The innovation is then found in an intangible, rather than tangible medium, which caused different legal systems to have problems in implementing these inventions into the their legal framework for patent protection.1

The first question that might arise is why protection is sought under patent law, as opposed to law. It is fairly easy to get copyright protection. All that is required is a sufficiently original expression in order to obtain protection for as long as 70 years after the author’s death. This means that it is a low cost protection model with a long period of protection. However, the scope of protection under copyright law is often too narrow for software; it basically comes down to the protection of verbatim copies, and in some cases slight adaptations of the work. This is assumed to be one of the most important reasons for software developers to turn to patent law. The scope of protection provided by a patent is broad. A patent provides a very strong monopoly, which is hard to circumvent by competitors. In essence, it allows the applicant to obtain protection for the underlying idea, something that copyright explicitly does not. Additionally, software developers usually do not need a term of protection of 70+ years. Software is constantly changing and what is new at this moment is often outdated in one to five years. Thus, patent law seems better suited for the kind of protection that software developers seek. In light of the above, and however interesting it might be, it goes beyond the scope of this thesis to discuss copyright protection for software any further.

1 The term “invention” might be confusing in this regard: under the European Patent Convention, “software as such” is excluded from patentability as not being an invention. This will be further addressed in subsequent parts of this thesis. 5

Given the fact that the development of new software requires a considerable amount of time and investment, and copying it is relatively easy and cheap, the assumption is that a certain level protection is justified.2 On the other hand, if protection is for things that are too abstract, this might actually stifle innovation instead of promote it, which would be contrary to the purpose of patent law. Thus, a proper balance must be struck between these two countervailing considerations.

In Europe, this concern is reflected in Article 52(2) of the European Patent Convention (“EPC”). According to this provision, several categories of subject matter are excluded from patent protection as not being an invention. Software is one of those excluded categories. It is important to note, however, that according to Article 52(3) EPC, software is only excluded “as such”. There is a large quantity of case law on the interpretation and application of this exclusion clause, which will be thoroughly analysed in order to describe the historical development and the current standard as applied by the European Patent Office (“EPO”).

The legal framework for patent protection in Europe is somewhat different from that in the United States (“U.S.”), the most important difference being that there are no statutorily excluded categories of subject matter in the latter. Thus, the starting point seems to be that “anything under the sun that is made by men” is patentable, as also stated in Diamond v. Chakrabarty.3 However, in the same case it was also mentioned that “laws of nature, physical phenomena and abstract ideas” are not patentable.4 This creates difficulties for obtaining patent protection for software, because software leans close towards being an abstract idea or law of nature. As a result, several criteria under which a patent can be obtained for software have developed in subsequent case law. These cases will be analysed and compared to EPO case law on the same matter.

Despite the fundamental differences of the legislative frameworks, similarities can be found through this comparative analysis. Both comprise the notion that not all is patentable, of which software is a striking example, and both legal systems struggle with how to give shape to the conditions under which software can nonetheless be patented. This makes it interesting to compare these two legal systems.

2 Deschamps 2011, p.104; Bakels & Harison 2005, p.35. Economic theories about the desirability of patent protection for software will be discussed only to a limited extent. 3 Diamond v. Chakrabarty. 4 Diamond v. Chakrabarty; Parker v. Flook; Gottschalk v. Benson. 6

In short, and given the abovementioned, this thesis will look at whether the exclusion of software from patent protection is still meaningful in light of its historical development and current application under the EPC and in the U.S. In both legal systems, there is confusion as to what the current legal standard for software patents is. Mapping out and comparing the development of software patentability criteria in both systems will help to define the current legal standards, and diminish legal uncertainty as to when exactly software can be patented. The comparative analysis will show that even though both legal systems seem to have different starting points at first sight, similar criteria are used and similar problems are faced, which might enable one system to learn from the other. Thus, the comparison will show the overall development of both legal systems. Examples of the problems that will be discussed in this regard, are overly broad patents, litigation risks and the stifling of innovation. Combined with the increased importance of software, these problems are reason to examine whether the current standard of protection for software is still meaningful. The final part of this thesis will explore and propose possible improvements to the patent system.

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2. RESEARCH FRAMEWORK 2.1. Research Question The research question that will be addressed and answered in this thesis is:

Is the exclusion of software from patent protection still meaningful in light of its historical development and current application and is there room for improvement?

This question will be addressed through a threefold comparison between the European and U.S. patent system.

The first element of the research question consists of mapping the historical development of software patents (Chapter 3). Many changes have been made with regard to the conditions under which software could be patented. The historical overview sheds light on the context in which these changes must be viewed, and on the original thoughts on software patents. This will show why the framers of the EPC excluded software from patent protection, why the “as such” provision was added to Art.52 EPC, why software is not statutorily excluded in the U.S., and whether there are other exclusionary rules under U.S. patent law.

The second element of the research question lies in determining what the current criteria are under which software can constitute an invention (Chapter 4 and 5) and how they have developed.5 These criteria will be addressed with the overarching term “the current legal standard”. Due to a vast amount of diverging and constantly developing case law, the current legal standard is vague and not yet properly defined.6 However, it is essential to have an understanding of what this standard is before conclusions can be drawn with regard to the current system’s functioning. Therefore, common elements in recent case law will be compared to expose the current patentability criteria for software.7

The abovementioned elements create a framework for the third element of the research question. This consists of a comparison between software patents under the EPC and under

5 This is also relevant in light of finding a possible solution to the problems caused by software patents, as the historical development shows which roads have already been taken in the past and which have been successful. 6 Wisecup 2013, p.1653; Lambilotte 2012, p.639; Pierce 2012, p.186; Bakels 2009, p.514; Zekos 2006, p.434. 7 The terms “patentability” and “patent-eligibility” will be used interchangeably. 8

U.S. patent law, to point out the similarities between both legal systems (Chapter 6).8 The problems that both systems face with the implementation of software into the existing patent frameworks will also be compared. This comparison opens the door to the core assessment of whether excluding software under separate patentability criteria is a practice to be embraced or to be abandoned, and whether there is room for possible improvements (Chapter 7).

2.2. Hypothesis The hypothesis on which this thesis is based is:

The criteria used to exclude software from patent protection have become vague and meaningless, and the similarities between both legal systems will show that it would be better to abandon the categorical exclusion of software from patent protection.

The fundamental difference between European and U.S. patent law is that there is no statutory exclusion of software in the latter.9 Despite this difference, however, both legal systems comprise the notion that something as intangible as software requires a separate legal standard. Thus, in both legal systems specific criteria have been developed to determine whether patent protection can be afforded to software in a given case.10 Although the historical development and the terminology is different in both systems, it is expected that a similar reasoning is used to exclude software, and that a similar result is achieved.11 The problems associated with software patents are also expected to be similar. This creates a middle ground that has not yet been explored.

Based on these similarities, the meaningfulness of the current legal standard for the exclusion of software patents will be assessed. Currently, the European statutory exclusion of software seems to be eroded and the early U.S. freedom of patenting seems to be drastically limited, which has an effect equivalent to the statutory exclusion originally found in the EPC.12 Thus, a vicious circle unfolds. There is no coherency in the criteria, nor in the development thereof, and there is an ongoing discussion about how to apply the patentability criteria in practice. Neither system has as of yet arrived at a satisfactory result.

8 The relevance of a comparison to the U.S. was also highlighted in Guarda 2012, p.450. 9 Guarda 2013, p.452; Sterckx & Cockbain 2010, p.396, note 3; Rosser 2005, p.25; Hart, Holmes & Reid 2000, p.16 & 23. 10 Zekos 2006, p.427. 11 Struik 2010, p.353; Rosser 2005, p.27; Ferro 2002, p.372. 12 Valgaeren 2004, p.37; Cook 2000, p.123. 9

In light of the above, the comparison between the approaches taken in both legal systems is expected to show that any set of criteria aimed at categorically excluding software from patent protection will face insurmountable difficulties. Therefore, it seems necessary to reconsider how to deal with software patents. The expected conclusion is that it is not desirable to maintain separate patentability criteria for software, and that solutions can be found in the well-known patentability criteria of novelty and inventiveness.

2.3. What is Software? Software patents cause a great deal of confusion due to the complexity of the subject matter involved.13 No clear definition of software can be found in the EPC, Section 35 of the United States Code (“U.S.C.”) nor in case law of either one of the jurisdictions.14 Yet, many scholars and judges discuss software as if it is a clear-cut and demarcated concept, or something in the category of you know it when you see it. The lack of a clear definition is problematic, as it causes discussions on substantively different topics under the same denominator.15

A properly demarcated definition needs to be narrow and technology bound to some extent. Otherwise the definition will become too broad, vague and thereby meaningless. But when the definition is too narrow it will quickly lose its practical significance. Due to the fear that technical developments (which occur quickly in the realm of software) will easily transcend a static or technology bound definition, only few have tried to define software.16 And in the rare instance that software is defined, it usually does not go beyond a very broad definition.

In general, software can best be described as a set of instructions that, when incorporated in a machine-readable medium, is capable of causing a machine having information-processing capabilities to achieve a particular result.17 It is safe to say that it is probably impossible to

13 Bakels & Hugenholtz 2002, p.20. 14 The EPO explicitly notes that “software” is an ambiguous concept, and prefers the term “computer-implemented invention” over “software”. See http://www.epo.org/news-issues/issues/software.html (last visited 1 December 2014). In the EPC itself, the term “programs for computers” is used, as can be seen in the statutory exclusion of Art.52(2)(c) EPC. 15 Ferro 2002, p.369, note 9. 16. This is a problem that is hard to circumvent. 17 This is the author’s own definition, based on the Model Provisions on the Protection of Computer Software, Genève: WIPO 1978 (“a set of instructions capable, when incorporated in a machine-readable medium, of causing a machine having information-processing capabilities to indicate, perform or achieve a particular function, task or result”), Section 17 U.S.C. §101 (“a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result”), and literature, examples of which are Seltzer 2012, p.944 ("Software is the instructions given to a computing device to make it function."); Zekos 2006, p.426-427 (citing Section 17 U.S.C. §101 and describing software as “ and procedures carried out by software programs, descriptions of software written in a natural language, source code written on paper or stored in a computer’s memory […]”); Sterckx & Cockbain 2010, p.373 (“A program for computers may 10

give a more detailed definition of software that will fit all circumstances.18 For purposes of consistency and clarity, however, the following paragraphs contain an overview of the various (sometimes overlapping) categories that can fall within the scope of the term software. This includes mathematical methods and methods for doing business.19 A distinction that will prove to be important in a subsequent part of this thesis is that between “machine software” and “business method software”, which will also be described.

The term “computer implemented invention” is commonly used in connection with software patents.20 This does not mean that it only relates to inventions that are to be applied on personal computers, such as desktop computers and laptops. As described in the EPO Guidelines, computer implemented inventions are "claims which involve computers, computer networks or other conventional programmable apparatus [...]".21 It relates to any machine having information-processing capabilities, also known as electronically operated devices, and is used to describe an invention that needs some form of software in order for it to achieve the desired result.22 In light of this broad interpretation of what constitutes a computer, the term computer program will be used interchangeably with the term software.

2.3.1. Mathematical Methods Mathematical methods are the first aspect to consider when discussing software. The EPC makes a notable distinction between mathematical methods and programs for computers. Mathematical methods are excluded from patent protection under Art.52(2)(a) EPC, and computer programs under Art.52(2)(c) EPC.23 The fact that mathematical methods are mentioned in a separate paragraph, gives the impression that these are two distinct categories that are not related to one another. However, mathematical methods, also known as

thus be seen to be a series of instructions which, when installed on a computer, changes an otherwise functionless piece of equipment into one capable of producing a desired result.”); Guadamuz González 2006, p.1, note 2 (citing Section 17 U.S.C. §101); Laub 2006, p.346 (“The term [software] equally describes the concept of a computer program, which can be expressed via flow diagrams or by means of an .”); Park 2005, p.362 (“[…] a set of instructions […] capable of being executed by a computer”). It is not implied that software that is covered by this definition is always patentable. 18 Grosche 2006, p.287. 19 The individual discussion of these categories is based on the distinction made in Art.52 EPC. For the text of Art.52 EPC, see Chapter 3.1.1. 20 Bakels 2009, p.515. 21 EPO Guidelines Part G Chapter II-5 states that “claims which involve computers, computer networks or other conventional programmable apparatus whereby prima facie one or more of the features of the claimed invention are realised by means of a program or programs”. These claims may take the form of “a method of operating said apparatus, the apparatus set up to execute the method, or […] the computer program itself as well as the physical media carrying the program”. This clearly shows that this term is to be interpreted broadly. It is unclear how the term “conventional” relates to computer technology that is still unknown. 22 Bainbridge 2007, p.200. 23 For the text of Art.52 EPC, see Chapter 3.1.1. 11

mathematical algorithms, are in fact closely linked to computer programs.24 Computer programs are based on mathematical algorithms.25 The algorithms embodied in the software cause the computer to achieve particular results. Although there is more to a computer program than just the algorithm, it is an essential part of the program’s structure and functioning.26 A distinction between these categories thus seems slightly artificial for software.27 Therefore, when the term software is used in this thesis, it will also cover mathematical algorithms to the extent that they are used in computer programs.

2.3.2. Methods for Doing Business In a broad sense, business methods can be described as “methods for conducting [...] economic business activities”.28 This includes everything from accountancy to marketing.29 Business method patents are often perceived as a category that is distinct from software patents. However, there is some overlap. The first noticeable aspect about business methods and computer programs is that they are mentioned in the same paragraph of Art.52 EPC. The framers of the EPC thereby placed them under the same umbrella. This gives the impression that these two categories are somehow related.30 Some commentators even see business methods and computer programs as inseparable, stating that business methods are “by their very nature implemented by computer programs”.31

On the other hand, there seems to be a stronger bias in practice against business method patents than software patents, which implies a distinction between the two.32 For example, Bakels argues that business method patents are a “dangerous American invention”.33 This bias could be due to the fact that business method patents are a more recent phenomenon than software patents. Regardless of what the cause is, it raises the question of how these categories relate. For the distinction between software and business methods, the way in which a business method is implemented is essential. Therefore, business methods will be

24 Bradstreet 2013, p.376. 25 Grosche 2006, p.289. It is important to note that software is not necessarily limited to mathematical algorithms, for which see Bostyn 2001, p.87. 26 Grosche 2006, p.290. 27 Ballardini 2008, p.563; Laub 2006, p.355. 28 This is based on the definition that Ferro proposed. However, the word “non-technical” is omitted. This term is confusing in light of the technicality requirement under the EPC. Ferro 2002, p.369-370; Another broad definition can be found in the Improvement Act of 2001 (which was ultimately never enacted). This is not a definition that can be used to determine whether something falls under the statutory exclusion of business methods under Art.52 EPC. 29 Looijengoed 2005, p.604; Ferro 2002, p.369; Bostyn 2001, p.78. 30 Bradstreet 2013, p.376; Cook 2000, p.123. 31 Cook 2000, p.123. See also Bradstreet 2013-II, p.503. 32 Bakels 2004, p.1; Bakels 2002, p.347; Meijboom 2002, p.66. 33 Bakels & Harison 2005, p.42; Bakels 2004, p.1; Bakels 2002, p.347. 12

divided into two categories: abstract business methods and computer implemented business methods.34

Abstract business methods are by their very nature distinct from software; they are not executed by an electronically operated device. For example, assume that use of the colour blue more often in communications and advertisements, allows a company to sell more products. The employees of the company can put this abstract method into practice without the use of software. Thus, this category falls outside the scope of software patents. On the other hand, computer implemented business methods, as the name already suggests, are executed by an electronically operated device. They are given shape in the form software. An example of this is a method for monitoring customer behaviour on a website through an automated system in order to examine to which colours the customers react positively. Subsequently, the customers can be shown personalized advertisements based on their preferred colour, in order to increase sales. This is a method that needs to be performed using a computer program, and thus is computer implemented.35

It is very common for business methods to be implemented in software.36 References to software in a patent application can even enhance the patentability of the business method.37 In this regard, it must be noted that most abstract business methods can be transformed into computer implemented business methods by incorporating them into software.38 Furthermore, it can be difficult to make a distinction between the business method aspect of an invention and the software aspect.39 Therefore, the term software as used in this thesis includes computer implemented business methods.40

2.3.3. Machine Software versus Business Method Software Although it is clear that business methods often fall within the ambit of software, a distinction can be made between software aimed at achieving a particular result in a machine, and software aimed at executing a business method.

34 This distinction was also made by Ferro 2002, p.369. 35 In general, it can be held that the more complex the business method, the more likely it is that computer implementation is necessary. 36 Bradstreet 2013, p.376; Bakels 2009, p.519; Park 2005, p.336; Bakels & Harison 2005, p.42; Bakels 2002, p.349. 37 Bakels & Hugenholtz 2002, p.23. 38 Ferro 2002, p.369. 39 Bostyn 2001, p.78. 40 Where relevant, a distinction will be made between business method software and regular software. 13

In the first category, there is a strong relation between the software and the tangible medium, as the result that is to be achieved is in the machine that runs the software. Machine software changes the functionality of the device on which it operates. An example is the swipe- technique often used in smartphones.41 Another example is software that increases the speed of a sorting-machine. This intuitively makes this category less problematic in light of the tangible inventions that patent law originally intended to protect.

The latter category is clearly more abstract, and therefore encounters more resistance in practice with regard to its patentability. In this category, the machine on which the software is operated is only used to perform the business method, and is thus only a step towards the desired result of the invention. Although there might be changes in the tangible machine due to the software, or a slight increase in functionality, this is not what the business method software sets out to achieve. This distance between the intangible and the tangible is expected to have an effect on passing the patentability criteria and the related problems, which is why this distinction will be taken into account.42

2.4. Interim Conclusion This thesis sets out to answer whether the exclusion of software from patent protection is still meaningful in light of its historical development and current application. Software can best be described as a set of instructions that, when incorporated in a machine-readable medium, is capable of causing a machine having information-processing capabilities to achieve a particular result. This includes mathematical algorithms and business methods, to the extent that they are implemented in software. However, it is necessary to make a distinction between machine software and business method software. The latter is more abstract, as it is not aimed at achieving a particular result in a tangible good, but aims at electronically executing an abstract method. Even though it is necessary to perform the business method software on a machine having information-processing capabilities, it might face more difficulties under the patentability criteria. This will be addressed in Chapter 4 and 5. When software is used in an invention, this will be called a computer implemented invention, and the terms computer program and software will be used interchangeably. The following chapter sets out the legal framework from which the different legal standards have developed.

41 Software that is developed for daily use on a personal computer or smartphone, such as applications, also fall under the category of machine software. There are varying degrees within this category. The swipe technique has a clear effect on the functionality of the device. For an application containing a game this is less clear. However, the application still aims at changing the functionality of the device. Even though it seems less technical, it is machine software. 42 There will, however, always be a grey area between both categories. 14

3. LEGAL FRAMEWORK IN EUROPE AND THE UNITED STATES 3.1. Legal Framework in Europe The main legal instrument based on which patents are granted throughout Europe is the European Patent Convention (“EPC”), which establishes a centralized framework for patent applications.43 Once a patent is granted under the EPC, it falls apart into a bundle of separate national patents, which means that national patent law still plays a crucial role in the enforcement of patents.44 The Guidelines for Examination in the European Patent Office and the Implementing Regulations to the EPC provide for an explanatory source of information to consult when interpreting the EPC.45 Other than the Directive on the Legal Protection of Biotechnological Inventions, there are no European regulations or directives on patent law.46 In 2002, an attempt was made to implement a European directive on software patents, but this proposal was ultimately rejected by a large majority in the European Parliament.47

According to Art. 21 EPC, objections against decisions from the European Patent Office (“EPO”) can be directed towards the Technical Boards of Appeal.48 However, Technical Boards of Appeal are not formally bound by earlier decisions, which opens the door to conflicting case law.49 This is an eminent problem in the area of software patents, where a series of conflicting decisions developed.50 If there is no uniform application of the EPC, or if an important point of law arises, questions can be referred to the Enlarged Board of Appeal, which can then give a decision that is binding upon the Technical Boards of Appeal.51

3.1.1. Statutory Exclusion of Software: Art.52 EPC As can be seen in Art.52(1) EPC, an invention must be susceptible of industrial application, novel, and inventive in order to be patentable. Before a claimed invention is assessed according to these criteria, however, it must first be established that the subject matter is an

43 Convention on the Grant of European Patents of 5 October 1973, 15th edition; http://www.epo.org/law-practice/legal- texts/epc.html (last visited 1 December 2014). 44 National Patent Offices are also able to grant patents based on national patent law. 45 http://www.epo.org/law-practice/legal-texts/guidelines.html (last visited 1 December 2014); http://www.epo.org/law- practice/legal-texts/archive/documentation/implementing-regulations.html (last visited 1 December 2014); Ballardini 2008, p.564; Hart, Holmes & Reid 2000, p.13. 46 Directive 98/44/EC of the European Parliament and of the Council of 6 July 1998 on the legal protection of biotechnological inventions. The Unitary Patent Package that is still under discussion will not be taken into account. 47 Proposal for a Directive of the European Parliament and of the Council on the Patentability of Computer-implemented Inventions, Brussels COM 92-2002/0047 (COD). For more on this Directive, see Chapter 6.4.4. 48 For the different Boards of Appeal see http://www.epo.org/about-us/boards-of-appeal.html (last visited 1 December 2014). 49 Sterckx & Cockbain 2010, p.398, note 13; Bakels 2009, p.515; T-154/04 (point 2 of the reasons). 50 For which see Chapter 4. 51 Sterckx & Cockbain 2010, p.371 & 398, note 13; http://www.epo.org/about-us/boards-of-appeal.html (last visited 1 December 2014). 15

“invention” in the sense of the EPC.52 Despite early discussions on the necessity of defining what constitutes an invention, such a definition was never included in the EPC.53 It is, however, defined negatively in Art.52(2) EPC, in which several categories of subject matter are excluded from patentability as not being an invention.54 Computer programs are part of the subject matter that is excluded under Art.52(2) EPC, as well as methods for doing business and mathematical methods. Art.52 EPC reads:

Article 52 EPC (1) European patents shall be granted for any inventions, in all fields of technology, provided that they are new, involve an inventive step and are susceptible of industrial application. (2) The following in particular shall not be regarded as inventions within the meaning of paragraph 1: (a) discoveries, scientific theories and mathematical methods; (b) aesthetic creations; (c) schemes, rules and methods for performing mental acts, playing games or doing business, and programs for computers; (d) presentations of information. (3) Paragraph 2 shall exclude the patentability of the subject-matter or activities referred to therein only to the extent to which a European patent application or European patent relates to such subject-matter as such.

At first sight, this seems to be a straightforward rule that excludes software from patentability. Unsurprisingly, when the EPC came into force, most people therefore thought that patents would not be granted for software.55 Despite this seemingly clear-cut statutory distinction between what constitutes patentable versus non-patentable subject matter, it has proven to be problematic in practice, especially with regard to software.56 Some commentators even fundamentally question the ability to make a systematic distinction between patentable and non-patentable subject matter at all.57 In any event, it is clear that the lack of objective definitions of excluded subject matter leaves room for interpretation and

52 Ferro 2005, p.1. 53 Sterckx & Cockbain 2010, p.367; Pila 2005-II, p.758-759; Bakels & Harison 2005, p.22; Park 2005, p.343; Singer & Stauder 2003, p.68. As can be seen in Pila 2005-II, p.759, three proposals for a definition were made, none of which were adopted. The argument that tipped the scale in favour of not adopting a definition seems to be that the drafters of the Convention did not see the term “invention” as an ambiguous concept in need of a statutory definition. 54 Deschamps 2011, p.109; Park 2005, p.343; Singer & Stauder 2003, p.68. Despite this distinction, the EPO Boards of Appeal sometimes use the term “invention” for subject matter that is excluded from patentability as not being an invention, for which see Laub 2006, p.355. 55 Grosche 2006, p.270; Rosser 2005, p.25. 56 One of the reasons for this is that “[i]n the case of software, the first difficulty lies in determining which of the exceptions in this provision applies”, as stated in Grosche 2006, p.270. See also Bainbridge 2007, p.199; Pila 2005, p.3. 57 Bakels 2009, p.518. 16

uncertainty.58 Also, Art.52(3) EPC contains the much debated “as such” provision, according to which the statutory exclusion is limited only to the listed subject matter as such.

3.1.2. Non-Patentable Subject Matter “As Such” The “as such” provision makes the statutory exclusion problematic, because there is an inherent ambiguity as to when patent applications deal with something broader than software as such.59 Notwithstanding these ambiguities, it is clear that there is no absolute exclusion of software from patent protection and that the door is left open for its patentability.60 Case law of the EPO Boards of Appeal on software patents deals mainly with the interpretation of the “as such” provision, and it is still, even after many years of discussion, a difficult concept to grasp.61 What is clear is that a certain level of technicality is required in order to fall outside the scope of the “as such” exclusion, which distinguishes patentable subject matter from subject matter that is too abstract to be patentable.62

The requirement of technicality is not expressly mentioned in the EPC, but it is “widely believed to be a common element characterising the patentable inventions”.63 This requirement of technicality can also be found in Rule 27 and 29 of the 1973 version of the EPC.64 This is not to say that this requirement is easy to apply; in fact, the European debate about software patents largely focusses on when software is technical enough to be patentable.65 Also, the fact that the distinction between patentable and non-patentable subject matter must be based on technicality is criticized.66 Due to the ambiguity of the “as such” provision and the technicality requirement that comes along with it, an extensive repertoire of case law has developed, and the exception seems to have been interpreted ever more broadly

58 Laub 2006, p.354; Zekos 2006, p.434. 59 Deschamps 2011, p.109; Bakels 2009, p.516; Ballardini 2008, p.564; Diver 2008, p.130; Grosche 2006, p.270; Bakels & Harison 2005, p.36; Looijengoed 2005, p.605; Sarvas 2001. 60 Guarda 2013, p.450; Deschamps 2011, p.109; Newman 1997, p.702. 61 Bakels 2009, p.514; Meijboom 2002, p.66. 62 Ballardini 2008, p.564; Pearson 2006, p.89; Pila 2005, p.4; Park 2005, p.344; Bakels 2004; Hart, Holmes & Reid 2000, p.10. The technicality requirement was already discussed during the early discussions on the EPC, as can be seen in Pila 2005-II, p.760 in which it was stated that “[o]f particular interest in the Party's early discussions is its conclusion regarding the first proposal, that inserting a requirement for technical progress would merely repeat what was apparent from the requirement for an invention.” 63 Guarda 2013, p.450; Bakels & Harison 2005, p.36-37. 64 For which see http://www.epo.org/law-practice/legal-texts/html/epc/1973/e/rciii_ii.html (last visited 1 December 2014); Park 2005, p.344. These requirements are currently embodied in Rule 42 and 43. Although it is questionable whether the general requirement of technicality, which has far reaching implications, can be deduced solely from these rules, for which see also Bakels & Harison 2005, p.36-37. 65 Pila 2011, p.5; Pila 2005, p.5. 66 Bakels 2009, p.517; Bakels 2003, p.213. 17

over time.67 As stated by Sterckx & Cockbain, this has led to a “strange and unnatural interpretation to the words “as such””.68 The different approaches taken by the EPO Boards of Appeal will be addressed in Chapter 4. In order to understand the development of the “as such” exclusion and the case law that will be discussed in Chapter 4, the origins of the “as such” provision and the thoughts behind including it in the EPC must be addressed.69

3.1.3. Background of the “As Such” Provision “Some features of law and information technology only become apparent against the historical background of their respective evolution, and to a surprisingly large extent, guidance for the future course on the appropriate protection for software is to be found in the past.”70 With a concept as ambiguous as the “as such” exclusion, the Travaux Préparatoires can give crucial insights into the origins of the debate, as well as the context in which the current debate must be viewed.71

The first proposal to exclude software as non-patentable subject matter dates back to October 1971, and was put forward by the United Kingdom.72 It was argued that “a computer programme was basically not inventive and was merely the mathematical application of a logical series of steps in a process which was no different from a mathematical method excluded under (a)”.73 Although the United Kingdom also proposed a definition of the kind of software that was supposed to fall within this new category of excluded subject matter, it was not adopted “so as not to tie the hands of the [EPO] and of the national courts”.74 Eventually, the exclusion clause was accepted, be it without the proposed definition.75

67 Deschamps 2011, p.109; Newman 1997, p.702. 68 Sterckx & Cockbain 2010, p.396. 69 Hart, Holmes & Reid 2000, p.9. 70 Grosche 2006, p.281-282. 71 “Even patent law reform has a long history, and modern patent law reform efforts can benefit by taking careful account of that history”, for which see Janis 2002, p.2. For the Travaux Préparatoires see https://www.epo.org/law-practice/legal- texts/archive/epc-1973/traveaux.html (last visited 1 December 2014). 72 Travaux Préparatoires, Minutes of the 9th meeting of Working Party I, held from 12 to 22 October 1971, in Luxembourg (BR/135/71), p.50 (“The United Kingdom delegation proposed that computer programmes should not be patentable and it proposed a draft giving a definition of what a computer programme was.”). Interestingly, Pila describes a strong opposition by the United Kingdom against including software in the exclusion clause, for which see Pila 2005-II, p.764. 73 Travaux Préparatoires, Minutes of the 9th meeting of Working Party I, held from 12 to 22 October 1971, in Luxembourg (BR/135/71), p.50; Pila 2005-II, p.769. It was recognized, however, that some form of protection might be necessary for software, albeit under a separate protection regime. It is difficult to grasp why a separate exclusion clause was deemed necessary if software was already believed to fall under the exclusion of mathematical methods. 74 Travaux Préparatoires, Minutes of the 9th meeting of Working Party I, held from 12 to 22 October 1971, in Luxembourg (BR/135/71), p.51; Pila 2005-II, p.769. 75 Why the exclusion clause was adopted despite the aforementioned counter arguments is not mentioned. 18

In 1972, however, there was strong opposition against the exclusion of computer programs from patent protection. The main reason for that was the perceived need for flexibility and discretion.76 It had been observed that excluding computer programs from patentability might hinder future developments in this area.77 As portrayed by Pila in her study of the Travaux Préparatoires, the opposition received broad support, as deletion of the exclusion clause would allow subject matter broader than computer programs as such to be patented.78 Thus, there was a fear that the exclusion clause would be too broad.79 It is notable that even the United Kingdom itself revoked its interest in the exclusion of software, because "the free development of precedents – which is of paramount importance in this still very uncertain field – would be hindered”.80 Despite the opposition, the exclusion clause remained in the text of the EPC.81 The main motivation behind this seems to have been the urge to provide for legal certainty and uniformity.82 But there were still concerns about how to frame the exclusion clause, so as not to exclude all software from patentability.83

This caused the “as such” terminology to gain momentum.84 Originally, the “as such” provision was not applicable to all categories of subject matter listed under Art.52(2) EPC, but only to scientific and mathematical theories.85 However, this raised the concern that applying the “as such” provision only to one category, implies that the other categories are excluded in a more broad sense, an argument put forward by the German delegation in March

76 Travaux Préparatoires, Minutes of the meeting of Working Party I, Brussels, 29 July 1969 (BR/7/69), p.9; Travaux Préparatoires, Minutes of the 5th Meeting of the Inter-Governmental Conference for the Setting up of a European System for the Grant of Patents, Brussels, 15 March 1972 (BR/169/72), p.6; Ballardini 2008, p.564; Pila 2005-II, p.769. 77 Travaux Préparatoires, Minutes of the 9th meeting of Working Party I, held from 12 to 22 October 1971, in Luxembourg (BR/135/71), p.50. For a similar line of thought, see Sterckx & Cockbain 2010, p.369-370, note 6. 78 Pila 2005-II, p.769. 79 For a similar line of thought, see Pila 2005-II, p.770 in which it was stated that “[t]he proposal on this second matter was to replace “computer programs” with “data handling systems” in recognition of the fact that “computer program” denotes a more complex system […] and might thus support an unduly broad construction of the exclusion as a whole.” 80 Travaux Préparatoires, Report on the 11th meeting of Working Party I held in Luxembourg from 28 February to 3 March 1972 (BR/177/72), p.3. 81 Sterckx & Cockbain 2010, p.367. 82 Travaux Préparatoires, Minutes of the 5th meeting of the Inter-Governmental Conference for the Setting up of a European System for the Grant of Patents, Brussels, 15 March 1972 (BR/168/72), p.14. 83 Travaux Préparatoires, Report on the 11th meeting of Working Party I held in Luxembourg from 28 February to 3 March 1972 (BR/177/72), p.3 (“Most of the Working Party on the other hand was in favour of this exclusion, which would, as a matter of fact, make for the exclusion of computer programs as such, while allowing precedents to be used to assess the patentability of any related inventions. This majority opinion held, on the contrary, that a special sub-paragraph dealing with computer programs could lead to the conclusion that any program, including true inventions related to such a program, should be excluded from patentability.”). 84 Ballardini 2008, p.564; Pila 2005-II, p.766. 85 Pila 2005-II, p.766; Travaux Préparatoires, Minutes of the 2nd meeting held at Luxembourg on 13 to 16 January 1970 (BR/7/69), p.10. It must be noted, however, that financial or accounting methods, rules for playing games or other systems, were only excluded insofar as they were of a purely abstract nature, as can be seen in LT 234/82, Section 1, 2335/IV/65-E, Brussels, 22 January 1965. In 1970 this was changed to “insofar as they are of a purely intellectual nature”, as can be seen in Travaux Préparatoires, Minutes of the 2nd meeting held at Luxembourg on 13 to 16 January 1970, (BR/7/69), p.10 & Minutes of the 3rd meeting of the Co-ordinating Committee, Brussels, 26 September 1972 (BR/218/72), p.4. 19

1973.86 Therefore, the “as such” terminology was introduced in a new paragraph, Art.52(3), so as to be applicable to all subject matter listed under Art.52(2) EPC. Pila described this as an "odd reversal of fate".87 As mentioned in a 1973 proposal, “[t]he idea behind paragraph 3 is that the inventions excluded from patentability pursuant to paragraph 2 are those which relate exclusively to the intellectual works referred to in paragraph 2(a), (b), (c) and (d)”.88

The need for flexibility is a recurring element in the discussions about whether or not to exclude software from patent protection.89 This was also one of the main reasons not to adopt a definition of software, and it was stated that the EPO would “simply have to be relied upon subsequently to interpret this expression unequivocally”.90 When the EPC was drafted, the development of software had only just started, and software was nowhere near as complex as it is today. It will come as no surprise that in these early discussions, the participants had no idea as to what software would look like 20 or 30 years ahead.91 This can be seen in the first version of the EPO Guidelines, in which software was considered “an independent component, easily separable from the hardware itself, which could thus be excluded from patentability per se”.92 Nowadays, the interplay between software and hardware is much more complex, and software is often intertwined with the functioning of hardware. Some of the stakeholders involved in the early discussions addressed this issue, and mentioned that it would not be wise to make definitive statements about whether or not to exclude software from patentability.93

86 Travaux Préparatoires, Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents, Comments by the Government of the Federal Republic of Germany, 29 March 1973, p.64; Pila 2005-II, p.767. All of this indicates that the drafters never intended to exclude software from patent protection to a very broad extent. 87 Pila 2005-II, p.766. Pila describes this as “odd”, because it was originally argued that the as such provision should only apply in the context of scientific discoveries, for which see Pila 2005-II, p.766. 88 Travaux Préparatoires, Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents, Proposal by the IAPIP, 11 September 1973 (M/66/I), p.1. 89 Ballardini 2008, p.564. 90 Travaux Préparatoires, Minutes of the Munich Diplomatic Conference for the Setting up of a European System for the Grant of European Patents, Munich, 10 September to 5 October 1973, p.28; Pila 2005-II, p.769. 91 The status of software even changed during the drafting process, as can be seen in Pila 2005-II, p.768-769 & 775, which shows that “The status of computer programs also changed in the course of the framers’ deliberations. Initially the view was taken that the patentability or otherwise of computer programs could not be prejudged because of the uncertainty of their position given the (then) “present state of developments”.” 92 Ballardini 2008, p.564. 93 Travaux Préparatoires, Minutes of the 5th Meeting of the Inter-Governmental Conference for the Setting up of a European System for the Grant of Patents, Brussels, 15 March 1972 (BR/169/72), p.9-10. Another proposal in this regard was to transfer the provision containing computer programs to the Implementing Regulations. for which see Travaux Préparatoires, Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents, Comments by CPCCI Standing Conference of the Chambers of Commerce and Industry of the European Economic Community, 2 April 1973, p.160. 20

So how should the “as such” provision be interpreted? Little is known of what the drafters intended, except for the fact that they intended to avoid confusion, in which they arguably failed to a large extent.94 What does become clear from studying the history of the EPC is that it was never the intention to exclude software very broadly.95 The exclusion clause is aimed at inventions of which software was the only element; this was possible because software was far less complex and therefore easily separable from other elements of an invention.96 It is also clear that items "which were traditionally patentable should not be excluded merely because they contained computer programs”.97 However, it is not possible to draw a uniform and unambiguous threshold of software patentability from the EPC's history.

Given this lack of a clear threshold, many interpretations of the words “as such” have emerged over the past decades, all revolving around a single technicality requirement.98 A noticeable and recurring aspect in this regard is that the contracting parties seemed to agree that the EPO could and should be relied upon in the interpretation of software exclusion.99 These EPO interpretations will be discussed in Chapter 4, in order to provide more clarity to the differing EPO case law on this topic. As will become clear in that chapter, however, there still remains ambiguity as to the exact conditions under which software can be patented.

3.2. Legal Framework in the United States The legal framework in the United States (“U.S.”) is somewhat different from the European legal framework, in the sense that there is no statutory exclusion of software.100 Criteria under which software can and cannot be patented developed solely through case law, and are based on the United States Constitution ("Constitution") and the United States Patent Act (“Patent Act”). Article I, Section 8, Clause 8 of the Constitution, better known as the

94 Bakels & Harison 2005, p.38. 95 Deschamps 2011, p.109; Hart, Holmes & Reid 2000, p.14; T 154/04 (point 6 of the reasons); T 935/97 (point 4.1 of the reasons). 96 Pinxten 2009, p.654; Rosser 2005, p.25-26 stated that “[a]s early as 1984, the EPO Board of Appeals established the position that inventions, including those involving software, must be considered as a whole when determining whether they are patentable. The key “as such” clause, according to the EPO, means the items mentioned in Article 52 […] are only not patentable if they constitute the entire invention. A computer program, in particular, is not patentable only if the computer program is all there is to the invention. If a computer program is merely a part of the invention, that invention may be patentable so long as the invention as a whole meets the patentability standards […].” 97 Travaux Préparatoires, Minutes of the 5th Meeting of the Inter-Governmental Conference for the Setting up of a European System for the Grant of Patents, Brussels, 15 March 1972 (BR/169/72), p.10; T 154/04 (point 6 of the reasons). 98 Bakels & Harison 2005, p.38. 99 Travaux Préparatoires, Minutes of the Munich Diplomatic Conference for the Setting up of a European System for the Grant of European Patents, Munich, 10 September to 5 October 1973, p.28; Pila 2005-II, p.769. 100 See also Chapter 2.2. of this thesis. 21

“intellectual property clause”, gives Congress the power to establish a patent system.101 The article is lengthy, but the relevant section for this thesis reads: “Congress shall have the power to […] promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries […]”.102 Based on this clause of the Constitution, the Patent Act was enacted in 1790, which is the legal instrument governing patents in the U.S.

The entity responsible for examining patent applications is the United States Patent and Trademark Office (“USPTO”).103 In addition to the Patent Act, there is a Manual for Patent Examination Procedure (“MPEP”), which was issued by the USPTO and contains specific sections on subject matter patent-eligibility.104 Objections against USPTO decisions can be directed to the Court of Appeals for the Federal Circuit (“CAFC”), which in 1982 was entitled jurisdiction over all patent appeals.105 The highest court to give decisions regarding patent law is the U.S. Supreme Court.

3.2.1. United States Patent Act / 35 U.S.C. The patentability of software starts with determining whether claimed subject matter constitutes an invention. 35 U.S.C. 100 (“§ 100”) of the Patent Act contains a definition of what constitutes an invention under U.S. patent law. However, there is some circularity to this definition, as § 100 defines an invention as “a discovery or invention”, which does not provide any clear guidance on what constitutes an invention under the Patent Act.106 35 U.S.C. 101 (“§ 101”) explicitly deals with patentable subject matter and, unlike the EPC, lists four categories of subject matter that fall under the scope of the term “invention” and are thus patent-eligible.107 When this “invention hurdle” is passed, the patent application still has to be assessed according to the generally applicable criteria of novelty and non-obviousness, as described in the other sections of the Patent Act.108 § 101 of the Patent Act reads:

101 It also forms the basis for other protection regimes such as copyright. 102 For more on this clause see Pierce 2012, p.199; Wisecup 2012, p.1654; Deschamps 2011, p.107. 103 http://www.uspto.gov/ (last visited 1 December 2014); Lambilotte 2012, p.645. 104 http://www.uspto.gov/web/offices/pac/mpep/index.html (last visited 1 December 2014). For patent eligibility see Chapter 2100 of the MPEP. 105 28 U.S.C. § 1295(a)(4)(A); Oppenheimer 2012, p.28, note 194. 106 Laub 2006, p.357. 107 It thereby provides a positive enumeration, as opposed to the negative enumeration of Art.52 EPC. Collins 2013, p.1426; Perel 2012, p.240; Laub 2006, p.358. 108 Wisecup 2012, p.1655; “The usefulness or utility requirement, dealt with in the same section, provides that the invention must have specific and credible utility. The novelty requirement, set out in s.102, demands that the invention must not have been previously known or used by others. Finally, the non-obvious requirement of s.103 means that the invention must not have been obvious, at the time it was made, to a person having ordinary skill in the art to which the subject-matter pertains.” See Deschamps 2011, p.108; Zekos 2006, p.430 & 433; Park 2005, p.363. 22

Section 101. Inventions Patentable Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

The definition of statutory subject matter lies at the core of any patent system.109 Given the fact that the patent system is designed to promote technological and scientific progress, the types of subject matter that are patentable directly influence the type of innovation that is promoted.110 On first sight, the wording of § 101 seems clear.111 However, the broad terminology leaves room for discussion as to what exactly § 101 is meant to cover. Similar to the EPC, this seemingly clear rule caused years of discussion through case law, and the criteria under which the patentability of software must be assessed remain difficult to grasp.112 As described by Judge Rich, the scope of § 101 has become one of the “most difficult and controversial issues”.113 In order to properly define the scope of § 101, and to properly assess case law that interprets § 101, it is necessary to gain an understanding of its history.114

3.2.2. History of 35 U.S.C. 101 To start with, it must be noted that the Constitution and Patent Act were drafted at a time in which software did not yet exist.115 The inventions known at that time related to tangible technology.116 This means that there are no documented discussions explicitly dealing with the patentability of intangible subject matter, such as software. Also, records of the Constitution and its ratification debates are silent on the intellectual property clause; there are no records of who proposed it and why it was adopted.117 The same holds true for § 101 of the Patent Act. History on what motivated Congress to include § 101 in the Patent Act is scarcely available, and Congress surely did not take software into account at the time of drafting it. It is therefore difficult to grasp what the framers of the Constitution and Patent

109 Oppenheimer 2012, p.4. 110 Oppenheimer 2012, p.7. 111 Oppenheimer 2012, p.42. 112 Oppenheimer 2012, p.45 indicated that "The [Supreme] Court has had to address the issue of statutory subject matter directly and tangentially more than a dozen times and has never been able to reach a unanimous decision”; Pierce 2012, p.189; Deschamps 2011, p.108; Peterson 1995, p.91. 113 Peterson 1995, p.105. 114 Pierce 2012, p.188. 115 Burk & Lemley 2002; Whereas the EPC was drafted at the early ages of software development, the U.S. Constitution dates from 1789, and the U.S. Patent Act dates from 1790, although subsequent amendments have been made to both legislative instruments. See also Burk & Lemley 2002, under I-A. 116 Bradstreet 2013, p.506. 117 Oppenheimer 2012, p.8. 23

Act intended at the time both were drafted.118 Most of the interpretation on whether software constitutes patent eligible subject matter originates from case law, dating back to the 1960’s and 1970's. The scope of § 101 was never seriously tested until the rise of new technologies such as software and biotechnology, as issues regarding patentability were mostly dealt with under the other patentability requirements.119

Interestingly, the language of § 101 remained virtually unchanged from the language incorporated in the 1790 Patent Act.120 The only differences being “the addition of the category "composition of matter" in 1793 and the change from "art" to "process" in 1952, both of which courts have held to be non-substantive".121 It is clear from § 101 that Congress intended to limit the applicability of patent law to four specific types of inventions.122 It is not clear, however, what these categories have in common, how broad they are meant to be interpreted, and under what conditions subject matter can be excluded from patentability.123 The fact that what constitutes patentable subject matter could be a source of discussion, was already recognized in one of the early cases on patent-eligibility, in which the Supreme Court noted that it is difficult to draw a clear cut line.124

Although it is commonly believed that “anything under the sun that is made by men” is patentable in the U.S., the majority of stakeholders regarded software as unpatentable subject matter in the early days of software development.125 The main reason for this was that software did not fit the four categories listed under § 101, and because of its abstract character.126 Also, it was claimed that granting a patent on software would pre-empt others

118 Moreover, the mere existence of the intellectual property clause of the Constitution is “curious”. As stated in Oppenheimer, p.7 "In drafting and revising the patent statute, Congress has received little guidance from the records of the Constitutional Convention. The very existence of the Intellectual Property Clause is curious; it is one of the more specific powers in a document otherwise given to broad principles." 119 Wisecup 2012, p.1651. 120 Oppenheimer 2012, p.1 & p.11; Burk & Lemley 2002, under I-A. 121 Oppenheimer 2012, p.13; S. Rep. No 1979, 82d Cong., 2d Sess. (1952); H.R. Rep. No. 1923, 82d Cong., 2d Sess. (1952). For an interesting fact regarding the 1952 amendment, see Gladstone 2002, p.222, in which it was stated that "[i]t is noteworthy that the patent law amendments of 1952, which moved the standard away from a scientific or industrial orientation and expanded the scope of patent protection to "anything under the sun that is made by man," was drafted by a congressional commission lead by Giles S. Rich: He is the same man that served as the judge on the CAFC in the State Street case." 122 Oppenheimer 2012, p.11. 123 Oppenheimer 2012, p.11, in which it is stated that “[t]hese exclusions share no common theoretical basis - they are simply examples of case-by-case lobbying power", as opposed to Art.52 EPC, where the common element is believed to be the fact that all categories are abstract. 124 McClain v. Ortmayer, 141 U.S. 419, 427 (1891). Also cited in Oppenheimer 2012, p.17. 125 Lambilotte 2012, p.638; Perel 2012, p.252 & p.258; Bessen & Hunt 2007, p.158 & 160; Laub 2006, p.367; Zekos 2006, p.430 & 432; Bakels & Harison 2005, p.40; Park 2005, p.357. 126 Perel 2012, p.258 & p.262; Ernstmeyer 2009, p.1273; Zekos 2006, p.430 & p.433; Park 2005, p.360; Rosser 2005, p.25; Burk & Lemley 2002, under I-B; Cohen & Lemley 2001, p.8. 24

from using the mathematical algorithm underlying the software, which would be contrary to the constitutional goal of stimulating innovation.127 A special Presidential Commission on the Patent System also recommended to expressly exclude computer programs from patent protection, which recommendation was mainly based on the fact that the USPTO would not be capable of handling program applications.128 Guidelines issued by the USPTO in 1968 described software as unpatentable, insofar as it was not a component of an otherwise patentable invention.129 This view was upheld in the well-known decision Gottschalk v. Benson.130 Thus, there were limitations to the patentability of software.131

Despite this originally negative attitude towards the patentability of software, limitations to the patentability of software were never incorporated in a statute.132 Limitations developed in case law never led to any form of categorical exclusion similar to Art.52 EPC.133 There is, however, a similar categorical distinction, as different criteria are applied to different areas of technology.134 The main reason not to exclude certain categories of subject matter is to keep a flexible system that is capable of adapting to new and unforeseen technologies.135 Another aspect that is not present in U.S. law, is an explicit exclusion “as such”, although it has to be noted that the result achieved in U.S. case law seems to be similar to an exclusion per se.136

3.2.3. Diamond v. Chakrabarty: Broad Interpretation of §101 The legislative history of § 101 was briefly addressed in Diamond v. Chakrabarty.137 That case dealt with patenting of human-made micro-organisms, designed to break down multiple components of crude oil. The USPTO refused to grant a patent, because living things were believed to be unpatentable subject matter under § 101. The Court of Customs and Patent

127 Lambilotte 2012, p.637; Perel 2012, p.258; Park 2005, p.357. 128 Report of the President’s Commission on the Patent System, February 2, 1967, p.12-13; Diamond v. Diehr, p.197. For the report see http://digitalcommons.law.scu.edu/cgi/viewcontent.cgi?article=1010&context=historical (last visited 1 December 2014). 129 Diamond v. Diehr, p.198. 130 Gottschalk v. Benson, 409 U.S. 63 (1972); Rosser 2005, p.25; Hughes 2003, p.54-55; Cohen & Lemley 2001, p.8. 131 For a comparison to the EU legal system see Chapter 6; Guarda 2013, p.452; Laub 2006, p.357. 132 Laub 2006, p.356-357; Nieh 2010, p.303. 133 Perel 2012, p.248 & p.250. 134 Burk & Lemley 2002, under I-A. 135 Perel 2012, p.250; Burk & Lemley 2002; Diamond v. Chakrabarty, p.315. 136 Bradstreet 2013, p.503; Laub 2006, p.359 (“The US per se requirement, developed by secondary law, is comparable to the (codified) EPC as such requirement, article 52(3).”); Park 2005, p.362; Gladstone 2002, p.223 & p.227; Thomas 2000, p.117 ("Despite this sweeping language, the courts had traditionally crafted several exceptions to patentability. Many of these exceptions were similar to those currently existent in Art.53 of the European Patent Convention.") & ("[...] these doctrines purported to hold certain subject matter unpatentable per se."); CLS Bank International v. Alice Corp, 717 F.3d 1269 (2013). 137 Diamond v. Chakrabarty. 25

Appeals reversed the USPTO’s decision, and the Supreme Court agreed by stating that the invention at issue fell within the scope of § 101.

Before reaching this conclusion, the Supreme Court analyzed the history of § 101. The Court stated that the legislative history of the Patent Act supported a broad reading of this statutory provision.138 According to the Court, the underlying philosophy of the Patent Act is that “ingenuity should receive a liberal encouragement”.139 The fact that biotechnology was an area of technology that was unforeseen when § 101 was enacted, cannot lead to the conclusion that it is excluded subject matter under that Section.140 It added that Congress was free to add provisions to § 101 excluding living organisms, but as long as Congress does not interfere, the scope of § 101 is to be interpreted broadly.141 In addition, the Court reiterated that courts “should not read into the patent laws limitations and conditions which the legislature has not expressed”.142

Although the language of § 101 is formulated broadly, this does not necessarily mean that it is ambiguous. In some instances, the congressional objectives underlying an Act require broad terms to be used.143 According to the Supreme Court, Congress intended statutory subject matter to “include anything under the sun that is made by men”.144 Thus, § 101 should not be interpreted very restrictively as to what constitutes patentable subject matter. However, the Court immediately added that this was not to say that § 101 has no limits.145 The limits to § 101 as mentioned by the Court, relate to judicially created exceptions to patentability, which started with the exclusion of laws of nature, physical phenomena, and abstract ideas.146 The following section discusses case law in which the Supreme Court formulated this judicial exclusion.

3.2.4. Judicial Exclusion: Laws of Nature, Physical Phenomena, and Abstract Ideas As indicated above, there are limits to the scope of § 101, in spite of the broad interpretation it needs to be given. The fundamental limitation on which all subsequent case law on patent

138 Diamond v. Chakrabarty, p.303; Wisecup 2012, p.1651 & p.1655. 139 Diamond v. Chakrabarty, p.308. 140 Diamond v. Chakrabarty, p.304. 141 Diamond v. Chakrabarty, p.304. 142 Diamond v. Chakrabarty, p.308. 143 Diamond v. Chakrabarty, p.314. 144 Diamond v. Chakrabarty, p.309, citing S. Rep. No 1979, 82d Cong., 2d Sess. (1952); H.R. Rep. No. 1923, 82d Cong., 2d Sess. (1952); Bakels & Harison 2005, p.59; Thomas 2000, p.117. 145 Diamond v. Chakrabarty, p.309. 146 Diamond v. Chakrabarty, p.309; Bakels & Harison 2005, p.59. 26

eligibility is based is that “laws of nature, physical phenomena, and abstract ideas” are not patentable, the purpose of which is to prevent the monopolization of information that must be free for all to use.147 If this information were to be monopolized, it would impede the constitutional goal of stimulating innovation. This limitation was established with regard to computer programs in two well-known Supreme Court cases: Gottschalk v. Benson, and Parker v. Flook.148 The first case was about a data processing program designed to convert binary-coded decimal numerals into pure binary numerals.149 The claims of the invention were drafted broadly, and were intended to cover any use on a general-purpose computer of any type.150 This allowed the patent application to cover both known and unknown uses of the mathematical algorithm underlying the claimed invention.151

This broad language of the patent application is what eventually prevented it from being granted a patent. The Court started by stating that it should not be possible to patent an idea.152 If the patent at issue was granted, it would have had this effect, as it would “wholly pre-empt the mathematical formula” and practically be a patent on the underlying algorithm.153 The main rule as formulated by the Court is that “[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools for scientific and technological work”.154 On the other hand, if the patent application claims a “novel and useful structure created with the aid of knowledge of scientific truth”, it is patent eligible under § 101. Thus, in short, the Court does not preclude the patentability of software, as long as no patent is granted for a general idea, which would pre-empt others from using that idea.155 The Supreme Court noted that there might be a need to extend the scope of § 101 to cover programs as the one under examination, but that this was not up to the Court to decide.156 The Court anticipated many problems with granting patents for such programs, and stated that it was for Congress to provide the necessary guidance on this question.157

147 Gottschalk v. Benson, p.68, Parker v. Flook, p.598, Diamond v. Chakrabarty, p.309; Perel 2012, p.240; Lambilotte 2012, p.638; Wisecup 2012, p.1655; Zekos 2006, p.433; Park 2005, p.351; Park 2005, p.360; Looijengoed 2005, p.606; Park 2005, p.361; Hart, Holmes & Reid 2000, p.16 & 23. 148 Gottschalk v. Benson; Parker v. Flook; Park 2005, p.350. 149 Gottschalk v. Benson, p.64. 150 Gottschalk v. Benson, p.64. 151 Gottschalk v. Benson, p.68. 152 Gottschalk v. Benson, p.67. 153 Gottschalk v. Benson, p.71-72; Ernstmeyer 2009, p.1273; Park 2005, p.351. 154 Gottschalk v. Benson, p.67; Guarda 2013, p.452. 155 Park 2005, p.351. 156 Gottschalk v. Benson, p.72. 157 Gottschalk v. Benson, p.73. 27

The second case, Parker v. Flook, dealt with a method for updating alarm limits, of which the only novel feature was a mathematical algorithm used to calculate the updated alarm limits.158 Similar to the patent application in Gottschalk, the patent application at issue was formulated broadly, but it did not cover every imaginable application of the algorithm.159 Given the fact that the Court in Gottschalk stated that a mere discovery of an application of a mathematical algorithm may not be patented, the Court in this case had to assess whether “the identification of a limited category of useful, though conventional, post-solution applications of such formula makes respondent’s method eligible for patent protection”.160 This comes down to an analysis of the scope of § 101 of the Patent Act.161

Even though the claimed invention did not wholly pre-empt the mathematical algorithm, as other uses of the algorithm in other industries were still possible, the Court believed that adding a post-solution activity to a mathematical algorithm could not make it a patentable invention.162 In this regard, the Court stated that § 101 is not “like a nose of wax which may be turned and twisted in any direction”.163 On the other hand, an invention is not automatically outside the scope of § 101 if it contains a law of nature or mathematical algorithm.164 According to the Court, the test to be applied to such inventions involving a law of nature or abstract idea is whether they constitute a “new and useful application” of the law of nature or abstract idea.165 The patent application at issue was ultimately held not to be a patentable invention, however, as it simply provided a “new and presumably better method for calculating alarm limit values”.166 This reasoning is somewhat difficult to follow.

The Supreme Court acknowledged that the software industry was still at its early stages of development, and that conclusions relating to software patentability must be based on reasoning derived from earlier case law.167 Software patents is an area wholly unforeseen by Congress, which led the Court to act cautiously with regard to the patentability of software,

158 Parker v. Flook, p.585-586. 159 Parker v. Flook, p.586, in which it was held that “The patent claims cover any use of respondent’s formula […] on any process variable involved in a process of comprising catalytic chemical conversion of hydrocarbons. Since there are numerous processes of that kind, the claims cover a broad range of potential uses of the method. They do not, however, cover every conceivable application of the formula”. 160 Parker v. Flook, p.585. 161 Parker v. Flook, p.588. 162 Parker v. Flook, p.590. This reappears in several other decisions, for which see Chapter 5. 163 Parker v. Flook, p.590. 164 Parker v. Flook, p.590. 165 Parker v. Flook, p.591; Oppenheimer 2012, p.20. 166 Parker v. Flook, p.594-595. 167 Parker v. Flook, p.595; Diamond v. Diehr, p.194. 28

and the Court was not willing to expressly limit or expand patent protection for this area of technology.168 Therefore, the Court emphasized that this decision should not be read as concluding that patent protection of software is undesirable as a matter of policy.169 These decisions show that the Supreme Court is hesitant in formulating a generally applicable rule for the patentability of software, and that it deems Congress to be the more appropriate branch of government to do so.170 However, based on case law relating to other industries, the Court did conclude that “laws of nature, physical phenomena, and abstract ideas” cannot be patented insofar as they do not entail a new and useful application, so as not to pre-empt their applications by others who wish to build upon this information. The guidance given by this broadly formulated exclusion is questionable, given the ambiguity as to what constitutes a law of nature, natural phenomena, or abstract idea.171

3.3. Interim Conclusion From the historical analysis shown above, it is clear that in Europe there was no consensus about whether or not, and to what extent, software should be excluded from patentability. Although an exclusion clause was eventually adopted, there seems to have been no clear idea of what exactly this exclusion clause was meant to exclude. As accurately formulated by Pila, “[t]he fact that the means chosen to resolve that distortion created a distortion in the other direction by entrenching a new and restrictive meaning of the exclusion does not appear to have been recognized by any delegation”.172 In short, the drafters of the EPC simply had no idea of the possible consequences of broadening the applicability of the “as such” provision, and the years of discussion that were to follow. For this reason, it was repeatedly stated that the EPO must be relied upon to provide clarity as regards the patentability of software. At least, it is clear that it was never the intention to exclude software very broadly, which is something to be taken into account when analysing the meaningfulness of Art.52 EPC.

The history of U.S. patent law is virtually silent on how to interpret the scope of statutory subject matter under § 101 of the Patent Act. From the historical documents that are available, it is clear that the basic idea underlying the U.S. patent system is that anything

168 Parker v. Flook, p.596. 169 Parker v. Flook, p.595. 170 Parker v. Flook, p.596. 171 Funk Bros. Seed Co. v. Kalo Inoculant Co., p.134-135, in which it was held that "It only confuses the issue, however, to introduce such terms as "the work of nature" and the "laws of nature". For these are vague and malleable terms infected with too much ambiguity and equivocation. Everything that happens may be deemed "the work of nature," and any patentable composite exemplifies in its properties "the laws of nature"". See also Lambilotte 2012, p.638; Wisecup 2012, p.1655; Perel 2012, p.240. 172 Pila 2005-II, p.755. 29

should be patent-eligible, and that there should be no categorical exclusion of subject matter. However, the growth of the software industry forced courts to face the difficulties with implementing these intangible inventions into the patent system, and to take a stance on its patentability. After all, allowing patents on basic things such as mathematical algorithms and laws of nature could be contrary to the constitutional goal of stimulating innovation, a concern that was also raised during the discussion about the EPC.

The cases discussed in the previous sections indicate that the patentability of software was quite a controversial and unforeseen issue. Whether or not software could be patented was still unclear and complicated, and the Supreme Court was not willing to interfere with the tasks of Congress. It deemed this to be a task for Congress, mainly because of the policy implications and difficulties involved. Despite calls for action, Congress never interfered in the discussion on software patentability. Nevertheless, there was a growing need for guidance on this topic. Therefore, limitations to patentability developed in case law, the most important of which is the exclusion of laws of nature, physical phenomena, and abstract ideas. Subsequent case law that deals with the patentability of software is based on this notion. In 1981, a turning point can be seen in case law, starting with Diamond v. Diehr, which clearly opened the door for the patentability of software.173 This case, and a vast amount of subsequent case law on software patentability will be discussed in Chapter 5.

From a comparative perspective, the two legal systems are surprisingly similar. In both legal systems, the original notion with regard to software patentability was that it should be excluded from patent protection. However, the stakeholders involved soon noticed that this would take it a step too far. Therefore, both systems seem to comprise the notion that software should not be patentable if it is too abstract, but that a specific application of software should be considered an invention. In Europe, this is formulated as an explicit exclusion from patentability as such. The U.S. patent system does not entail such a provision, but the Supreme Court developed the exclusion of laws of nature, physical phenomena, and abstract ideas, to the extent that they have no new and useful application. This seems to aim at an exclusion similar to an exclusion per se. An important difference is that the U.S. legal system has never incorporated a categorical exclusion, as can be found under the EPC. The similarities between both legal systems will be further examined in Chapter 6.

173 Guarda 2013, p.452; Bradstreet 2013-II, p.503; Laub 2006, p.351; Park 2005, p.351; Bakels & Harison 2005, p.58; Smith & Mann 2004, p.253; Hughes 2003, p.55; Gladstone 2002, p.223. 30

In the subsequent two chapters, Chapter 4 and 5, the development of the exclusion of software under the EPC and Patent Act will be discussed. The development of the different standards that were adopted throughout the past four decades will be analysed and compared in order to find common elements, which will show the current patentability criteria for software and thus provide legal certainty. These legal standards will be compared in Chapter 6, which will show the similarities and differences between both legal systems.

31

4. DEVELOPMENT AND CURRENT LEGAL STANDARD IN EUROPE 4.1. Interpretation of Article 52 by the European Patent Office As the previous chapter has shown, the framers of the EPC did not intend for the software exclusion clause to be broadly applicable. It was acknowledged that software development was still in its infancy, and that flexibility was necessary with regard to such a quickly developing area of technology. Because of the uncertainty as to how software would further develop, the framers of the EPC agreed that the Boards of the EPO would have to be relied upon to provide for a uniform application of Art.52(2) & (3) EPC.

Accordingly, the Boards of Appeal ruled numerous times on the interpretation of Art.52 EPC in light of software. Throughout the last 30 years, several legal standards have been used to determine the patentability of software, which will be individually addressed in this chapter. The different standards adopted in case law are the need for a: • technical contribution to the prior art; • technical effect; • further technical effect; and • combination of technical and non-technical elements.174 Some of these tests have been abandoned while others have been affirmed by the Enlarged Board of Appeal, which will become clear in a separate analysis of the Enlarged Board’s most recent ruling on software patentability. At the end of the case law analysis, the current legal standard under which software can be patented will be described, in an attempt to provide for legal certainty in an area that seems so scattered. The position of the relatively new business method software within the current legal standard will also be assessed. This chapter will form a solid basis for the comparison to the U.S. legal standard in Chapter 5, and can be used to assess whether the exclusion clause has been eroded in Chapter 6. A chronological overview of the case law referred to in this chapter can be found in Appendix I.

4.1.1. Technical Character

The overarching requirement that lies at the core of each of the abovementioned standards is that there must be a technical character for claimed subject matter to constitute an invention.175 Technical character is described as an implicit requirement of an invention,

174 These tests are not always applied in isolation and portray overlapping requirements. 175 Guarda 2013, p.450; Pila 2011, p.5; Ballardini 2008, p.564; Pearson 2006, p.89; Park 2005, p.344; Pila 2005, p.4; Bakels & Harisson 2005, p.55 & 77; Bakels & Hugenholtz 2002, p.35; Hart, Holmes & Reid 2000, p.12. 32 embodied in the language of Art.52 EPC.176 This need for a technical character is based on several grounds: • First, it is stated that the common feature of the subject matter excluded under Art.52 EPC is that all the categories lack technical character.177 Thus, to fall outside the scope of excluded subject matter, technical character is required. • Second, the need for technicality is expressed in other rules of patent law, such as Art.56 EPC and Rules 27(1) and 29(1) EPC178, and is therefore seen as “an underlying principle of patent law”.179 • Third, during the revision of the EPC by the Conference of the Contracting States, technical character as a requirement of an invention was confirmed by stating that “patent protection should be available to technical inventions of all kinds”.180 Thus, in order to assess whether claimed subject matter constitutes an invention in the sense of the EPC, the technical character must be assessed. But when exactly is claimed subject matter of a technical character? The circumstances under which there is a technical character are not specified anywhere in the EPC. Therefore, it is necessary to turn to case law of the Boards of Appeal.

4.1.2. Technical Contribution to the Prior Art In the early days of software patenting, the Boards of Appeal were of the opinion that computer programs were excluded from patent protection altogether, regardless of what functions the program could perform when loaded into a computer.181 Thus, even if the

176 T 154/04 (point 5(B) & 7 of the reasons); T 930/05 (point 2 of the reasons); T 619/02 (point 2.2 of the reasons); T 931/95 (point 2 of the reasons); T 935/97 (point 5.1 of the reasons); T 22/85 (point 3 of the reasons); Pinxten 2009, p.652; Pearson 2006, p.89; Bakels & Harison 2005, p.36-37; Looijengoed 2005, p.606; Bakels 2003, p.213. 177 T 1173/97 (point 5.2 of the reasons); T 154/04 (point 8 of the reasons); T 935/97 (point 5.2 of the reasons); T 833/91 (point 3.1 of the reasons); T 236/91 (point 4.1 of the reasons); T 854/90 (point 2.1 of the reasons); Bakels 2002, p.4; Hart, Holmes & Reid 2000, p.10. For a contrary line of thought see Sterckx & Cockbain 2010, p.369; Pinxten 2009, p.654; Bainbridge 2007, p.199; Grosche 2006, p.274; Newman 1997, p.702. However, even if the requirement of a technical character is unsupported in the Convention, it can be argued that this is not a problem as the framers of the EPC intended the Boards to give an interpretation as to when subject matter constitutes an invention. 178 These requirements are now embodied in Rules 42 and 43 of the EPC. 179 T 619/02 (point 2.2 of the reasons); T 154/04 (point 8 of the reasons); T 935/97 (point 5.1 of the reasons); T 1173/97 (point 5.1 of the reasons); T 22/85 (point 2 & 4 of the reasons); T 208/84 (point 8 of the reasons); Laub 2006, p.345; Bakels & Harison 2005, p.37; Park 2005, p.344; Hart, Holmes & Reid 2000, p.12 & 14. Bakels disagrees with this approach, for which see Bakels 2002, p.350. 180 T 154/04 (point 8 of the reasons); Basic Proposal for the Revision of the European Patent Convention (CA/100/00 e), p.39 (“There is a long legal tradition in Europe that patent protection should be reserved for creations in the technical field. This is now clearly expressed in the new wording of Article 52(1) EPC. In order to be patentable, the subject-matter claimed must therefore have a "technical character" or to be more precise - involve a "technical teaching", ie an instruction addressed to a skilled person as to how to solve a particular technical problem using particular technical means. It is on this understanding of the term "invention" that the patent granting practice of the EPO and the jurisprudence of the Boards of Appeal is based.”). 181 T 1173/97 (point 11.1 of the reasons), citing T 26/86, T 110/90, T 164/92, and T 204/93. See also Grosche 2006, p.270 & 292; Bakels 2003, p.428. 33

computer program was useful for controlling a technical process, it could not be granted protection.182 From this point of view, it is not possible to base an analysis of patentability on a distinction between computer programs with a technical character, and computer programs without such technical character. Nevertheless, an invention in the sense of Art.52 EPC was soon found to be present if the claimed subject matter made a contribution to the state of the art in a field that is not excluded from patent protection, a standard known as the contribution approach.183 If the contribution of the claimed subject matter lies only in, for example, a mathematical algorithm, there is no technical character.184 The contribution can lie in the problem solved by the claimed invention, the means by which a problem is solved or the effects achieved by the solution to a problem.185

However, a contribution that does not go beyond conventional computer functioning was deemed insufficient.186 In one case it was even held that a "new kind of hardware" must be involved.187 In more recent case law, the contribution approach was formulated as requiring that the contribution must be a technical one.188 This could, for example, be the improvement of the internal working of a programmable computer by providing it with a new function, or improving an already existing function.189 The latter interpretation is not in line with the new hardware requirement, however, and it is unclear whether these requirements should be seen as supplementary or complementary.

What is clear is that under this approach prior art has to be taken into account in order to determine the subject matter’s patentability.190 However, the Technical Boards later stated that any comparison with prior art was an inappropriate test for patentability, and that it

182 T 204/93 (point 3.13 of the reasons); Hart, Holmes & Reid, p.13. 183 The first case in which the contribution approach was clearly adopted is the VICOM case (T 208/84). For other decisions on the contribution approach see T 121/85, T 38/86 (point 12 of the reasons); T 95/86; T 603/89; T 71/91 (point 3.3 of the reasons); T 236/91; T 833/91 (point 3.1 of the reasons); T 77/92; T 38/86 (point 12 of the reasons); T 121/85 (point 5 & 5.2 of the reasons); T 22/85 (point 3 of the reasons); T 52/85 (point 5.1 of the reasons); Guarda 2013, p.450; Deschamps 2011, p.109; Sterckx & Cockbain 2010, p.375; Ballardini 2008, p.565; Diver 2008, p.130; Cook 2007, p.115; Laub 2006, p.347; Pila 2005, p.6; Newman 1997, p.702 & 705; Meijboom 1990. p.56. The Board in T 22/85 (point 3 of the reasons) described this as a “long-standing legal practice in at least the majority of Contracting States of the EPO”. 184 T 22/85 (point 6, 7 & 9 of the reasons). Mathematical methods are excluded under Art.52(2)(a) EPC. 185 T 833/91 (point 3.2 of the reasons). 186 T 1177/97 (point 3 of the reasons); T 121/85 (point 5.3 & 5.4 of the reasons); T 236/91 (point 6.3 of the reasons); T 110/90 (point 5 of the reasons). 187 T 204/93 (point 3.4 of the reasons). 188 T 769/92 (point 3.3 of the reasons); T 204/93 (point 3.5 of the reasons); T 833/91 (point 3.3 of the reasons); Laub 2006, p.346. 189 T 204/93 (point 3.8 of the reasons); T 833/91 (point 3.1 of the reasons); Hart, Holmes & Reid 2000, p.15. 190 T 258/03 (point 3.2 of the reasons); T 77/92 (point 3.4 of the reasons); T 38/86 (point 13 of the reasons); T 769/92 (point 3.8 of the reasons); Laub 2006, p.345. 34 belonged under the assessment of inventiveness as a separate criterion.191 The Enlarged Board recently described this as a deliberate development of case law, consciously moving away from the contribution approach.192 Thus, the contribution approach is no longer a valid standard based upon which the patentability of excluded subject matter can be determined.193

4.1.3. Technical Effect Boards of Appeal soon interpreted technical character as requiring a technical effect in the claimed invention, which could render originally excluded subject matter patentable.194 The Board in T 208/84 mentioned that an indicative element for technical character is that the claimed invention produces an “overall technical” effect. An example of this is “the controlling of some physical process”.195 Thus, the technical character was linked to a physical element, and perhaps more importantly, to the effect produced on that element.196 Even if the basic idea behind the claimed invention resides solely or mainly in the computer program itself, it is not a computer program as such if it produces a technical effect.197

However, every computer program that runs on a piece of hardware, such as a general- purpose computer, inevitably produces a technical effect in that it changes the functioning of the hardware.198 At a bare minimum, software has the physical (and thereby technical) effect of circulating electrical currents through the computer's circuitry.199 In 2008, this was confirmed by the Enlarged Board of Appeal in G 3/08, in which the Board added that “programming always involved technical considerations, at least implicitly”.200 In short, this means that a simple, physical modification in the structure of the hardware is not per se

191 T 154/04 (point 5, 9 & 10 of the reasons); T 619/02 (point 2.2 & 2.6.1 of the reasons); T 258/03 (point 3.1 & 3.3 of the reasons); T 172/03 (point 5 of the reasons); T 931/95 (point 6 of the reasons); T 935/97 (point 8 of the reasons); T 1173/97 (point 8 of the reasons); T 77/92 (point 3.1 of the reasons); Pearson 2006, p.90; Hart, Holmes & Reid 2000, p.14. 192 G 3/08. This case will be further analyzed in Section 4.2. 193 Guarda 2013, p.450; Bakels 2009, p.520; Ballardini 2008, p.565-566; Pearson 2006, p.90; Bostyn 2001, p.80. 194 The technical effect approach was first used in 1988. T 619/02; T 258/03; T 641/00; T 931/95; T 1173/97 (point 5.3 of the reasons); T 833/91 (point 3.1 of the reasons); T 935/97; T 22/85; Sterckx & Cockbain 2010, p.369; Ballardini 2008, p.566; Hart, Holmes & Reid 2000, p.12. The element of technicality was already considered under the contribution approach, for which see T 204/93 (point 3.5 of the reasons); T 110/90 (point 5 of the reasons); T 236/91 (point 6.1 of the reasons). Because of the combination with the contribution approach, under which prior art is taken into consideration, some Boards have held that the technical effect had to be new. This view no longer seems valid. 195 T 208/84; T 313/10; T 313/10 (point 7 of the reasons). 196 This hinges close to the view adopted under the combination approach. 197 T 115/85 (point 7-9 of the reasons); T 6/83 (point 6 of the reasons); T 208/84. 198 In some cases, it was considered that any technical considerations were sufficient to confer technical character on claimed subject matter, for which see T 769/92. For a rejection of the technical effect approach based on slightly different grounds see T 154/04 (point 12 of the reasons). 199 T 1173/97; Zekos 2006, p.434; Bakels 2003, p.214. 200 G 3/08; T 935/97 (point 6.2 of the reasons), which will be further analyzed in Section 4.2.; T 1177/97; T 172/03. 35 sufficient to render excluded subject matter patentable under Art.52 EPC.201 Some of these modifications are common to all computer programs when they are performed on a piece of hardware, and can thus not distinguish patentable software from non-patentable software. If such modifications would be sufficient for patentability, the exclusion embodied in the EPC would become meaningless.202 Therefore, another test was developed.

4.1.4. Further Technical Effect

In order not to diminish the meaning of the exclusion clause, the Boards of Appeal came to the following test: does the claimed invention produce a further technical effect?203 This standard somehow tries to describe a result that goes beyond the abovementioned technical effects.204 There is some ambiguity to this standard, and Boards have tried to provide clarity on how to interpret it. In T 1173/97, for example, the Board stated that there was a further technical effect when further technical considerations were required for writing the software.205 Thus, the technical considerations must relate to more than the fact that the software must be able to run on a specific piece of hardware. This does not heighten the threshold significantly, however, as almost all software that is covered by a patent application is designed to do more than just run on a piece of hardware, for it would otherwise be too trivial to seek patent protection for in the first place.

As interpreted by the Enlarged Board in G 3/08, the term further technical effect means that the programmer must have had “technical considerations beyond “merely” finding a computer algorithm to carry out some procedure”.206 This points towards an assessment of the programmer’s intention, which is a difficult task in practice. It can be argued, however, that the programmer's intention will always be embodied in the software; software is usually designed for a specific purpose, which purpose will become clear from the patent application and thus reveals the programmer’s intention. Yet, this is still subjective and unclear standard.

201 G 3/08 (point 13.5 of the reasons). See also T 1173/97 (point 6.2, 6.3 & 6.6 of the reasons); T 935/97 (point 6.2 of the reasons); T 22/85; Sterckx & Cockbain 2010, p.383; Bakels & Harison 2005, p. 56; Park 2005, p.347; Hart, Holmes & Reid 2000, p.12. 202 T 154/04 (point 20 of the reasons). 203 This was first used about a decade after the first use of the technical effect approach. T 1173/97 (point 6.4 of the reasons) was the first instance in which a Board used the further technical effect as the sole test for determining patentability. Other decisions in which the further technical effect approach was taken are T 935/97 (point 6.4 & 9 of the reasons) and T 1227/05 (point 3.3 of the reasons). See also Pinxten 2009, p.656; Esteve 2006, p.284; Bakels & Harison 2005, p. 56 & 79; Bakels 2003, p.214; Bosscher 2003, p,141; Bostyn 2001, p.82. 204 Zekos 2006, p.435; Rosser 2005, p.26. 205 As cited in T 1173/97 (point 7.3 of the reasons), the Board in T 769/92 already addressed the necessity of technical considerations in order for claimed subject matter to have a technical character. 206 G 3/08 (point 13.5 of the reasons). 36

Additionally, no distinction needs to be made between direct and indirect technical effects.207 If software has the potential to cause a predetermined further technical effect, it is patentable under this approach, which means that it can be claimed without a particular reference to hardware.208

A further technical effect has also been found in a case in which software was used to enhance the internal functioning of a computer, in order to facilitate data exchanges between various applications.209 The Board in T 424/03 stated that this provided the computer with a further functionality, as this data exchange was not possible without the claimed invention. This further functionality went “beyond the elementary interaction of any hardware and software of data processing”, and thereby produced a further technical effect.210 Other examples of a further technical effect are an invention that provides for the more secure operation of a brake or an invention that allows for faster communication between cellular phones with improved call quality.211

In short, if software enhances, or has the potential of enhancing the functioning of the hardware on which it runs, which goes beyond the basic software/hardware interaction, there is a further technical effect and the software is patentable subject matter, both when claimed independently as well as in combination with hardware.212 The enhancement or improvement of the internal functioning of a general-purpose computer can be sufficient.213 Thus, the hardware involved is not subject to some sort of novelty test. In addition, it has been held that the software must be the only means, or one of the necessary means of obtaining the abovementioned effect.214 When a further technical effect is found to be present, the software is patentable, even if the basic idea underlying the invention resides solely in the software.215

207 Hart, Holmes & Reid 2000, p.12. 208 T 1227/05 (point 3.3 of the reasons); T 935/97 (point 9.4 of the reasons); T 1173/97 (point 9.4 of the reasons); T 411/03 (point6.3 of the reasons); Bainbridge 2007, p.201; Park 2005, p.347; Bostyn 2001, p.82; Hart, Holmes & Reid 2000, p.12. The Board in T 424/03 (point 5.1 of the reasons) seems to make a distinction between actually achieving an effect and the potential to achieve an effect, although it makes a contradictory statement in one of the subsequent paragraphs. Under the combination approach, it is disputed that the mere potential to cause a certain effect is sufficient. 209 T 424/03 (point 5.2 of the reasons); Zekos 2006, p.435. 210 Rosser 2005, p.26. 211 Rosser 2005, p.26. 212 T 1173/97 (point 9.4 & 13 of the reasons); T 313/10 (point 8-10 of the reasons). 213 T 935/97 (point 6.5 of the reasons). 214 T 935/97 (point 6.5 of the reasons); T 1173/97 (point 6.5 of the reasons). 215 T 935/97 (point 7.4 of the reasons); T 1173/97 (point 7.4 of the reasons), citing T 208/84 and T 115/85; Park 2005, p.338. 37

4.1.5. Combination of Software and Hardware Another standard adopted in EPO case law is that subject matter constitutes an invention if non-technical elements are combined with technical elements, a standard that will further be described as the combination approach.216 This requirement was traditionally applied simultaneously with other approaches. However, the recent decision by the Enlarged Board of Appeal indicates that the combination approach can be seen as a distinct standard to assess subject matter patentability.217 According to the lowest threshold adopted under this approach, if the claimed subject matter contains at least one element that does not fall under the excluded subject matter of Art.52 EPC, there is an invention susceptible to patentability.218 In light thereof, it is important to reiterate that an invention must be assessed as a whole.219

The combination approach has its origins in early case law dating back to 1986, and was thus applied simultaneously with the contribution approach.220 In T 208/84, also known as the VICOM case, the Board held that even if the idea underlying an invention lies in excluded subject matter, a claim directed to a technical process in which the excluded subject matter is used does not seek protection for the excluded subject matter as such, as it is combined with a technical element.221 This case was about a method of digitally filtering a two-dimensional data array representing a stored image in order to enhance the quality of the image.222 The Board’s decision was based mainly on the following reasoning:

A basic difference between a mathematical method and a technical process can be seen, however, in the fact that a mathematical method or a mathematical algorithm is carried out on numbers (whatever these numbers may represent) and provides a result also in a

216 This approach is sometimes also referred to as the “strictly literal approach”, see for example Sterckx & Cockbain 2010, p.384, or the “any hardware approach”, see for example Ballardini 2008, p.565. 217 G 3/08 (point 10.13 of the reasons). 218 G 3/08 (point 10.13 of the reasons); T 1177/97 (point 3 of the reasons); T 258/03, T 424/03, T 1658/06, T 313/10; T 269/92 (point 3.6 of the reasons); T 236/91 (point 6.1 of the reasons); Sterckx & Cockbain 2010, p.384. The fact that a mere combination of software and hardware would be sufficient to render subject matter patentable was disputed in T158/88 (point 2.3 of the reasons) (“The statement that technical means (e.g. a visual display unit) are able to be used to carry out the claimed process [...] is not alone sufficient to render patentable within the meaning of Article 52(1) EPC a process which in essence constitutes a computer program as such.”). 219 T 77/92 (point 3.2 of the reasons); Bakels & Harison 2005, p.57. 220 In fact, the VICOM case was the first important case on the interpretation of Art.52 EPC. Examples of the simultaneous application of different approaches are T 77/92 (point 3.2 of the reasons); T 204/93 (point 3.2 of the reasons) & T 833/91 (point 3.3 of the reasons). Sterckx & Cockbain 2010, p.376; Bainbridge 2007, p.200; Laub 2006, p.347. See Appendix I for a chronological overview of case law. 221 T 208/84 (point 6 of the reasons); Sterckx & Cockbain 2010, p.378; Hart, Holmes & Reid 2000, p.51. 222 T 208/84 (point 2 of the reasons). 38

numerical form, the mathematical method or algorithm being only an abstract concept prescribing how to operate on the numbers. No direct technical result is produced by the method as such. In contrast thereto, if a mathematical method is used in a technical process, that process is carried out on a physical entity (which may be a material object but equally an image stored as an electric signal) by some technical means implementing the method and provides as its result a certain change in that entity. The technical means might include a computer comprising suitable hardware or an appropriately programmed general-purpose computer.223

Thus, the non-technical subject matter must be embodied in the technical subject matter in order for it to produce a real world effect.224 It is noticeable that the Board stretched the boundaries of patentability, by stating that a process carried out on a physical entity may even be an image stored as an electric signal. Also, the Board in this case linked the abovementioned requirements to the (no longer valid) contribution approach, serving as an additional and, according to the Board, decisive hurdle to pass.225 This additional requirement might explain the low threshold adopted under the combination approach. The Board further stressed that an invention that would normally be patentable cannot be barred from patent protection for the mere reason that it includes “modern technical means”.226

One year after the VICOM decision, the Board in T 26/86 confirmed that “if the program controls the operation of a conventional general-purpose computer so as technically to alter its functioning, the unit consisting of program and computer combined may be a patentable invention”.227 The Board added that that the addition of excluded subject matter does not render the invention as a whole unpatentable, which was explicitly confirmed in subsequent case law.228 Also, the Board deemed it unnecessary to weigh the technical means against the non-technical means in order to see which part was more dominant.229 Although these

223 T 208/84 (point 5 of the reasons). 224 T 208/84 (point 18 of the reasons). 225 T 208/84 (point 16 of the reasons). This might be explanatory for the relatively low threshold adopted by the Board, as there was an additional requirement to be fulfilled. 226 T 208/84 (point 16 of the reasons); Bakels 2002, p.4. 227 T 26/86 (point 3.3 of the reasons). See also point 3.4 of the reasons, in which a combination of technical and non- technical means is expressly permitted. Park 2005, p.338. 228 T 26/86 (point 3.4 of the reasons); T 22/85 (point 8 of the reasons); T 95/86 (point 6 of the reasons); T 769/92; T 154/04 (point 5 of the reasons). 229 T 26/86 (point 3.4.1 of the reasons); Park 2005, p.337. 39

decisions do not specifically state that adding a technical element to claimed subject matter automatically brings it outside the scope of the exclusion clause, they leave the door open for patenting mixed inventions. About a decade later, the Board in T 931/95 held that if a claim is directed to a computer system, this implies physical features “which may qualify as technical features of the invention concerned and thus be relevant for its patentability”.230 This was confirmed in T 258/03, in which the Board added that the technical features of an invention may be enough to fulfill the requirements of Art.52 EPC.231 From this point on, the mere combination of software and hardware, such as a general-purpose computer or a computer system including a memory, was deemed sufficient to pass the patentability hurdle, as is confirmed in multiple other cases.232

It is clear that under the abovementioned case law, it is irrelevant whether the technical element is a conventional piece of hardware such as a general-purpose computer, or a novel piece of machinery.233 Even the mere addition of a computer readable medium on which the software is stored has been deemed sufficient to pass the patentability hurdle.234 Moreover, the technical means do not have to form a dominating part of the claimed invention in order for a mix of technical and non-technical means to be patentable.235 This shows that the threshold is relatively low, as a claimed invention containing at least one feature not falling within the excluded subject matter listed under Art.52 EPC is sufficient to render the subject matter patentable. This allows for a very broad interpretation of the invention concept.236

Several limitations to this broad standard have been formulated in case law. A requirement set out in T 158/88 and T 208/84 is that there must be a “change in the physical or technical functioning of the device” operated by the software.237 This requirement was further elaborated in T 26/86 and T 603/89, in which it was held that there must be an interaction between the technical and non-technical elements in order to solve a technical problem, before subject matter constitutes an invention.238 If there is no interaction of such kind, the

230 T 931/95 (point 5 of the reasons). 231 T 258/03 (point 3.5 & 4.5 of the reasons). 232 T 1351/04 (point 4 of the reasons); T 258/03 (point 3.7 & 4.5 of the reasons); T 188/11 (point 2.4 of the reasons); T 424/03 (point 5.1 of the reasons); T 411/03; Bainbridge 2007, p.202. 233 T 1177/97 (point 3 of the reasons). 234 G 3/08 (point 10.7 of the reasons); T 424/03; T 258/03. 235 T 641/00 (point 4 of the reasons). 236 T 313/10 (point 1 of the reasons), citing G 3/08, T 258/03 and T 124/03; T 258/03; Fox & Corbett 2014, p.571. 237 T 158/88 (point 2.4 of the reasons); T 208/84 (point 5 of the reasons). This shows similarities to the (further) technical effect approach. 238 T 26/86; T 77/92 (point 3.2 of the reasons); T 603/89 (point 2.5 of the reasons). 40

non-technical elements do not make use of the technical elements, which lack of interaction renders the claimed invention as a whole unpatentable.239 Additionally, if the implementation of the computer program does not go beyond conventional computer operating techniques, the interaction is insufficient for the claimed subject matter to have a technical character.240 In other words, it is necessary to look whether the software alters the function of the computer on which it is designed to run.241 Thus, it seems as if under the combination approach some Boards held that there must still be something similar to a further technical effect. This becomes even more clear in recent case law, in which it is explicitly stated that the abovementioned interaction must achieve a technical effect.242

An important side-note is that “[t]he mere possibility of a technical embodiment is not sufficient to confer a technical character” to otherwise excluded subject matter, as opposed to under the further technical effect approach.243 Thus, the technical means through which the software is to be implemented have to be specified in the claims.244 The Board in T 619/02 added that there is no technical character if the claimed invention can, in addition to technical means, also be implemented through non-technical means.245

In short, under the combination approach, excluded subject matter is to be patentable when combined with hardware, such as a general-purpose computer or computer readable medium, which is the minimum requirement that has to be fulfilled.246 Although this test was often applied in combination with other approaches, it can be seen as a distinct approach after the Enlarged Board of Appeal’s ruling in G 3/08 in 2010. Further requirements can be found in case law, one of which is that there must be an interaction between the technical and non- technical means that goes beyond the regular software/hardware interaction. Furthermore, it has been held that the software must change the physical or technical functioning of the device. The mere potential of achieving such an effect seems to be insufficient.247 However,

239 T 603/89 (point 2.5 of the reasons); T 158/88. In other words, as stated in T 603/89 (point 2.5 of the reasons), the claimed subject matter as a whole is excluded from patentability as “it does not make use of technical means in order to solve a technical problem”. 240 T 95/86 (point 7 of the reasons). See also T 769/92 (point 3.3 of the reasons); T 110/90 (point 4 of the reasons); T 833/91 (point 3.3 of the reasons). 241 T 26/86 (point 3.3 of the reasons). 242 T 1177/97 (point 3 of the reasons); T 77/92 (point 3.2 of the reasons). It does not matter when the technical effect occurs. As stated in T 26/86 (point 3.2 of the reasons), “[t]he only importance is that it occurs at all”. 243 T 2078/08 (point 3.1 of the reasons). 244 Clearly, if the technical means are not specified in the claims of the patent application there is no combination of technical and non-technical means in the first place. 245 T 619/02 (point 2.2 & 2.3.1 of the reasons). 246 T 619/02 (point 2.2 of the reasons). 247 T 424/03 (point 5.3 of the reasons). 41 these limitations to the originally broad combination approach have not been applied uniformly, and Boards of Appeal are not bound by them in subsequent decisions.

4.1.6. Contradictions & Other Relevant Considerations Within the abovementioned approaches, as well as within the broader context of EPO case law, there remains a lack of uniformity. Several times, Boards have made contradictory statements and used differing criteria. These contradictions and other relevant considerations in case law are set out below. Most of the differences in case law relate to the combination approach, in which it was held that the mere addition of a technical element confined patentability upon otherwise excluded subject matter. Even the Guidelines for Examination have once held that the mere combination of software and hardware was insufficient to pass the patentability hurdle.248A simple explanation for these contradictions could be that Technical Boards of Appeal are not bound to earlier decisions. In this regard, some Boards tried to prevent the exclusion clause from becoming meaningless, while other Boards tried to set the door wide open for software patents. This inevitably leads to contradictory requirements.

T 95/86 provides a striking example of the abovementioned contradictions. The Board in that case held that the implementation of software into an appropriately programmed computer “is in itself no evidence for any technical character of the invention on which the method is based”.249 A similar objection against the combination approach was raised in T 1173/97 and T 935/97, in which it was held that the hardware in which the software is implemented does not form part of the invention, and is merely a material object on which physical changes are carried out.250 Similarly, the Board in T 854/90 held that the presence of technical elements does not mean that a claimed invention has technical character.251 The Board in T 1173/97 said that it would make no sense to grant a patent on the software if it was claimed in combination with hardware, but not when claimed without the hardware, despite the fact that it would have the same effect.252 In this regard, the Board in T 931/97 stated that “any activity in the non-technical branches of human culture involves physical entities and uses, to a greater or lesser extent, technical means”, and that it would thus be too formalistic to let the

248 Hart, Holmes & Reid 2000, p.13. 249 T 95/86 (point 10 of the reasons). 250 T 1173/97; T 935/97 (point 7.1 & 9.3 of the reasons). 251 T 854/90 (point 2.3 of the reasons). 252 T 1173/97 (point 13 of the reasons); Bainbridge 2007, p.201; Bakels & Harison 2005, p.56; Park 2005, p.339 & 347; Hart, Holmes & Reid 2000, p.12. 42

patentability question rely upon the combination with technical means.253 Similarly, as early as 1988, the Board in T 22/85 noted that it could not have been the intention of the framers of the EPC that the exclusion from patentability could be circumvented by smart claim drafting, as was later confirmed in T 38/86.254

An interesting consideration to be mentioned is that the TRIPS agreement was taken into account on several occasions.255 According to the Board in T 1173/97, the developments under TRIPS “represent a useful indication of modern trends”.256 Similarly, the Board in T 935/97 held that TRIPS indicates that computer programs are not to be excluded from patentability, as patents must be granted to inventions in all fields of technology.257 Thus, in some instances a view in favor of software patentability was adopted in light of TRIPS.258 Interestingly, the Board in T 935/97 further held that developments in the U.S. legal system can be taken into account when assessing current trends with regard to patentability.259

4.2. Enlarged Board of Appeal in G 3/08 As recent as 2010, the Enlarged Board of Appeal in G 3/08 was asked to bring more uniformity to the different decisions with regard to software patentability, some of which were illustrated above. Based on Art.112(1)(b) EPC, the President of the EPO referred several questions to the Enlarged Board of Appeal.260 The main goal of such a referral is to provide for uniform application of the law and legal certainty, by preventing arbitrariness.261 In short, such a referral is admissible if it relates to a point of law that is of fundamental importance, and if there are divergent decisions by different Boards of Appeal.262 The Board had no difficulty in accepting that the referral dealt with a fundamental point of law, as the patentability of software has been the subject of a considerable amount of debate. However, whether there were divergent decisions in the sense of Art.112(1)(b) EPC was a more difficult question to answer, and was ultimately dismissed.

253 T 931/97 (point 3 of the reasons). 254 T 22/85 (point 10 of the reasons); T 38/86 (point 25 of the reasons); Sterckx & Cockbain 2010, p.379. 255 Sterckx & Cockbain 2010, p.381; Pila 2005, p.8-9; Park 2005, p.347. 256 T 1173/97 (point 2.6 of the reasons). 257 T 935/97 (point 2.3 of the reasons). 258 The inherent tension between TRIPS and the EPC is pointed out in Sterckx & Cockbain 2010, p.372. The relationship between the EPC and TRIPS, however, will not be addressed in great detail. 259 T 935/97 (point 2.5 & 2.6 of the reasons); Pila 2005, p.8-9. 260 See Pila 2011, p.15-25 for an expansive discussion on this topic. 261 G 3/08 (point 7.2.3 of the reasons). 262 Art.112(1)(b) EPC; G 3/08 (point 3 of the reasons). 43

In summary, the questions posed to the Enlarged Board were: • Can a computer program only be excluded as a computer program as such if it is explicitly claimed as a computer program? • Can a claim in the area of computer programs avoid exclusion merely by explicitly mentioning the use of a computer or a computer-readable storage medium? • If the mere combination of a computer program and hardware is insufficient, then is a further technical effect necessary to avoid exclusion? • Must a claimed feature cause a technical effect on a physical entity in the real world in order to contribute to the technical character of the claim, and if so, is it sufficient that the physical entity be an unspecified computer? • Does the activity of programming a computer necessarily involve technical considerations?

This set of questions is broadly formulated and, in essence, seeks clarity on the relationship between the further technical effect approach and the combination approach.263 In light of the discrepancies highlighted in the previous sections, the questions asked by the President of the EPO make perfect sense. However, the Enlarged Board was not willing to accept a divergence in case law, and thus provided no conclusive answers to all of the questions. Despite this lack of divergence, the decision of the Enlarged Board provides some clarity on how to assess software patentability under the EPC, the most important considerations of which will be described below. Before moving on to the more substantive analysis, the admissibility of the referral will be shortly addressed below.

4.2.1. Difference v. Divergence For a referral under Art. 112 EPC to be admissible, there must be a “divergence” in EPO case law. This means that at least two Boards of Appeal must have come to such differing conclusions that there is a conflict with the principle of legal uniformity.264 However, it must be borne in mind that case law in new legal territory does not necessarily develop in a uniform way, and that it is normal for earlier approaches to be abandoned or modified.265 Moreover, the Enlarged Board emphasized its limited willingness to intervene in legal development by stating that the legislator must fulfill an important role “when legal

263 See Sterckx & Cockbain 2010, p.385-389 for a comprehensive discussion of the posed questions. 264 G 3/08 (point 7.2.6 & 7.3.1 of the reasons). 265 G 3/08 (point 7.3.1 of the reasons). 44

development meets its limits”.266 Therefore, the Enlarged Board interpreted “diverging decisions” strictly, and held that “even a radical shift in jurisprudence need not necessarily be construed as a different decision”.267

In short, the Enlarged Board considered that there were no divergent decisions within the meaning of Art. 112 EPC, as the differences in case law resulted from normal and ongoing legal development.268 Although the Board acknowledged that the referral concerned an important point of law and that there were clear contradictions in case law, it held that this did not lead to an unworkable situation; older decisions have lost their significance and therefore do not impact the standards set out in more recent decisions.269 However, if this is decisive ground based on which a referral can be dismissed, it can lead to rather artificial situations; the law is always in an ongoing state of development. At least it is clear that the Enlarged Board is afraid of constituting premature uniformity of the law.

The reasoning used by the Enlarged Board on this point is questionable. Boards of Appeal are clearly facing difficulties with deciding which threshold to apply. The requirement of a further technical effect seems to contradict the lower threshold of a mere combination of technical and non-technical means. Additionally, several decisions aim at avoiding Art.52 EPC from becoming meaningless, whereas other don’t. As became clear under the historical analysis, the framers of the EPC intended the Boards of the EPO to play an important role in interpreting the exclusion of software. The Enlarged Board in G 3/08 clearly avoided to live up to this duty by strictly interpreting what constitutes a divergence, which in turn enabled the Board to conclude that the referral was inadmissible, despite significant inconsistencies.

4.2.2. Assessment of the Contribution Approach As clearly indicated by the Enlarged Board, the contribution approach was deliberately abandoned in case law.270 Also, there are no cases contradicting the abandonment of the contribution approach.271 Therefore, the contribution to the state of the art in a field not excluded from patentability can no longer function as a suitable patentability criterion, as was also indicated under Section 4.1.2.

266 G 3/08 (point 7.2.7 of the reasons). 267 G 3/08 (point 7.3.5 of the reasons). 268 G 3/08 (point 7.3.4, 7.3.5 & 7.3.8 of the reasons); Pila 2011, p.25; Bakels 2009, p.514. 269 G 3/08 (point 4 & 7.3.8 of the reasons). 270 G 3/08 (point 10.4 of the reasons). 271 G 3/08 (point 10.4 of the reasons). 45

4.2.3. Assessment of the Combination Approach The referral made to the Enlarged Board indicates that the combination approach is inconsistent with the further technical effect approach, which requires that a claimed invention must show a further technical effect in order to be patent-eligible.272 Therefore, the question was asked whether a claim in the area of computer programs can avoid exclusion merely by explicitly mentioning the use of technical element, such as a computer or a computer-readable storage medium.273

The Enlarged Board acknowledged that the mere addition of a computer or a computer- readable storage medium is sufficient to bring originally excluded subject matter outside the scope of Art.52(2)(c) & (3) EPC, and thus acknowledged this as a distinct approach towards patentability.274 However, the Board added that this low threshold does not seem to pose any problems, as subject matter will still have to pass the test of inventive step.275 In essence, the Enlarged Board accepted the fact that the exclusion loses most of its scope if this approach is to be taken, and held that “it follows that a claim to a computer implemented method or a computer program on a computer-readable storage medium will never fall within the exclusion of claimed subject-matter […]”.276 Although this might be a “distasteful” solution to many people, there are no divergences from this standard in EPO case law, and the Enlarged Board was not willing to overturn this standard on its own.277

4.2.4. Assessment of the Further Technical Effect Approach Another main question was whether a technical effect was required on a physical entity in the real world in order for subject matter to fall outside the scope of the exclusion clause. However, the Enlarged Board rapidly concluded that there was no divergence on this point, as the allegedly diverging decisions do not require a technical effect on a physical entity, but merely use this as a possible ground based on which claimed subject matter can be deemed patentable.278

272 G 3/08 (point 11.2 of the reasons). This was also highlighted under Section 4.1.6. The inconsistency arises out of the fact that the further technical effect approach adopts a higher threshold than the combination approach. 273 As stated in G 3/08, cases T 163/85 and T 190/94 confirm this, while cases T 125/01 and T 424/03 do not. 274 G 3/08 (point 10.13 of the reasons). 275 G 3/08 (point 10.13 of the reasons). 276 G 3/08 (point 10.13.1 of the reasons). 277 G 3/08 (point 10.13 of the reasons). For a critical note on this point of the decision see Pila 2011, p.30. 278 G 3/08 (point 12.3 & 12.4 of the reasons). 46

Nevertheless, the Enlarged Board confirmed that the further technical effect approach is a legitimate standard according to which the patentability of software can be assessed, and gave it a rather narrow interpretation.279 This was stated in regard to the question of whether computer programming necessarily involves technical considerations. Although there was no divergence on this point, the Board accepted that there was the potential for confusion.280 The Enlarged Board confirmed that all computer programs have a technical effect, and that the patentability threshold must therefore be set at a further technical effect.281 As also stated in case law of the Technical Boards of Appeal, this can be assessed according to the programmer’s technical considerations going beyond merely finding an algorithm to carry out some procedure.282

However, the Enlarged Board of Appeal interpreted the further technical effect differently in another part of the decision, which made it compatible with the combination approach. The Board held that simply storing software on a storage medium is an effect which goes beyond the effects that occur when the software is run on a designated computer.283 It further held that there is no requirement in Art.52 EP “for a “further” effect going beyond the basic properties of such a computer-readable storage-medium”.284 In addition, there is no further case law that suggests that such hardware elements are too generic.285 It is unclear which of the interpretations of a further technical effect prevails.

4.3. What is the Current Legal Standard? Based on the foregoing analysis, it is possible to discern the different requirements taken into account by the Boards of Appeal when assessing applications, which in turn allows for formulating the current legal standard. However, it is still difficult to draw a clear- cut line, despite numerous decisions on the topic.286 One of the most important observations is that there is more than one legal standard. As implied by G 3/08, both the further technical effect approach and the combination approach co-exist as separate standards for patentability.

279 The fact that both the combination approach and the further technical effect approach are accepted as legitimate and equal legal standards inherently causes friction, as both approaches embody different thresholds. 280 G 3/08 (point 13.5 of the reasons). 281 G 3/08 (point 13.5 of the reasons). 282 G 3/08 (point 13.5 of the reasons). 283 G 3/08 (point 10.8.4 of the reasons). 284 G 3/08 (point 10.8.5 of the reasons). 285 G 3/08 (point 10.8.7 of the reasons). 286 G 3/08 (point 4.1 of the reasons). 47

In sum, the current minimum legal standards based on which the patentability of software must be assessed are whether there is a combination of technical and non-technical means, or whether there is a further technical effect, respectively whether: 1. the claimed software is combined with a technical element, such as a general-purpose computer or computer readable storage medium; or 2. the claimed software enhances, or has the potential of enhancing the functioning of the hardware on which it runs, which goes beyond the basic software/hardware interaction, both when claimed independently as well as in combination with hardware. Further requirements taken into account under the first approach are that: • the non-technical subject matter must be embodied in the technical subject matter; • there must be a change in the physical or technical functioning of the device; and • there must be an interaction in order to solve a technical problem, which interaction goes beyond the conventional software/hardware interaction. Further requirements taken into account under the second approach are that: • the software is the only means, or one of the necessary means to obtain the further technical effect; • the software provides the hardware with a further functionality that goes beyond the normal software/hardware interaction; and • the programmer must have had technical considerations beyond merely finding a computer algorithm to carry out some procedure.

It is difficult to make conclusive statements about which of the abovementioned “further requirements” are decisive, given the fact that the decisions in which they were put forward are not binding for future decisions. Boards are free to use these requirements, but are not obliged to do so. The confusing part about this is that all the decisions concerning software patentability suggest that there is a single line of practice, which in fact there is not.287 However, the minimum threshold that must be passed in order for software to be patentable is now clear.

The combination approach is the lowest hurdle to pass; under this approach the exclusion from patentability can be circumvented by simply including a piece of hardware in the claims

287 Pila 2005, p. 8. 48

of the patent application.288 Thus, smart claim drafting can do the trick. This hardware can even be a general-purpose computer or a mere data storage medium. The further technical effect approach is a slightly higher threshold to pass.289 Most software is designed to have an effect that goes beyond the normal software/hardware interaction, and to provide the hardware on which it runs with a further functionality. Otherwise it would make little sense to develop the software, or it would at least not be covered by a patent application. Also, if the mere potential to cause such an effect is sufficient, software can be claimed in isolation, regardless of the hardware involved. In essence, this means that under this approach, software can fall outside the scope of the exclusion clause even when claimed “as such”.290 The following section will discuss the patentability of business method software under the combination approach and further technical effect approach.

4.4. Business Method Software As already indicated in Chapter 2, a distinction can be made between machine software and business method software. Although there is no separate legal standard for business method software, the latter faces more bias in practice and is therefore likely to encounter more difficulties under the legal standards as set out above.291 For example, the Board in T 931/95 stated that “[m]ethods only involving economic concepts and practices of doing business are not inventions within the meaning of Article 52(1) EPC”.292 Accordingly, one would expect that it is more difficult for such software to pass the patentability hurdle.

4.4.1. Business Methods Under the Combination Approach Given that the threshold to pass under the combination approach is so low, the patentability of business method software under this standard seems unproblematic. After all, claiming a business method embodied in a piece of software which is combined with a technical element, such as the computer on which the software is designed to run, should be enough to confer patentability upon the otherwise unpatentable business method. In this regard, the Boards in T 769/92 and T 172/03 held that an invention cannot lose its technical character,

288 Fox & Corbett 2014, p.571. 289 Grosche 2006, p.273. 290 The term “as such” might be confusing in this regard, as software “as such” is excluded by Art.52 EPC. However, using this terminology makes clear that what is understood to be software as such in common parlance, merely a piece of software is in fact not per definition excluded under the EPC anymore despite the wording of the EPC. 291 The fact that there is no separate legal standard for business method software could be explained by the fact that it overlaps with normal software to a large extent, as also stated in Ballardini 2008, p.566. 292 T 931/95 (point 3 of the reasons). It has to be added, however, that the claims as formulated in this case could also be performed without the software (point 5 of the reasons). 49

merely because it was used for a non-technical purpose, like for instance financial management.293

However, under the further requirements that were used in case law, problems can arise that could not arise when dealing with machine software. For example, business method software does not aim at changing the physical functioning of the hardware on which it is run. Despite the fact that it might inherently alter the way in which a computer works, it merely aims at performing the business method in a fast and efficient way, regardless of what changes are made in the physical functioning of the hardware. Machine software, on the other hand, is specifically designed to have a particular effect on the physical device on which it is run, and will thus face less difficulties passing this requirement. Also, it is questionable whether technical problems are solved with the incorporation of business method into software. Business methods usually aim at solving efficiency problems, instead of, for example, the functioning of a technical device, such as a car brake. On the other hand, it does seem likely that the incorporation of a business method into software goes beyond the normal software/hardware interaction.

4.4.2. Business Methods Under the Further Technical Effect Approach The further technical effect approach is also slightly more problematic for business method software than for machine software. As mentioned above, machine software aims at altering the functioning of a physical device, whereas business method software aims at performing the business method in a fast and efficient way. One of the tests to see if there is a further technical effect is whether the programmer's intention went “beyond “merely” finding a computer algorithm to carry out some procedure”.294 The core of a business method, however, is exactly that the programmer finds an algorithm to perform the business method.

Another requirement set out in case law is that the claimed invention must be the only means through which the claimed method can be performed.295 Most business methods can, however, also be performed by human beings. Although this would perhaps be slower and less efficient than what computer would do, the computer program containing the business method can be replaced with the human brain. Therefore, it seems as if a significant amount of business methods is excluded from patent protection based on this standard.

293 T 769/92 (point 3.7 of the reasons); T 172/03 (point 13 of the reasons). 294 G 3/08 (point 13.5 of the reasons). 295 T 1173/97 (point 6.5 of the reasons); T 619/02 (point 2.2 & 2.3.1 of the reasons). 50

4.5. Interim Conclusion When faced with a patent application for software, the invention must be assessed as a whole in order to find whether there is a technical character. Boards have developed different tests to assess whether there is such technical character. The two approaches that are still valid today are the further technical effect approach and the combination approach. In short, the further technical effect approach requires that the claimed invention enhances, or has the potential of enhancing the functioning of the hardware on which it runs, which goes beyond the basic software/hardware interaction. The combination approach requires that the claimed software be combined with a technical element, such as a general-purpose computer or computer readable storage medium. Multiple additional requirements can be found in case law, but they are not binding for future decisions, which means that they cannot be given great weight.

Both standards are relatively broad. Although Technical Boards of Appeal have tried to prevent the exclusion clause from becoming meaningless, the Enlarged Board did not intervene and literally stated that “if the Boards continue to follow the precepts of T 1173/97 it follows that a claim to a computer implemented method or a computer program on a computer-readable storage medium will never fall within the exclusion of claimed subject- matter […]”.296 Concerns of the exclusion clause becoming meaningless have thus not been heard. Under the current standard it seems possible to patent any software when combined with conventional hardware, and even when not combined with hardware, if it has the potential of producing a further technical effect.297

In Chapter 5 a similar analysis will be performed on the U.S. legal system, in order to come to the legal standard adopted under U.S. patent law. This allows for a comparison between the approaches taken in both legal systems, which will be done in Chapter 6. This will provide insight into possible solutions on how to correctly deal with software patents. Chapter 6 will assess whether the exclusion clause for software has become an empty shell. The Enlarged Board indicated that it could be possible to move the patentability analysis to the inventive step criterion. Chapter 7 will examine whether such an approach, as well as other possibilities, could provide a possible improvement to the system’s current functioning.

296 T 1173/97 (point 10.13.1 of the reasons). 297 Guarda 2013, p.451; Ballardini 2008, p.567; Bostyn 2001, p.81 & 87. 51

5. DEVELOPMENT AND CURRENT LEGAL STANDARD IN THE UNITED STATES 5.1. Interpretation of 35 U.S.C. 101 by U.S. Courts It is difficult to say whether the Framers of the Constitution or Congress intended the Constitution or Patent Act to allow patents on software, as this area of technology did not exist at the time both legislative instruments were drafted.298 Despite this lack of guidance, it was often held that courts “should not read into the patent laws limitations and conditions which the legislator has not expressed”.299 Therefore, courts have been cautious with interpreting 35 U.S.C. 101 (“§ 101”) strictly, and on numerous occasions stated that any limitations have to be initiated by Congress.300 However, until Congress intervenes, which it has not done up until now, we must rely upon the judicial interpretation of § 101.301 Therefore, it is necessary to turn to case law in order to determine the current legal standard.

Throughout the last forty years, several legal standards have been developed to determine the patentability of software.302 These standards will be individually and chronologically addressed in this chapter, and can best be described as the: • point of novelty approach; • Freeman-Walter-Abele approach; • machine-or-transformation approach; • useful, concrete and tangible result approach; and • significant additional features approach.303 The most recent Supreme Court ruling on software patentability, Alice Corporation v. CLS Bank, which dates from June 2014, will be discussed in a separate section. As was discussed in Chapter 3, the abovementioned approaches are based on the well-established principle that laws of nature, natural phenomena, and abstract ideas are not patentable under the Patent Act. Also, under all of these approaches the claimed invention must be assessed as a whole.304

298 See Chapter 3.2. for further details on this. 299 Diamond v. Chakrabarty, p.308. See also Diamond v. Diehr, p.182; Bilski v. Kappos, p.3225; Perel 2013, p.254; Peterson 1995, p.100 & 115. 300 Gottschalk v. Benson, p. 73; Parker v. Flook, p.595; In re Meyer, p.794; Arrhythmia Research Technology v. Corazonix Corporation, concurring opinion, p.1064-1065; State Street Bank v. SFG, p.1373; Bilski v. Kappos, p.3253; In re Alappat, p.1542; Mayo v. Prometheus, p.1305. 301 Wisecup 2013, p.1658; Nieh 2010, p.323. 302 Wisecup 2013, p.1653; Oppenheimer 2013, p.29; Collins 2013, p.1468; Lambilotte 2012, p.639; Cohen & Lemley 2001, p.7-11; Bender 2001, p.375; Hanneman 2000, p.40-41. It is noticeable that there are numerous Supreme Court rulings on § 101, whereas the under the European Patent Convention, rulings from the Enlarged Board of Appeal are scarcely available. 303 These tests are not always applied in isolation and portray overlapping requirements. 304 In re Alappat, p.1543; Parker v. Flook,p.594; Diamond v. Diehr, p.188; In re Walter, p.767; Bakels & Harison 2005,p. 80. 52

At the end of the case law analysis, the current legal standard under which software can be patented will be described. Similar to Chapter 4, this is an attempt to provide for legal certainty in a seemingly scattered and uncertain area of law. The patentability of the relatively new business method software under the current legal standard will also be assessed. Ultimately, this chapter will show the extent to which software is excluded from patentability in the U.S., and form a solid basis for the comparison to the European legal standard and the development through which both legal systems have gone. This comparison will be made in Chapter 6, and allows for an assessment of the meaningfulness of the current invention hurdles in both legal systems.

5.1.1. Point of Novelty Approach The first test that was developed by the Supreme Court in order to assess software patentability, the point of novelty approach, portrays striking similarities to the contribution approach as formulated under the EPC.305 As mentioned in Gottschalk v. Benson in 1972, the test should be whether the claimed invention is “a novel and useful structure created with the aid of knowledge of scientific truth”.306 Thus, for subject matter to be patentable under this approach it must make a useful contribution to the prior art. This standard is not surprising in light of the similar terminology used in § 101.307

A similar standard was adopted in Parker v. Flook in 1978.308 In Flook, the Supreme Court explained that "the process itself, not merely the mathematical algorithm, must be new and useful".309 The algorithm is presumed to be within the prior art, after which the invention must be assessed as a whole to see if it contains a patentable invention.310 This means that tangible subject matter plays a vital role in the assessment of software patentability.311 If the process or machine in which the algorithm is used is also known, the combination of the two cannot constitute patentable subject matter, as was the conclusion with regard to the system

305 This test is sometimes also referred to as the "inventive concept approach", for which see Wisecup 2013, p.1656. For a description of the contribution approach, see Chapter 4.1.2. 306 Gottschalk v. Benson, p.67 (emphasis added). Essentially, this comes down to the practical application of the algorithm, as also stated in Wisecup 2013, p.1656. 307 For § 101 see Chapter 3.2.1. The words “new” and “useful” are literally mentioned in § 101. 308 Parker v. Flook, p.591; Arrhythmia Research Technology v. Corazonix Corporation, p.1056; Cohen & Lemley 2001, p.9; Peterson 1995, p.100. 309 Parker v. Flook, p.591. 310 Parker v. Flook, p.591-592; Wisecup 2013, p.1657; Hanneman 2000, p.41; Peterson 1995, p.100. 311 Parker v. Flook, p. 591. 53 for updating alarm limits that was claimed in Flook.312 The latter cannot be circumvented by adding post-solution activity to the claimed invention, as this would open the door to smart claim drafting and thus “exalts form over substance”.313 For the same reason, the mere application of a mathematical algorithm is also insufficient.314 The dissenting opinion to Diamond v. Diehr also mentioned the point of novelty approach as the right approach to determine patentability under § 101.315

Despite the abovementioned decisions, courts soon criticized using novelty as a criterion to determine subject matter patentability.316 The use of novelty under § 101 is contrary to the structure of the Patent Act, as distinct statutory provisions get entangled.317 The fact that § 101 speaks of “new and useful” categories cannot be interpreted as a specific condition; it is a general provision about patent eligibility, subject to the other conditions set forth in the Patent Act. Novelty is one of those other, separate conditions.318 In addition, this approach has the potential to categorically exclude software from patent protection, and it does not allow for an assessment of the invention as a whole.319 Therefore, the question of novelty should play no role in determining whether a claimed invention constitutes patentable subject matter.320 After the Supreme Court's decision in Diamond v. Diehr, the point of novelty approach is no longer a valid standard based upon which the patentability of subject matter can be assessed.321

312 A confusing element of the Parker v. Flook decision is that the Court literally stated that “[r]espondents application simply provides a new and presumably better method for calculating alarm limit values”. Denying patentability for such novel method seems to contradict the standard as put forward in this case. 313 Parker v. Flook, p.590; Bilski v. Kappos, p.3231; Wisecup 2013, p.1656; Pierce 2012, p.235-236. This shows similarities to the purpose bound limitations under the EPC. The Court in Mayo v. Prometheus added that limiting the claims to a particular technological environment is also insufficient. Smart draftsmanship has been a concern that was raised on several occasions during the past 40 years of case law on the patentability of abstract ideas and laws of nature. 314 Parker v. Flook, p.593. This concern was reiterated in Mayo v. Prometheus, p.1294. 315 Diamond v. Diehr, dissenting opinion p.219. Justice Stevens held that the best solution would be “an unequivocal holding that no program-related invention is a patentable process under § 101 unless it makes a contribution to the art that is not dependent entirely on the utilization of a computer […]”. The fact that this was mentioned in a dissenting opinion, however, makes it significantly less authoritative. When reading this part of the dissenting opinion one is inclined to believe that the US Justices must have taken notice of EPC case law. 316 In re Freeman, p.1243; In re Sarkar; In re Gelnovatch; In re Bergy. 317 Diamond v. Diehr, p.188 & 190; State Street Bank v. SFG, note 2, citing In re Bergy. Using criteria of other statutory provisions was criticized on multiple occasions, for which see Pierce 2012, p.243. 318 Diamond v. Diehr, p.189-190, citing H.R. Rep. No. 1923, 82d Cong., 2d Sess., 6, 7, and 17 (1952); State Street Bank v. SFG, note 2, citing In re Bergy. 319 In re Walter, p.766-767; Pierce 2012, p.262; Hanneman 2000, p,41. It must be noted, however, that the Court in Flook explicitly mentioned that the invention must be assessed as a whole. The critique is probably directed to the fact that the mathematical algorithm is considered to be part of the prior art, which means that not all parts of the invention are taken into account equally. 320 Diamond v. Diehr, p.188-190. 321 The dissenting opinion, however, seems to opt for the original interpretation of Parker v. Flook. 54

5.1.2. Freeman-Walter-Abele Approach With the dismissal of the point of novelty approach, a new direction was taken in In re Freeman in 1978.322 This case set the stage for the Freeman-Walter-Abele approach, which is a two-step test to determine subject matter patentability.323 This test was designed in the aftermath of Gottschalk v. Benson and Parker v. Flook.324 In that regard, the Court in Freeman stated that the Benson decision must not be interpreted as excluding computer programs from patent protection in general.325 According to the Court, such a conclusion would “sweep too wide” and has no basis in law.326 The test as developed in Freeman is based mainly on preventing the preemption of mathematical algorithms. The following two steps must be considered when conducting a § 101 analysis under this approach:

[f]irst, it must be determined whether the claim directly or indirectly recites an "algorithm" in the Benson sense of that term, for a claim which fails to even recite an algorithm clearly cannot wholly preempt an algorithm. Second, the claim must be further analyzed to ascertain whether in its entirety it wholly preempts that algorithm.327

This does not mean that the claimed invention must literally recite a mathematical algorithm. If a mathematical algorithm is described in "words which mean the same thing", it is sufficient to pass the first step.328

The Court in In re Walter further interpreted the abovementioned test.329 The main implication of this case is that software was only deemed patent-eligible, if it is connected to a physical device or produces a real world effect.330 In light of Flook, coverage of every

322 In re Freeman, 573 F.2d 1237; Marius Keeley-Domokos 1999, p.170-171. 323 Arrhythmia Research Technology v. Corazonix Corporation, p.1058; Bradstreet 2013, p.376; Bradstreet 2013-II, p.503; Oppenheimer 2013, p.31; Zekos 2006, p.433; Bakels & Harison 2005, p.58; Park 2005, p.351; Smith & Mann 2004, p.254; Hughes 2003, p.55; Gladstone 2002, p.224; Bostyn 2001, p.84; Hart, Holmes & Reid 2000, p.17; Hanneman 2000, p.41; Peterson 1995, p.97-98. 324 State Street Bank v. SFG, p.1374; Pierce 2012, p.235. 325 In re Freeman, p.1244. 326 In re Freeman, p.1245. 327 In re Freeman, p.1245. Subsequent case law shows that what constitutes an algorithm is subject to lengthy discussions. It would take it too far too discuss this ambiguity in this thesis. Therefore, the definition of what constitutes an algorithm is the definition as mentioned in Chapter 2. This definition provides a sufficient basis for discussing the different legal standards. 328 In re Freeman, p.1246. The reason for this is to prevent patent applicants from avoiding exclusion by smart claim drafting. 329 In re Walter, 618 F.2d 758. 330 Bradstreet 2013, p.376. This approach is remarkably similar to the machine-or-transformation approach, which will be discussed in Chapter 5.1.3. 55

possible application of the underlying formula is not required for subject matter to be nonstatutory.331 The Court in Walter confirmed this, and held that the literal preemption of a mathematical algorithm is not required.332 The Court reiterated that even though laws of nature or scientific truths clearly fall outside the scope of the Patent Act, this does not mean that all inventions embodying a mathematical algorithm are nonstatutory.333

Under the test as formulated in Freeman, the significance of the mathematical algorithm in the invention as a whole had to be examined.334 As explained in Walter, for apparatus claims this means that there must be a structural relationship between the tangible and intangible elements, whereas for process claims this means that the steps must be limited in some way.335 Thus, under the second step of the test, the relationship between the algorithm and the remaining physical steps or elements of the claimed invention must be assessed.336 According to the Court, the central element to be searched for is whether the application of the algorithm results in an “improvement of a process, machine, manufacture, or composition of matter”.337 If the algorithm is not applied in any way, adding post-solution activity or adding a limited field of use will not render the claimed invention statutory.338 Two things stand out from the aforementioned: (1) it is essential to assess whether an algorithm is applied; and (2) this application must result in an improvement of otherwise statutory subject matter.

In re Abele is the final decision that lies at the heart of the Freeman-Walter-Abele approach.339 According to the Court in Abele, the test as formulated in Walter should not be interpreted narrowly.340 In the words of the Court, it all comes down to the following simple test: what did the applicants invent?341 “If the claimed invention is a mathematical algorithm, it is improper subject matter for patent protection, whereas if the claimed invention is an

331 Parker v. Flook, p.586. 332 In re Walter, p.767. This approach was embraced in In re Meyer, p.796, note 4. It is unclear, however, how “literal preemption” must be interpreted. Does this mean coverage of every possible application of the algorithm, or simply the way in which the algorithm is formulated? The most probable answer is that it closely resembles the position taken in Flook, that coverage of every possible application of the underlying formula is not required. 333 In re Walter, p.765. This is still the prevalent point of view, as can be seen in Alice Corporation v. CLS Bank, p.2354. 334 In re Walter, p.767; Peterson 1995, p.106. This approach has been criticized for being unpredictable, for which see Arrhythmia Research Technology v. Corazonix Corporation, concurring opinion, p.1063. 335 In re Walter, p.767; In re Meyer, p.796. Under some of the other approaches it is deemed improper to apply a different test to a process claim as opposed to an apparatus claim. 336 In re Walter, p.765 & 767. 337 In re Walter, p.766; Arrhythmia Research Technology v. Corazonix Corporation, p.1058. 338 In re Walter, p.767; Pierce 2012, p.239 & 245-246; Peterson 1995, p.106. This was also held for inventions of which the end product is a pure number. If the end product is a physical thing, an example of which is a noiseless seismic trace (this is a reference to In re Johnson), the fact that the result represents something in numerical form is not a problem. 339 In re Abele, 684 F.2d 902. 340 In re Abele, p.907; Peterson 1995, p.107. The Court held that this is in line with other Supreme Court decisions. 341 In re Abele, p.907; Arrhythmia Research Technology v. Corazonix Corporation, concurring opinion, p.1063-1064. 56

application of the algorithm, s 101 will not bar the grant of a patent.”342 It was held that an algorithm must simply be “applied in any manner to physical elements or process steps”.343 Thus, the involvement of physical elements is still required. If a claim would otherwise be statutory, it cannot fall outside the scope of § 101 due to the fact that software is used for the invention.344

While this seems like an overly broad test, the mere application of an algorithm is not enough. In fact, it is necessary to look at the role of the physical aspects of the invention, in order to determine whether they are merely included to perform the algorithm, or whether they add something on their own.345 In this regard, the Court believes it to be an indication of patentability if an invention would be statutory without the software, but is more efficient with the software included.346 Given the fact that the invention in this case was an improvement of a physical machine, the court found the subject matter to be statutory; the improvement resided “in the application of a mathematical formula within the context of a process which encompasses significantly more than the algorithm alone”.347

Two subsequent cases in which the Freeman-Walter-Abele approach was applied, are In re Meyer and In re Schrader. After about a decade, the Court in Schrader explicitly confirmed the Abele test, and held the following to be the appropriate test for patentability:

It is first determined whether a mathematical algorithm is recited directly or indirectly in the claim. If so, it is next determined whether the claimed invention as a whole is no more than the algorithm itself; that is, whether the claim is directed to a mathematical algorithm that is not applied to or limited by physical elements or process steps. Such claims are nonstatutory. However, when the mathematical algorithm is applied to one or more elements of an otherwise statutory process claim, the requirements of section 101 are met.348

342 In re Abele, p.907. 343 In re Abele, p.907; In re Meyer, p.795. This is subject to the condition that the "application is circumscribed by more than a field of use limitation or non-essential post-solution activity". 344 In re Abele, p.906-907; Diamond v. Diehr, p.187. This was also held in the most recent case on software patentability, Alice Corporation v. CLS Bank, p.2354. 345 In re Abele, p.908; In re Meyer, p.796. 346 In re Abele, p.907; Peterson 1995, p.107. 347 In re Abele, p.909. The claimed invention in Abele was directed to an improvement in CAT scan imaging. The Court compared this invention to the invention that was under examination in Diamond v. Diehr and found them to be similar. 348 In re Schrader, p.292; Bradstreet 2013-II, p.503. 57

The Court in both cases made clear, however, that the Freeman-Walter-Abele approach was not the only approach to be used in doing a § 101 analysis, as was later confirmed in State Street Bank v. SFG.349 According to the Court in State Street Bank, the Freeman-Walter- Abele approach has lost most of its significance after Diamond v. Chakrabarty and Diamond v. Diehr.350 It is questionable whether there is anything left of this test.351 The Court in AT&T Corp. v. Excel Communications further held that the Freeman-Walter-Abele test is inherently erroneous, as it bases the question of patentability on whether there is an algorithm, whereas the presence of nonstatutory subject matter cannot render the invention as a whole unpatentable.352 Thus, according to the most recent case law, limiting the applicable scope of the claimed invention to physical elements can no longer be decisive after Diamond v. Diehr and In re Alappat.353

5.1.3. Machine-or-Transformation Approach The idea of requiring a transformation of a physical entity for a claimed invention to be patentable was first discussed in Gottschalk v. Benson.354 According to the Court in Benson, the clue to patentability is the “transformation and reduction of an article to a different state or thing”, although the exact boundaries of this test were not further specified.355 The underlying thought is to keep the option open for others to use the algorithm in other machines or processes.356 This approach will be addressed as the machine-or-transformation approach, although it became a distinct test a decade later in Diamond v. Diehr, in which the Supreme Court held it to reflect the “function which the patent laws were designed to protect”.357

349 In re Schrader, p.297; In re Meyer, p.796; State Street Bank v. SFG, note 5, citing In re Meyer; Arrhythmia Research Technology v. Corazonix Corporation, p.1058. 350 State Street Bank v. SFG, p.1374; AT&T Corp. v. Excel Communications, p.1359; Bradstreet 2013-II, p.505; Pierce 2012, p.249; Park 2005, p.354; Marius Keeley-Domokos 1999, p.154 & 160. 351 State Street Bank v. SFG, p.1374; AT&T Corp. v. Excel Communications, p.1359; Oppenheimer 2013, p.32; Bakels & Harison 2005, p.59; Cohen & Lemley 2001, p.10-11; Hanneman 2000, p.41-42. As stated by Bradstreet, the driving force behind this seems to have been the desire to allow business method patentability, for which see Bradstreet 2013, p.376. 352 AT&T Corp. v. Excel Communications, p.1374 & 1375. This view seems to be too simplistic, however, as the ultimate test under the Freeman-Walter-Abele approach lies in the application of the algorithm, not merely its presence. It is impossible to analyze an algorithm’s application without determining its presence first. Additionally, the Court in Walter and Abele explicitly held that the inclusion of a mathematical algorithm does not render otherwise statutory subject matter nonstatutory. 353 AT&T Corp. v. Excel Communications, p.1359. 354 Gottschalk v. Benson, p.70; Hanneman 2000, p.41. A “physical entity” can be read as statutory subject matter. This approach was discussed in light of process claims, i.e. inventions that do not include a particular machine. 355 Gottschalk v. Benson, p.70; Wisecup 2013, p.1656-1657; Lambillotte 2012, p.641; Pierce 2012, p.234; Mills 2011, p.377. 356 Ernstmeyer 2009, p.1278, citing . 357 Diamond v. Diehr, p.184 & 192; Arrhythmia Research Technology v. Corazonix Corporation, p.1057; Bradstreet 2013, p.376; Bradstreet 2013-II, p.503; Perel 2013, p.254; Pierce 2012, p.243; Ernstmeyer 2009, p.1278. The main reason for this is that the invention at issue in Diehr related to an industrial process (moulding synthetic rubber). Patent law was designed with such tangible inventions in mind, as can be seen in Chapter 3. 58

Twenty-two years later, the requirement of a physical transformation resurfaced in In re Schrader.358 That case was about “a method for competitively bidding on a plurality of related items, such as contiguous tracts of land”.359 The invention at issue was claimed to imply sufficient physical activity, because data was transformed into display data, which according to the applicants led to physical changes in the display.360 The Court found this reasoning unpersuasive.361 However, the Court based this conclusion primarily on the fact that the terms “data” and “display” were not used in the patent application.362 In addition, it held that there is nothing physical about bids.363 Entering data into a record, which is the only remaining physical aspect of the claimed invention, is a necessity in order for a mathematical algorithm to be used.364 Allowing this to pass the patentability hurdle would “exalt form over substance”.365 This approach was justified in light of Diamond v. Diehr, in which it was held that the term “process” implies a transformation or reduction of subject matter.366

In order to provide more clarity as to how the test should be applied, a comparison was made to the inventions claimed in Arrhythmia Research Technology v. Corazonix Corporation and In re Abele.367 Arrhythmia was about human cardiac activity data and Abele was about X-ray attenuation data representing CAT scan images. The inventions in those cases clearly transformed or converted data that represented physical activity or objects.368 On the other side of the spectrum are Schrader’s claims, which “do not reflect any transformation or conversion of subject matter representative of or constituting physical activity or objects”.369 Thus, for a data processing invention to be patentable, the processed data must represent physical activity or objects.370

358 In re Schrader, 22 F.3d 290 (1994). 359 In re Schrader, p.291-292. 360 In re Schrader, p.293. 361 In re Schrader, p.293. 362 In re Schrader, p.294. Interestingly, nothing was said regarding the trivial physical result achieved by the invention. 363 In re Schrader, p.293-294. Thus, the data did not represent anything physical. 364 In re Schrader, p.294. 365 In re Schrader, p.294. The Court added that a similar concern was addressed in Flook, in which it was held that adding post-solution activity cannot confer patentability onto an otherwise nonstatutory invention. Similar concerns were also raised under the EPC with regard to the technical effect approach, for which see Chapter 4.1.3. 366 In re Schrader, p.295. The Court in Diamond v. Diehr held the same with regard to what constitutes a process, citing Cochrane v. Deener. 367 In re Schrader, p.294. 368 In re Schrader, p.294. In both cases the data represented aspects of the human body. 369 In re Schrader, p.294. 370 Although it has been held otherwise, for which see Arrhythmia Research Technology v. Corazonix Corporation, p.1060 & Pierce 2012, p.247. 59

In AT&T Corporation v. Excel Communications the Court limited the scope of this test by placing it under the of the useful, concrete and tangible result. According to the Court in AT&T, the physical transformation merely serves as one of the many examples of how the application of a mathematical algorithm can produce a useful result.371 The same position was taken in Arrhythmia.372 As the Supreme Court further clarified in Bilski v. Kappos, the machine-or-transformation approach cannot be the sole test for determining subject matter patentability, as this would violate the “statutory interpretation principles”.373 There is no basis in law for requiring that subject matter must be “tied to a machine or transform an article” in order to be patentable.374 However, it is still a useful investigative tool.375 While acknowledging the latter, Mayo v. Prometheus further diminished the role of the machine-or- transformation approach.376 The machine-or-transformation approach can therefore no longer be seen as a definitive test to determine subject matter patentability, but merely as part of the toolbox to use when conducting a § 101 analysis.

5.1.4. Useful, Concrete and Tangible Result Approach The Court in State Street Bank v. SFG relied on yet another standard to determine subject matter patentability: does the claimed invention produce a useful, concrete and tangible result?377 It does not make any difference as to the applicable patentability requirements whether the inventor claims a process or a machine.378 The requirement of a useful, concrete and tangible result stems from the generally accepted principle that the underlying abstract

371 AT&T Corp. v. Excel Communications, p.1358; Mayo v. Prometheus, p.1303; Bradstreet 2013-II, p.505-506; Wisecup 2013, p.1663; Thomas 2000, p.119. 372 Arrhythmia Research Technology v. Corazonix Corporation, p.1060. 373 Bilski v. Kappos, p.3221 & 3226; Mayo v. Prometheus, p.1296; Macedo 2014, p.96; Wisecup 2013, p.1657; Perel 2013, p.255; Macedo & Hudak 2012, p.867-868; Oppenheimer 2012, p.27; Pierce 2012, p.257; Mills 2011, p.377; Pila 2011, p.6; Nieh 2010, p.298 & 307. The Court in Bilski explicitly held, however, that “[n]othing in this opinion should be read to take a position on where that balance ought to be struck”, for which see Bilski v. Kappos, p.3228. 374 Bilski v. Kappos, p.3226. 375 Bilski v. Kappos, p.3227; Mayo v. Prometheus, p.1296; Lambilotte 2012, p.642; Mills 2011, p.380; Nieh 2010, p.324. On the contrary, Wisecup argues that Mayo v. Prometheus indicated disapproval of this method of determining the patent eligibility of uses of natural law, for which see Wisecup 2013, p.1668. Interestingly, as can be read in Mayo v. Prometheus, p.1296, the Court of Appeal to which the Bilski case was remanded still decided the patentability issue based on the machine-or-transformation approach. 376 Mayo v. Prometheus, p.1296-1297; Wisecup 2013, p.1668; Macedo & Hudak 2012, p.870; Lambillotte 2012, p.635 & 642; Pierce 2012, p.284. 377 State Street Bank v. SFG, p.1374; Bradstreet 2013, p.377-378; Guarda 2013, p.452; Perel 2013, p.255; Oppenheimer 2012, p.33; Pierce 2012, p.249-250; Deschamps 2011, p.108; Pila 2011, p.6; Nieh 2010, p.306; Ernstmeyer 2009, p.1273; Bessen & hunt 2007, p.160; Looijengoed 2005, p.606; Park 2005, p.354; Bakels & Harison 2005, p.41 & 59; Bakels 2003, p.429; Gladstone 2002, p.225; Ferro 2002, p.371; Hanneman 2000, p.40; Hart, Holmes & Reid 2000, p.18; Marius Keeley- Domokos 1999, p.159. According to the Court, the Freeman-Walter-Abele test will have “little, if any, applicability to determining the presence of statutory subject matter” after Diamond v. Chakrabarty and Diamond v. Diehr. In addition, the Court held that the Freeman-Walter-Abele test “has been the source of much confusion” and that the application of the test could be misleading. 378 State Street Bank v. SFG, p.1372; AT&T Corp. v. Excel Communications, p.1357; Bradstreet 2013, p.378; Thomas 2000, p.118. As opposed to what was held under the Freeman-Walter-Abele approach. 60

idea must have some practical application, and comes down to the practical utility of the claimed invention.379 It is quite a broad standard, which was justified based on the broad wording of § 101, as well as the fact that Congress did not intend to place restrictions on patentable subject matter.380 It was merely the intention to exclude certain types of mathematical algorithms standing alone, or in other words, as such.381

In short, the State Street Bank case was about a data processing system that facilitated a structure whereby mutual funds, the spokes, pool their assets in an investment portfolio, the hub, organized as a partnership.382 The Court stated that “the transformation of data […] by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation […]”, and added that this was the case because it produced a “useful, concrete and tangible result”.383 Thus, even a result in numerical form can constitute a useful, concrete and tangible result.384

A similar approach was already addressed in earlier cases. For example, in the dissenting opinion to In re Schrader, Judge Newman held that the only limitation to § 101 is that the claimed invention “must be technologically useful”.385 Judge Newman preferred looking at whether the mathematical algorithm is applied in a technological process that provides a useful result, so to avoid confusion as to what level of interaction would be required.386 Similarly, the Court in In re Alappat relied on the useful, concrete, and tangible result produced by a “machine for converting discrete waveform data samples into anti-aliased pixel illumination intensity data”.387 The Court in that case held that the result achieved by the claimed invention brought it outside the scope of merely being an abstract idea; it was no

379 State Street Bank v. SFG, p.1373; In re Alappat, p.1543; AT&T Corp. v. Excel Communications, p.1360; Bradstreet 2013, p.378; Laub 2006, p.352. 380 State Street Bank v. SFG, p.1373; In re Alappat, p.1542; AT&T Corp. v. Excel Communications, p.1357. 381 In re Alappat, p.1542-1543; AT&T Corp. v. Excel Communications, p.1356; Thomas 2000, p.117. Similar terminology (“as such”) was used in Diamond v. Diehr, p.191. 382 State Street Bank v. SFG, p.1369; Bradstreet 2013, p.377; Bradstreet 2013-II, p.504; Gladstone 2002, p.225; Bender 2001, p.375; Thomas 2000, p.118; Marius Keeley-Domokos 1999, p.143. Due to the complexity of the calculations involved, a computer was deemed a “virtual necessity to perform the task”, for which see State Street Bank v. SFG, p.1371. 383 State Street Bank v. SFG, p.1373; Oppenheimer 2012, p.33; Gladstone 2002, p.225; Ferro 2002, p.371. 384 State Street Bank v. SFG, p.1373; Bradstreet 2013-II, p.505; Gladstone 2002, p.225; Thomas 2000, p.118. 385 In re Schrader, dissenting opinion, p,297; Thomas 2000, p.118. Different from the Court in State Street Bank v. SFG, Judge Newman made a distinction between a patent application that claims a process or to a machine. According to Judge Newman, the test of usefulness only applies to processes. 386 In re Schrader, dissenting opinion, p.297. This seems to be a reference to the standard used under the Freeman-Walter- Abele approach. 387 In re Alappat, p.1544; Pierce 2012, p.248; Ernstmeyer 2009, p.1273; Gladstone 2002, p.224; Hanneman 2000, p.41. 61 longer a “disembodied mathematical concept”.388 The Court in Alappat also held that the mere transformation of one set of data to another cannot be enough to confer patentability onto otherwise nonstatutory subject matter.389 As mentioned above, however, the opposite was adopted in the more recently decided State Street Bank case.

An important element in reaching the Alappat conclusion was that the invention related to a machine, which can even be a general purpose computer.390 As held by the Court, implementation on a general purpose computer “creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software”.391 In this regard the Court added that a computer “is apparatus, not mathematics”.392 This shows that the concern of smart draftsmanship was less prominent, as all software can be claimed in combination with a general purpose computer or elements thereof.

The useful, concrete and tangible result approach was confirmed in AT&T Corporation v. Excel Communications.393 According to the Court in that case, it is not necessary to claim any physical elements, as long as the claimed subject matter produces a useful, concrete and tangible result.394 Thus, the mere transformation of data can also be sufficient under this approach.395 However, the Court added that the invention must be claimed “without pre- empting other uses of the mathematical principle”.396 Thus, limiting the claims is still an

388 In re Alappat, p.1536 & 1544; Oppenheimer 2012, p.32-33; Bessen 2012, p.242; Bakels & Harison 2005, p.58; Gladstone 2002, p.224; Peterson 1995, p.115 & 117. 389 In re Alappat, p.1544. 390 In re Alappat, p.1543-1544; Smith & Mann 2004, p.254; Peterson 1995, p.117. 391 In re Alappat, p.1545; Pierce 2012, p.248; Cohen & Lemley 2001, p.10. In this regard see also In re Lowry, p.1583, in which the Court held that “In Bernhart, this court’s predecessor noted: […] if a machine is programmed in a certain new and unobvious way, it is physically different from the machine without that program; its memory elements are differently arranged. The fact that these physical changed are invisible to the eye should not tempt us to conclude that the machine has not been changed.” 392 In re Alappat, p.1545; Peterson 1995, p.115. This position is sometimes also referred to as the "machine- implementation requirement", for which see Smith & Mann 2004, p.254. As will become clear in the subsequent sections, the Supreme Court in Alice Corporation v. CLS Bank explicitly held that implementation in a general purpose computer is not sufficient to confer patentability onto otherwise nonstatutory subject matter. 393 AT&T Corp. v. Excel Communications, 172 F.3d 1352; Bradstreet 2013, p.378; Bradstreet 2013-II, p.505; Bakels & Harison 2005, p.59; Cohen & Lemley 2001, p.11. 394 AT&T Corp. v. Excel Communications, p.1360; Bradstreet 2013-II, p.505; Park 2005, p.356. The other way around, it is questionable whether an algorithm can provide a useful, concrete and tangible result without some form of hardware implementation. 395 Hanneman 2000, p.42. 396 AT&T Corp. v. Excel Communications, p.1358. 62 important factor. This does not come down to physical limitations.397 Rather, the applicable scope of the claimed invention must be limited.398

Overall, the useful, concrete and tangible result is a very low threshold to pass.399 It is difficult to think of any application of a mathematical algorithm that cannot be categorized as producing a useful, concrete and tangible result.400 The broadness of this standard seems to have been a deliberate choice, based on the fact that the mere addition of nonstatutory subject matter to an otherwise statutory invention does not make the invention as a whole unpatentable.401 Whether a patent application’s claims are too broad is, according to the Court in State Street Bank, not a question to be answered under § 101.402 Two difficulties remain, however, the first of which is that it is not exactly clear when a result can be labelled “useful”.403 The second difficult question is when exactly something is “tangible”. Neither of the abovementioned cases elaborated on these questions.404 In this regard, the fact that display results have been held sufficiently tangible does imply a rather low threshold.405

The useful, concrete and tangible result approach was implicitly rejected by the Supreme Court in the concurring opinion to Bilski v. Kappos.406 In Bilski, the Court held this approach would allow for the granting of patents too easily.407 It said that it was never the intention to include anything with a useful, concrete and tangible result under § 101.408 Although this means that the useful, concrete and tangible result is no longer the prevailing test, the reasoning of the Court in Bilski is questionable, as the Court in State Street and AT&T seems

397 AT&T Corp. v. Excel Communications, p.1359. 398 AT&T Corp. v. Excel Communications, p.1357. It is unclear whether this relates to a field of use limitation, which was deemed insufficient under the Freeman-Walter-Abele approach. 399 Ernstmeyer 2009, p.1276; Menell 2007, p.488; Cohen & Lemley 2001, p.10; Marius Keeley-Domokos 1999, p.170. The State Street Bank decision has even been labelled the "broadest application of the common law exceptions", for which see Perel 2013, p.254. 400 Bakels 2003, p.217. One can think of the most basic applications here, such as a scanning system at the counter of a supermarket which simply adds the prices of the scanned products. This produces the useful result of showing the total price for all goods that are to be sold/purchased. Bakels & Harison argued that “tangible” has “nothing to do with material goods or a “physical transformation””, for which see Bakels & Harison 2005, p.41. 401 State Street Bank v. SFG, p.1374; Bradstreet 2013-II, p.505; Hanneman 2000, p.40. Some commentators also argue that a wider standard was adopted in order to allow business method patents to be granted. Patenting business methods was more difficult under the Freeman-Walter-Abele approach, for which see also Bradstreet 2013-II, p.504. 402 State Street Bank v. SFG, p.1377; Mayo v. Prometheus, p.1293; Burk & Lemley 2002; Bender 2001, p.375. Rather, these concerns are to be addressed under §§ 102, 103 and 112. 403 The Court uses the term “useful” to encompass an application “within the technological arts”. This seems to differ from the common meaning of the term “useful”, for which see Ferro 2002, p.372. 404 Pierce 2012, p.250-251. 405 Bradstreet 2013, p.378; Pierce 2012, p.246. 406 Bradstreet 2013, p.379; Deschamps 2011, p.114; Pila 2011, p.6. 407 Bilski v. Kappos, concurring opinion, p. 3259. 408 Bilski v. Kappos, concurring opinion, p.3259. 63

to have been well aware of the broad scope of the standard it had adopted.409 More recently, the Supreme Court deliberately moved away from the broad standard adopted under this approach, as will become clear in the subsequent sections.

5.1.5. Significant Additional Features Approach The fifth and most recent test as developed by the Supreme Court is the significant additional features approach.410 As the name already suggests, the method used under this approach is to search for additional features to the underlying mathematical algorithm on which the claimed invention is based. This approach was first used in Mayo v. Prometheus in 2012.411 The claimed invention at issue in that case concerned a “process that help[s] doctors who use thiopurine drugs to treat patients with autoimmune diseases determine whether a given dosage level is too low or too high”.412 It must be noted that this case was not related to the patentability of software in particular. The claimed invention was ultimately held to be nonstatutory.413

In order to reach this conclusion, the Court once again tried to formulate a coherent set of criteria based on which patent-eligibility can be assessed.414 Although taking into account the other approaches as described in the sections above, the Court went down a different path. In short, the question to be asked is:

[D]o the patent claims add enough to their statements of the correlations to allow the processes they describe to qualify as patent- eligible processes that apply natural laws?415

Thus, the core of the assessment lies in the additional features to the underlying law(s) of nature. These features must be more than a “drafting effort designed to monopolize the law of

409 State Street Bank v. SFG, p.1374 & 1377; Bradstreet 2013, p.379. 410 This is not a generally accepted term for this legal standard. Nevertheless, it will be used throughout this thesis for purposes of consistency and clarity. Despite numerous references to earlier approaches, the Court decided to develop a new standard. As stated by Wisecup, creating another test based on earlier jurisprudence only "deepened the confusion" as to the question of patentability, for which see Wisecup 2013, p.1653 & 1667. 411 Mayo v. Prometheus; Pierce 2012, p.283; Lambilotte 2012, p.635. Interestingly, the Court noted in one of the final paragraphs, "we must hesitate before departing from established general legal rules lest a new protective rule that seems to suit the needs of one field produce unforeseen results in another". Yet this is exactly what the Court did; it formulated a new rule that departs to some extent from other established legal rules. The extent to which this will have unforeseen consequences in other fields is unknown as of yet. 412 Mayo v. Prometheus, p.1294; Wisecup 2013, p.1658; Perel 2013, p.256; Lambillotte 2012, p.639-640. 413 Mayo v. Prometheus, p.1294; Perel 2013, p.256; Lambillotte 2012, p.636. 414 Wisecup 2013, p.1658. 415 Mayo v. Prometheus, p.1297; Perel 2013, p.256. 64

nature itself”.416 To stick to the words chosen by the Supreme Court, the additional features must "transform the nature of the claim".417 This is not to be confused with the machine-or- transformation approach, under which the key element is the transformation of tangible subject matter. The approach taken in Mayo relates to the transformation of the underlying law of nature. Furthermore, the additional features must be "significant" and "confine their reach to particular applications" of the underlying law of nature.418

Interestingly, the approach taken in Mayo implies some sort of novelty test; the additional features cannot consist of "obvious, already in use", "well-understood, routine, conventional activity".419 In addition, insignificant post-solution activity cannot render nonstatutory subject matter patentable.420 If the additional steps are necessary to apply the law of nature, as was the case for the claimed invention, this is not transformative enough.421 Despite earlier rejections of mixing separate statutory provisions, the Court had no problem with explicitly accepting that under an evaluation of the additional features, the § 101 and § 102 inquiry "might sometimes overlap".422 The Court also mentioned that the additional features cannot be too abstract, but failed to describe whether specific computer implementation would be sufficiently concrete.423 In this regard, however, the Court made a reference to Gottschalk v. Benson, in which it was held that “simply implementing a mathematical principle on a physical machine, namely a computer, was not a patentable application of that principle”.424

A prominent issue that was raised in Mayo was the limited scope of the claimed invention. Prometheus argued that the claimed invention would not pose any problems, as its scope was limited.425 However, the Court was not willing to accept this argument, and held that this is a relative concern; one must look at “how much future innovation is foreclosed relative to the contribution of the inventor”.426 Adding this subjective element to the patentability analysis seems problematic and only complicates the matter. It is an additional hurdle open to legal

416 Mayo v. Prometheus, p.1297; Wisecup 2013, p.1660. After reading the Court's decision, it is still unclear when exactly there are sufficient additional features. The Court only lists examples of cases in which there are not enough additional features, thus leaving this question unanswered. 417 Mayo v. Prometheus, p.1297; Lambillotte 2012, p.644. 418 Mayo v. Prometheus, p.1302; Pierce 2012, p.285. 419 Mayo v. Prometheus, p.1297-1299. 420 Mayo v. Prometheus, p.1298. 421 Mayo v. Prometheus, p.1299-1300. 422 Mayo v. Prometheus, p.1304; Wisecup 2013, p.1670; Pierce 2012, p.287. 423 Mayo v. Prometheus, p.1300. 424 Mayo v. Prometheus, p.1301. At least it is clear that a limitation to a particular technological environment will not do the trick, for which see Mayo v. Prometheus, p.1298, citing Bilski v. Kappos. 425 Mayo v. Prometheus, p.1303. The way in which the claims are supposedly limited is not specifically addressed. 426 Mayo v. Prometheus, p.1303. 65

uncertainty, and involves difficulties similar to those under the contribution approach, as was described in the previous chapter. 427

As stated under Section 5.1.4., the machine-or-transformation approach also made its appearance in Mayo.428 The Court assessed whether the claimed invention constituted a transformation of a physical element. In that regard, it held that the transformation of the human body or blood taken from the body in order to perform the claimed invention was insufficient, because “science [could] develop a totally different system for determining metabolite levels that did not involve such a transformation”.429 It is clear from the outset that this is an immensely speculative approach. As mentioned above, there is always the possibility that more specific and refined solutions will be developed.

In summary, the significant additional features approach as formulated in Mayo can best be described as follows:

A court must first identif[y] the abstract idea represented in the claim, and then determine whether the balance of the claim adds significantly more.430

This standard is quite strict, and was presumably adopted to prevent § 101 from becoming a “dead letter”.431 An interesting question is whether it would have made any difference if all the steps of the invention were performed automatically by a general purpose computer or specifically designed apparatus, or if the claimed steps were less conventional.432

427 See Chapter 4.1.2. In addition, it can be questioned whether judges are in the right position to makes such decisions, which will be further addressed under Chapter 6.4.4. 428 Mayo v. Prometheus, p.1296-1297; Wisecup 2013, p.1668; Macedo & Hudak 2012, p.870; Lambillotte 2012, p.635 & 642; Pierce 2012, p.284. The Federal Circuit based its decision on the machine-or-transformation approach. 429 Mayo v. Prometheus, p.1303. 430 Mayo v. Prometheus, p.1286 (quotation marks omitted). This standard was repeated in Alice Corporation v. CLS Bank, p.2353, which will be addressed in the subsequent Section. 431 Mayo v. Prometheus, p.1303. This was where the system was heading for under the useful, concrete and tangible result approach. Pierce argued, however, that the approach taken in Mayo deprives § 101 from any real meaning, as subject matter is patentable as long as it is not broad enough to hinder future research, for which see Pierce 2012, p.289. The author of this thesis believes this interpretation to be erroneous. 432 Although implementation on a general purpose computer would probably not have made that much of a difference. The Court explicitly decided not to rule on the latter part of the question, for which see Mayo v. Prometheus, p.1302; Pierce 2012, p.287. According to Wisecup, "the opinion does not add clarity to the boundary of subject matter eligibility for laws of nature", for which see Wisecup 2013, p.1668. 66

5.1.6. Most Recent Ruling: Alice Corporation v. CLS Bank As recent as 2014, the Supreme Court unanimously ruled on the issue of software patentability in Alice Corporation v. CLS Bank, in an attempt to harmonize patent-eligibility criteria.433 This case is addressed in a separate section, as it shows the most recent and therefore predominant view on how to assess software patent applications. The Supreme Court in this case relied heavily on its previous decision, Mayo v. Prometheus, and confirmed the approach taken in that case.434 The patent application at issue dealt with “a computerized scheme for mitigating “settlement risk” – i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation”.435 The Court ultimately held that this scheme for intermediated settlement was too abstract to be patentable, and that the mere implementation in a computer system does not transform the abstract idea into patentable subject matter.436 The Court was of the opinion that computer implementation in and of itself adds nothing substantial that leads to significantly more than the algorithm alone.437

The Court began with a historical analysis of the tests that have flourished in the past. In this regard, emphasis was put on the important underlying concern embodied in § 101 of the Patent Act, that there cannot be preemption of subject matter that should be free for all to use.438 In order not to allow the monopolization of these “building blocks of human ingenuity”, nonstatutory subject was only deemed patent-eligible as long as it was applied to a new and useful end.439 In order to have this effect, the aforementioned building blocks must be integrated into "something more".440

According to the Court, the appropriate test can be divided into two separate steps, as was later confirmed by the USPTO.441 The first step is similar to that of the Freeman-Walter-

433 Stern 2014, p.622. It must be noted, however, that there was a concurring opinion, which means that there was no complete harmony among the Supreme Court Justices, for which see also Stern 2014, p.625. Additionally, the lower court cases embody very differing opinions, which indicates the ever-lasting uncertainty in this area of law. Meyer 2014, p.147 confirms that the discussion on software patentability is far from over with this unanimous decision. 434 Alice Corporation v. CLS Bank, p.2355; Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014; Stern 2014, p.623. 435 Alice Corporation v. CLS Bank, p.2352; Meyer 2014, p.146. 436 Alice Corporation v. CLS Bank, p.2352; Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014. The Court held that, “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce”, for which see Alice Corporation v. CLS Bank, p.2356. 437 Alice Corporation v. CLS Bank, p.2353. 438 Alice Corporation v. CLS Bank, p.2354. 439 Alice Corporation v. CLS Bank, p.2354. 440 Alice Corporation v. CLS Bank, p.2354, citing Mayo v. Prometheus. 441 Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014; Meyer 2014, p.147; Stern 2014, p.623; Keston 2014, p.2. 67

Abele approach, and requires an examination of whether any of the claims contain a patent- ineligible concept, such as a law of nature or abstract idea.442 If so, the second step is to conduct an assessment of what else the claims contain, both individually and taken as a whole.443 This second step serves to determine “whether the additional elements transform the nature of the claim into a patent-eligible application”.444 The Supreme Court described the second step of its test as the search for an “inventive concept”.445 In light of the explicit rejection of tangling up different statutory provisions of the examination process, the terminology used by the Court is unfortunate.446 However, as the Court further explained, an inventive concept is described as something “significantly more than a patent upon the [ineligible concept] itself”, and thus has nothing to do with the person having ordinary skill in the art as mentioned in § 103 of the Patent Act.447

At the very least, the mere generic computer implementation of an abstract idea is insufficient to pass this hurdle.448 The main reason for this conclusion was that computer implementation could be “purely conventional”.449 If the involvement of a piece of hardware would be “the end of the § 101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept”.450 In other words, it would not really be a limitation to the claimed subject matter due to the ubiquity of general purpose computers.451 According to the Court, it is unlikely for a computer not to include the general hardware elements as required by the claimed invention, such as a computer-readable storage medium.452

442 Alice Corporation v. CLS Bank, p.2355; Meyer 2014, p.147; Stern 2014, p.623. 443 Alice Corporation v. CLS Bank, p.2355; Stern 2014, p.623. 444 Alice Corporation v. CLS Bank, p.2355; Meyer 2014, p.147. 445 Alice Corporation v. CLS Bank, p.2355; Stern 2014, p.623; Wisecup 2013, p.1661; Pierce 2012, p.287-288. 446 This is similar to what can be seen in Mayo v. Prometheus, for which see Chapter 5.1.5. It can be explained by the terminology used in the Patent Act. The European Patent Convention speaks of “inventiveness” as a separate requirement, whereas the similar requirement is formulated as “non-obviousness” under § 103 of the Patent Act. 447 Alice Corporation v. CLS Bank, p.2355. The term “significantly” introduces a normative element to the patentability analysis. Although Keston believes that some factors are difficult to assess without reference to prior art; Keston 2014, p.2. However, in response to the government's amicus brief, the Court did mention that §102 and §103 may overlap with §101, for which see Wisecup 2013, p.1670. 448 Alice Corporation v. CLS Bank, p.2357-2358; Keston 2014, p.2; Meyer 2014, p.147. Again, the term “transformation” is confusing; on first sight it seems to refer to the machine-or-transformation approach. This does answer one of the questions left open in Mayo v. Prometheus. 449 Alice Corporation v. CLS Bank, p.2357. 450 Alice Corporation v. CLS Bank, p.3259. A comparison that logically comes to mind is the invention in Diamond v. Diehr, which was deemed patent-eligible.450 Why would the subject matter in that case be patentable, as opposed to the invention under examination in Alice Corporation v. CLS Bank? The explanation given by the Court is simple: although the invention in Diehr related to a well-known mathematical equation, it “improved an existing technological process, not because they were implemented on a computer”. 451 Stern 2014, p.624. 452 Alice Corporation v. CLS Bank, p.2360. 68

Given the above, the Court requires the involvement of novel or advanced hardware or the improvement of already existing hardware.453 Basing the analysis on whether the computer implementation is conventional or not seems problematic, however, and portrays a lack of long term thinking. First, technology that is currently unconventional can become conventional within as little as ten years.454 Second, it is unclear when hardware is conventional or not. This, almost any computer implementation can improve the computer’s functionality, by adding previously unsupported capabilities to the device. Thus, this provides no solid basis, or in other words no legal certainty, for an assessment of patentability. It is unclear how this distinction can provide any “practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself”.455

Additionally, the Court held that it was unnecessary “to delimit the precise contours of the “abstract ideas” category in this case”.456 This looks like the easy way out, and is alarmingly similar to the position taken by the Enlarged Board of Appeal in G3/08.457 The Federal Circuit posed a well-defined question regarding the exact boundaries of software patentability, but the Court in Alice was not willing to answer this question.458 Thus, it remains unclear which additional features can bring subject matter within the scope of the Patent Act.459 Given the uncertainty in this area of patent law and the contrasting legal standards, it would have fit the line of expectations to provide more clarity on this point.460

As mentioned above, the claimed invention in this case was deemed nonstatutory subject matter. In the words of the Court, “each step does no more than require a generic computer to perform generic computer functions. […] The method claims do not, for example, purport to improve the functioning of the computer itself. […] Nor do they effect an improvement in any other technology or technical field”.461 Simply adding computer implementation to an

453 Stern 2014, p.624. What constitutes an improvement is, however, is left unclear, for which see Meyer 2014, p.147. 454 Think of, for example, laptops, smartphones and tablet computers, all of which made their way into millions of households and both public and private institutions relatively quickly. When they were first launched, these apparatus were considered to be state of the art technology (not to be confused with the term "state of the art" as used in patent law). Nowadays, however, they are commonplace technology. 455 Alice Corporation v. CLS Bank, p.2358. 456 Alice Corporation v. CLS Bank, p.2347. 457 For a discussion of this case see Chapter 4.2. 458 The question asked by the Federal Circuit was “What test should the court adopt to determine whether a computer- implemented invention is a patent ineligible abstract idea; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?”, for which see CLS Bank v. Alice Corporation, p.1293; Stern 2014, p.621. 459 Macedo & Hudak 2012, p.870. 460 Stern 2014, p.619. 461 Alice Corporation v. CLS Bank, p.2359. 69 abstract idea adds too little to constitute a meaningful limitation.462 If held otherwise, this would erode the threshold function that § 101 is designed to fulfill.

5.2. What is the Current Legal Standard? Similar to the European situation, the current legal standard in the U.S. is difficult to grasp. However, it remains possible to establish which approach can still be used, and to discern the most prominent requirements that must be considered under that approach. The current legal standard under U.S. patent law is the significant additional features approach. In essence, the question to be asked under that approach is whether there are significant additional features included in the claims, which features transform the underlying algorithm into a patentable application of said algorithm. Specific requirements taken into account under this approach are: • there must be additional features that transform the nature of the claim. For this to be the case, the additional features must be significant and confine their reach to particular applications of the underlying law of nature or abstract idea; • the additional features cannot consist of obvious, already in use, well-understood, routine, or conventional activity, and must be more than simply the necessary steps to apply the law of nature or abstract idea; • the laws of nature or abstract ideas must be combined with unconventional hardware, or constitute an improvement on existing technology; and • with regard to the scope of the claimed invention, an assessment must be made of how much future innovation is foreclosed relative to the contribution made by the invention.

The point of novelty approach was explicitly rejected and has not been used afterwards. Additionally, the Supreme Court seems to be deliberately moving away from the broad standard adopted under the useful, concrete and tangible result approach. The significant additional features approach was the most recent standard used by the Supreme Court, and can therefore be seen as the leading approach. This approach set the patentability bar relatively high, and seems mainly driven by the concern of § 101 eroding. Even though the machine-or-transformation approach was dismissed in Bilski v. Kappos, it was held to be a

462 Alice Corporation v. CLS Bank, p.2360, citing Bilski v. Kappos. 70

useful investigative tool in the more recent case Mayo v. Prometheus.463 Therefore, it would be wrong to fully disregard this test under the analysis of the current legal standard. It must be borne in mind, however, that it cannot be seen as a distinct approach towards subject matter patentability. Specific requirements taken into account under this test are: • the claimed invention must include a physical entity; • the physical entity must be transformed to a different state or thing; and • when data processing is a vital part of the claimed invention, the data that is being processed must represent physical activity or objects.

5.3. Business Method Software In State Street Bank v. SFG it was explicitly held that there is no such thing as a business method exception to patentability.464 This was further acknowledged by the Supreme Court in Bilski v. Kappos and alice Corporation v. CLS Bank.465 However, this does not mean that all business methods are patentable. There is no separate legal standard for business method software, which means that business methods are treated as any other subject matter, and have to pass the patentability criteria set out in the sections above.466 However, such patent applications can face more difficulties in passing the patentability hurdle as opposed to traditional software patents. One of the major concerns in this regard is that “some business method patents raise special problems in terms of vagueness and suspect validity”.467 In light thereof, the Supreme Court seems to deliberately move away from the broad scope of patentability adopted under the useful, concrete and tangible result approach. For the abovementioned reasons, business method software patentability is individually addressed.

5.3.1. Business Method Software Under the Machine-or-Transformation Test The machine-or-transformation test poses some difficulties for patenting business method software. The first criterion to be met is the inclusion of a physical entity in the claimed invention, which is not where the problem lies. Any computer implemented business method

463 Wisecup argues, however, that "the exclusion of the machine or transformation test [in Mayo] indicated disapproval of this method of determining the patent eligibility of uses of natural laws", for which see Wisecup 2013, p.1668. 464 State Street Bank v. SFG, p.1375; Perel 2013, p.262; Pierce 2012, p.249-250; Bakels & Harison 2005, p.43 & 59; Park 2005, p.354; Bakels 2003, p.214; Ferro 2002, p.369 & 371; Bostyn 2001, p.85; Bender 2001, p.375; Hart, Holmes & Reid 2000, p.19; Hanneman 2000, p.40 & 42; Thomas 2000, p.118; Marius Keeley-Domokos 1999, p.158. 465 Bilski v. Kappos, p.3228-3229; Stern 2014, p.619; Bradstreet 2013, p.379; Bradstreet 2013-II, p.506; Mills 2011, p.380- 381. It was vigorously rejected in the concurring opinion to Bilski, however, for which see Bilski v. Kappos, p.3239, 3244 & 3249. 466 Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014. 467 Bilski v. Kappos, p.3229. This will be addressed in more detail in Chapter 6. 71

can be claimed in combination with the computer on which it is designed to operate. However, the second criterion requires a transformation of the physical entity to a different state or thing. Business method software is not aimed at changing the physical entity on which it runs.468 In most cases, the claims of a business method patent are directed to performing the method, regardless of the changes made to the functioning of the apparatus. Therefore, it seems unlikely that business method software will easily pass this hurdle. It is unclear, however, what level of transformation is required to meet this criterion.

When data processing is a vital part of the claimed invention, the data that is being processed must represent physical activity or objects. Data processing can be seen as the core of any business method software, which means that the third criterion is also relevant. Although data processing is a vital part of any business method software, not all business methods deal with data that represents physical activity or objects. In this regard, it was held that data relating to bids was held insufficient. This indicates that most business methods will fail to meet this criterion, as they usually relate to financial information. However, it is possible to think of applications in which real life data is used.469 Whether the data that is processed in the business method will pose any difficulties is, however, fact specific and depends on the type of business method claimed. In short, this means that not all business methods will fail to constitute patentable subject matter under this approach, but it is not a very lenient test.

5.3.2. Business Method Software Under the Significant Additional Features Approach The most recent approach towards software patents also seems to be the most problematic approach for business methods, if not a barrier impossible to overcome.470 Where under some of the approaches it was held that mere computer implementation was sufficient, the Supreme Court in Alice Corporation v. CLS Bank explicitly held that “method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent- eligible invention”.471 In short, it is unlikely for business method software to constitute patentable subject matter under the significant additional features approach.

There are several criteria that have to be met for subject matter to be patentable under this approach. First, there must be additional features to the business method that transform the

468 See Chapter 4.4.1. 469 For example, a method to distribute the right amount of goods to local stores based on consumption data. 470 Meyer 2014, p.148; Stern 2014, p.621 & 626. Not only the most problematic standard of the ones that are still valid, but also of all the standards that were applied in past decisions. 471 Alice Corporation v. CLS Bank, p. 2357. 72 nature of the claim. For this to be the case, the additional features must be significant and confine their reach to particular applications of the underlying abstract idea. The additional features commonly seen in business method software patents are (elements of) general purpose computers. However, as the Court clearly indicated, implementation in a general purpose computer is not enough to pass the patentability hurdle.472 Therefore, most business methods will fail to meet even the first criteria of this standard, as the additional features fail to transform the nature of the claim. Second, the additional features cannot consist solely of the steps necessary to apply the business method, and they must be unconventional. Again, this criterion is difficult to satisfy for business method software. Implementation in a general purpose computer is usually a necessity to perform the business method, and is common practice in the area of business methods.

The third criterion seems slightly less difficult to meet. Under this criterion, it must be assessed whether the hardware involved is unconventional, or whether the claimed invention results in an improvement of already existing technology. In this regard, USPTO mentioned "the functioning of the computer itself" as an example in a preliminary report on how to interpret Alice Corp. v. CLS Bank.473 Although general purpose computers are conventional apparatus, it can easily be argued that business method software which is loaded onto a computer provides the computer with a further functionality. If that argument is accepted, a business method can be capable of improving already existing technology.474 However, in light of the fact that the Court explicitly held that more than generic computer implementation is needed, this will probably not do the trick.

The fourth criterion is also problematic for business methods. The general view on business method patents is that they add little to the technological development that patent law is designed to stimulate.475 It is mostly seen as an attempt to obtain a monopoly position on something very general or already existent. Even if the scope of the business method is limited to a particular field of use or technology, it will probably still be considered too broad or abstract. Therefore, it is hard to believe that any court will hold that a business method patent contributes more to the state of the art than the future innovation foreclosed by it.

472 Although it did not mention what would be sufficient, for which see also Stern 2014, p.625. 473 Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014. 474 In light of the first, it is difficult to draw the line between a general purpose computer and a different kind of computer. 475 Stern 2014, p.626. 73

5.4. Interim Conclusion When faced with a patent application for software in the U.S., the claimed invention must be assessed as a whole in order to find whether there is a patentable application of the underlying mathematical algorithm. The application of the algorithm is a recurring theme in all the different approaches. Based on this starting point, courts have developed different tests to assess whether the application of an algorithm is sufficient to confine patentability upon the claimed subject matter. The approach that is still valid today is the significant additional features approach. In short, this approach requires that significant additional features are included in the claims, which features transform the underlying algorithm into a patentable application of said algorithm. A tool that can be used to determine patentability, it the machine-or-transformation test, which requires a transformation or reduction of an article to a different state or thing.

The overall development of the U.S. legal system is circular. The first standard, the point of novelty approach, was relatively strict and required the use of novel features. The standard was lowered under the Freeman-Walter-Abele approach, and was stretched to its limits under the useful, concrete and tangible result approach. Under the latter approach, patenting software was relatively easy. However, after this broadening of the legal standard, a contrary development unfolded. The two most recent Supreme Court cases show concerns of an eroded statutory provision, and re-strengthened the patentability criteria. At the very minimum, it is clear that under the most recent standard mere computer implementation will not lead to patentability. Also, it is clear that there is no such thing as a business method exception; business methods must be treated as any other claimed subject matter. However, where exactly the boundaries of § 101 lie remains unclear, and it is questionable if there will ever be a bright line rule to determine subject matter patentability under § 101.476

The different standards used in both legal systems throughout the last four decades will be compared in Chapter 6, in order to show that both systems share more similarities than what was previously expected. Not only are the problems faced in both systems similar, the criteria used under several different approaches also portray overlapping elements. This comparison is expected to provide insight into possible improvements to the problems faced in both systems, which will be addressed in Chapter 7. The meaningfulness of categorically excluding software from patent protection will also be addressed in Chapter 6.

476 Keston 2014, p.2; Macedo & Hudak 2012, p.871; Mills 2011, p.388. 74

6. COMPARISON OF BOTH LEGAL SYSTEMS 6.1. Comparison of Legal Standards The previous chapters have shown the history of software patents, the different patentability standards that were used throughout the last decades, as well as the current legal standards in both Europe and the U.S. In order to come full circle, this chapter turns to a comparison of both legal systems. In addition to an overall historical comparison, specific characteristics of both systems will be compared. This comparison is interesting due to the perceived differences between the EU and U.S. Under the EPC, there is an explicit exclusion of software, business methods and mathematical algorithms as such, whereas under the U.S.C. there is no such exclusion. There, the starting point is that anything under the sun is patentable except for laws of nature, physical phenomena and abstract ideas.

Accordingly, the general notion is that both legal systems are very different, and that it is easier to obtain a patent on software or business methods in the U.S. than it is in Europe.477 This chapter will test that notion and find that in fact the opposite may be true. It will also address whether the exclusion clause of Art.52 EPC is eroded, and whether the invention hurdle in U.S. patent law is still meaningful. Additionally, the problems related to software patents will be addressed. Chapter 7 examines possible improvements on how to approach software patentability, in light of the comparison of both legal systems as well as the problems described in this chapter.

6.1.1. The General Historical Development of Software Patentability At a general level, a remarkable development can be seen with regard to the difficulty of passing the invention hurdle if the bar for patentability set by legal standards were to be expressed numerically and plotted in a graph. The graph in Figure 1 visualizes the approximate height of the patentability threshold for software in both legal systems throughout the last 44 years, based on the cases studied in Chapters 4 and 5. The green line (Europe) represents the development of the EPC legal standard, and the red line (U.S.) represents the development of the U.S. legal standard. The numbers 0-10 represent the height of the patentability hurdle; the higher the number, the more difficult the threshold to pass.478 The number attributed to the specific approaches is based on the author’s own interpretation of available data.

477 See for example Deschamps 2011, p.107-108; Looijengoed 2005, p.606; Ferro 2002, p.369. 478 The “height” of a legal standard means how difficult it is for software to pass the patentability criteria and constitute an invention. Factors that are taken into account are the number of criteria, as well as the demands of those criteria. 75

The EPC line starts at number 9, because when the EPC came into force, the original notion was that most software was unworthy of patent protection. Notably, the U.S. legal system has a similar starting point. Although many believe that in the U.S. anything under the sun that is made by man was patentable, laws of nature, physical phenomena and abstract ideas were excluded from patentability. During the early 1970’s, courts and the USPTO took a relatively restrictive approach towards software patentability, and held that software fell within the scope of this exclusionary rule. Although at different points in time, both lines first reach number 7, which represents the contribution approach and point of novelty approach. These approaches were relatively strict and similar, which will be further addressed in Section 6.1.2. Subsequently, the European line descends to number 4, which represents the further technical effect approach, and steadily moves further down to number 2, which represents the combination approach; a relatively low hurdle to pass. In this regard it must be noted that the further technical effect approach was applied simultaneously, albeit less often. The U.S. line settles at number 4 for a while, due to some years without relevant patentability cases. It reaches its lowest point at number 1,5, which represents the useful, concrete and tangible result approach. It is ranked slightly lower than the EPC line, because under this approach it was held that a result in numerical and thus purely abstract form can also be sufficient for subject matter to constitute an invention. This was not accepted under the EPC, and leaves more room for abstract inventions. The U.S. line steadily ascends back to number 7, because of the significant additional features approach. Interestingly and contrary to general belief, this graph shows that it is, at least theoretically, currently more difficult to pass the U.S. patentability hurdle. Figure 1

76

6.1.2. The Specific Characteristics of Both Legal Systems Aside from this general historical overview, a comparison can be made of some specific characteristics of both legal systems. A concern that was raised numerous times in both legal systems is the applicable statutory provision becoming meaningless. Judicial authorities in both systems feared for an interpretation of the invention threshold that would be too broad, and thus allow too much subject matter to pass the invention hurdle. Also, both systems endorse the notion that inventions must be assessed as a whole, and that subject matter cannot become patent-ineligible simply because nonstatutory subject matter is involved. A notable difference between case law in both legal systems is that the concern of circumventing the invention threshold by adding post-solution activity was never mentioned under EPC case law. Also, U.S. Courts do not explicitly refer to technical character in their patentability assessment.479 Additionally, although new standards can be developed in both legal systems, there is more guidance from the highest judicial authority in the U.S.

Chronologically, the first two approaches that portray similarities are the contribution approach and the point of novelty approach.480 Although these tests are formulated slightly differently, they both rely on some sort of novelty test.481 The first required that the claimed subject matter made a contribution to the state of the art in a field not excluded from patentability, and the second required the claimed subject matter to be a novel and useful structure. A remarkable development is that both approaches lost their significance relatively quickly, and were dismissed based on the same ground: the novelty of an invention should be treated as a separate criterion.482 This indicates that future approaches should refrain from mixing up different patentability criteria, which will be taken into account when reviewing possible improvements to the patent system in Chapter 7.

An overarching similarity that is reflected in most approaches is the search for tangible aspects.483 As was previously discussed, this desire to search for tangibility stems from the

479 Bakels & Harison 2005, p.41; Looijengoed 2005, p.606; Park 2005, p.360 & 373; Bostyn 2001, p.83. 480 For a comprehensive discussion on the contribution approach see Chapter 4.1.2. For a comprehensive discussion on the point of novelty approach see Chapter 5.1.1. 481 The key aspect is the novelty of the application of the algorithm, not the novelty of the underlying algorithm. 482 T 154/04 (point 5, 9 & 10 of the reasons); T 619/02 (point 2.2 & 2.6.1 of the reasons); T 258/03 (point 3.1 & 3.3 of the reasons); T 172/03 (point 5 of the reasons); T 931/95 (point 6 of the reasons); T 935/97 (point 8 of the reasons); T 1173/97 (point 8 of the reasons); T 77/92 (point 3.1 of the reasons); Pearson 2006, p.90; Hart, Holmes & Reid 2000, p.14; Diamond v. Diehr, p.188 & 190; State Street Bank v. SFG, note 2; In re Freeman, p.1243; In re Sarkar; In re Gelnovatch; In re Bergy. 483 Bradstreet 2013, p.374, 380 & 382; Bradstreet 2013-II, p.508; Peterson 1995, p.120-121. Zekos argues that the physical aspects of a claimed invention are a bad indicator for patent-eligibility, for which see Zekos 2006, p.429. 77 origins of patent law.484 With the rise of computer technology, more and more intangible inventions were claimed. Courts in both legal systems found difficulties with moving away from traditional subject matter, and therefore kept referring to physical elements.485 Examples can be found in the further technical effect approach and the machine-or-transformation approach, both of which are based on the same basic principle that a physical entity must be included in the claimed invention, and that it must somehow be transformed.486

The search for tangible elements also appeared under the Freeman-Walter-Abele approach.487 For example, according to the Court in In re Freeman, the central element to be searched for is whether the application of the algorithm results in an improvement of statutory subject matter.488 Similarly, the Court in In re Walter held that software was only patent-eligible, if it was connected to a physical device or produces a real world effect.489 The Court in In re Abele held that the algorithm must be applied in a physical embodiment, and that this physical element must have a role of its own other than to simply perform the algorithm.490

Another approach in which the search for tangible elements resurfaced is the combination approach.491 Under that approach, it was held that the mere combination of software with technical elements can be sufficient to pass the patentability hurdle.492 A general computer infrastructure or storage medium was held to be sufficiently technical.493 Thus, according to that threshold the patentability depends solely on the inclusion of physical elements.494 Apart from the search for physical aspects, the result achieved by the combination approach is

484 Originally, patent law was intended to cover tangible inventions. Therefore, a certain level of technicality was required to enter the scope of patentability. In fact, “The first general-purpose digital computer was not an electrical but a mechanical one […]”, for which see Grosche 2006, p.288. 485 In Europe, the physical aspects of an invention are usually held to establish the technicality or technical character of the invention. However, defining what technical character means is very difficult, and there is no consensus about this. 486 However, these approaches are not completely similar, as Boards of Appeal never demanded the data that was processed to represent physical objects or activity. For a comprehensive discussion on the further technical effect approach and machine-or-transformation approach, see Chapter 4.1.4. respectively Chapter 5.1.3. 487 For a comprehensive discussion on this approach see Chapter 5.1.2. 488 In re Walter, p.766. 489 Bradstreet 2013, p.376. 490 In re Abele, p.908. 491 For a comprehensive discussion on this approach, see Chapter 4.1.5. 492 T 1177/97 (point 3 of the reasons); T 258/03, T 424/03, T 1658/06, T 313/10; T 269/92 (point 3.6 of the reasons); T 236/91 (point 6.1 of the reasons); Sterckx & Cockbain 2010, p.384. 493 As stated in G 3/08 (10.13), referring to T 163/85 and T 190/94. 494 According to EPO case law, this may for example be an image stored as an electric signal, or controlling “the operation of a conventional general-purpose computer so as technically to alter its functioning”, for which see T 26/86 (point 3.3 of the reasons). Under this approach it was also held that the software must be embodied in technical subject matter for it to produce a real world effect, for which see T 208/84 (point 18 of the reasons). 78

similar to the useful, concrete and tangible result approach in the sense that both approaches adopt a relatively low patentability threshold.495

The abovementioned approaches are prime examples of the fact that there have been many attempts to link software to hardware for it to be patentable. If physical elements such as hardware are added to the claims, it takes away some of the perceived difficulties of intangible subject matter. Nevertheless, it seems erroneous to hang on to the original notion that only tangible subject matter should be covered by patent law for several reasons. First, patent law should be a flexible system capable of adapting to new technologies.496 Software is such a new area of technology, and it has become increasingly important across multiple technical fields. With the recognition of software as a vital area of technology, the original requirement of physicality seems outdated given the fact that software is intangible by nature. Second, courts have gone through many twists and turns in order to attempt to come to a clear and meaningful legal standard while staying true to the origins of patent law, and have not yet succeeded in doing so. Third, in many instances the hardware elements of a software invention have little to do with the software’s functionality; it is the computer code that determines what the program is capable of doing.497 This is very different from traditional inventions.

6.1.3. Comparison of the Current Legal Standards As was already stated in Chapter 4, it is difficult to pinpoint the exact criteria that have to be taken into account under the EPC when assessing software patentability, due to the fact that Technical Boards of Appeal are not bound by earlier decisions. Consequently, under the EPC there are two approaches that constitute the current legal standard instead of one. The situation is less difficult under U.S. patent law, due to the fact that there are two recent Supreme Court decisions from which it becomes fairly clear which criteria should be applied when assessing patent-eligibility.498 This section turns to a brief comparison of the minimum requirements that must be taken into account in both legal systems.

495 For a comprehensive discussion on the useful, concrete and tangible result approach, see Chapter 5.1.4. See also Figure 1 in Chapter 6.1.1. 496 This is confirmed in Diamond v. Chakrabarty, p.315; Perel 2012, p.250; Ballardini 2008, p.563; Burk & Lemley 2002. 497 Collins 2013, p.1402, 1441 & 1443. 498 This does not mean that there is clarity about how these criteria must substantively be applied. It is merely (fairly) clear which criteria are ought to be used. 79

The differences and similarities can best be shown on the basis of an example. The example that will be used is an invention that was examined by the Technical Board of Appeal in T 188/11. In short, the invention claimed in that case was:

A game apparatus for operating a plurality of characters including a movable character (601) traveling in a game space, a driver character (602) driving the movable character, a fellow passenger character (603) riding on the movable character […]. A computer- readable recording medium storing a game program which causes a computer, […] to execute a set of steps in response to operations performed on first and second controllers […].499

In essence, the claimed subject matter is a mixed invention of software and hardware components. The subsequent claims of the patent application describe further details, such as how switching between characters works and how the game data is stored.500

Under the EPC, this subject matter would constitute an invention.501 The combination approach merely requires there to be a technical element in the claimed invention. In this example, the game apparatus and storage medium satisfy this requirement. As was held by the Board of Appeal in T 188/11, “being also directed to an apparatus having switches, image processing means etc., the claims possess overall technical character”.502 The further technical effect approach requires that the claimed software enhances, or has the potential to enhance the functioning of the hardware on which it runs. Again, this will not pose any difficulties: the creation of multiple simultaneously playable characters goes beyond simply running a computer program, and provides the game apparatus with a further functionality that the game apparatus did not encompass before.

Under U.S. patent law, and more specifically the significant additional features approach, the example will face more difficulties. First, there must be significant additional features to the mathematical algorithm or law of nature underlying the software. In this example, those

499 T 188/11 (Summary of Facts and Submissions), which was decided in May 2013 and concerned EP1358918 (application no. 03008019.6). This was claim 1 of the claimed invention at the time of the decision. See https://register.epo.org/application?number=EP03008019 for the most recent wording of the claims and other information regarding EP1358918 (last visited 1 December 2014). 500 These details are irrelevant for the purposes of this example. 501 T 188/11 (point 2.4 of the reasons). Nevertheless, the patent application was ultimately refused. 502 T 188/11 (point 2.4 of the reasons). 80

would be the game apparatus and storage medium. Second, the additional features cannot consist of obvious, already in use, well-understood, routine, or conventional activity. Arguably, a game apparatus and storage medium are quite conventional. Although the claimed invention is said to constitute an improvement of already existing technology and thus satisfies the third prong of the test, it is difficult to see how it will pass the fourth step of the approach, which embodies the commensurability principle. This means that an assessment must be made of how much future innovation is foreclosed relative to the contribution made by the invention.503 The introduction of simultaneously playable characters is a minimal improvement that will probably also fail to pass this test.

This analysis shows how difficult it is for software to pass the current U.S. patentability hurdle in comparison to the European standard. It seems unlikely for many inventions to (1) comprise of unconventional hardware, (2) that is included to do more than the mere application of the underlying algorithm, and (3) to make a contribution that is sufficient in comparison to the future innovation that the claimed invention forecloses. On the other hand, most software can be combined with technical elements such as a data storage medium. Therefore, it can be concluded that contrary to general belief, it is currently more difficult to obtain patent protection for software under U.S. patent law than under the EPC. This means that the converging trend of both legal systems has been averted.504

6.2. Is the EPC Exclusion Clause Eroded? The key question to be answered in this thesis is whether the exclusion of software is still meaningful in light of its historical development and current application. For Europe, this comes down to an assessment of the exclusion clause embodied in Art.52 EPC. Whether this provision is still meaningful depends critically on what function the exclusion clause is intended to fulfill. Thus, it is necessary to look at the intentions behind the exclusion clause, as well as the interpretation given to it by the Boards of Appeal. After all, the framers of the EPC explicitly stated that the EPO should be relied upon for further interpretation of the statutory provision, and consciously left ambiguities open when the EPC came into force. This analysis will be based on the findings of Chapters 3 and 4. The findings of these chapters will be repeated concisely. The current legal standard will be examined in light of

503 Collins 2013, p.1412. 504 For a visualization of this development, see Figure 1. 81

the aforementioned steps, which will show to what extent the exclusion clause is still meaningful.

6.2.1. Original Intention Behind the Exclusion Clause – Travaux Préparatoires An important notion to start with is that it was never the intention to exclude software altogether. For example, originally the “as such” provision was only applicable to one of the categories of subject matter listed in Art.52 EPC, which implied that the other categories were excluded more broadly.505 This was deemed undesirable, and the exclusion clause was amended to cover all the subject matter listed in Art.52 EPC.506 As mentioned in a 1973 proposal, “[t]he idea behind paragraph 3 is that the inventions excluded from patentability pursuant to paragraph 2 are those which relate exclusively to the intellectual works referred to in paragraph 2(a), (b), (c) and (d)”.507 Also, the technicality of a claimed invention was intended to play an important role in the patentability analysis, which implies that the exclusion clause was not intended to fully exclude all the listed categories.508 What exactly was meant with technical character is, however, not clear.509 According to the Enlarged Board of Appeal, “[i]t was apparently the intention of the writers of the EPC […] to consider the abstract formulation of algorithms as not belonging to a technical field”.510 In addition to the above, it is clear that there was an urge to provide for legal certainty, which will therefore also be taken into account.511

Although some basic notions are clear, it is not possible to distinguish a single and uniform “intention of the framers”, given the fact that drafting the EPC was a highly political process in which different interests from different parties were at stake. Moreover, the opinion on software patentability shifted back and forth during the years in which the EPC was drafted. For example, in 1972 the need for flexibility and discretion created a strong opposition against the one year old proposal of statutorily excluding software from patent protection,

505 Pila 2005-II, p.766; Travaux Préparatoires, Minutes of the 2nd meeting held at Luxembourg on 13 to 16 January 1970 (BR/7/69), p.10. 506 As stated by Pila 2005-II, p.766, “In an odd reversal of fate, however, the Munich Conference revised this decision, and reinserted the “as such” provisio of sub-paragraph 2(a) not only for mathematical methods and scientific theories, but for all of the excluded categories contained in paragraph 2.” 507 Travaux Préparatoires, Munich Diplomatic Conference for the Setting up of a European System for the Grant of Patents, Proposal by the IAPIP, 11 September 1973 (M/66/I), p.1. 508 See Chapter 4.1.1.; Hart, Holmes & Reid 2000, p.10. 509 For which see Bakels, ’The technology criterion in patent law’ (2012); Deschamps 2011, p.110. 510 G 3/08 (point 13.5.1. of the reasons). 511 Travaux Préparatoires, Minutes of the 5th meeting of the Inter-Governmental Conference for the Setting up of a European System for the Grant of Patents, Brussels, 15 March 1972 (BR/168/72), p.14; Bakels & Harison 2005, p.38. 82 which opposition diminished with the inclusion of the “as such” terminology.512 Additionally, around 1970 software was far less commonplace and complex.513 Nowadays, hardware implementation has become a very common and easy step to make, and software is used in a much broader array of industries. The framers of the EPC were not aware of how the software industry would evolve. Reconsidering the functioning of the exclusion clause in light of these developments could mean that it has lost most of its significance.

6.2.2. Original Intention Behind the Exclusion Clause – Case Law Because of the discretion that was left for the Boards of Appeal, EPO case law can give an indication of what the function of Art.52 EPC should be. As can be seen in Figure 1 under Chapter 6.1.1., the EPO Boards of Appeal gradually took a more liberal stance towards software patents. Despite the fact that it is now relatively easy for software to pass the invention hurdle, concerns with regard to the broad patenting of software have always been present. The main concern for most Boards of Appeal was Art.52 EPC becoming meaningless, by allowing patent-eligibility in a too broad array of instances. This was first addressed under the technical effect approach.514 Boards of Appeal held that all claimed inventions would pass this threshold, because every computer program initiates the technical effect of circulating electrical currents when run on a designated computer. Therefore, Boards of Appeal moved to the stricter requirement of a further technical effect.

In spite of this concern about the statutory exclusion becoming meaningless, the Enlarged Board of Appeal found little difficulty in accepting the minimalistic combination approach. Because of the fact that every piece of software can nowadays easily be claimed in combination with a hardware component, it is difficult to see how this reconciles with the notion that was at the heart of moving away from the technical effect approach. This shows that there is no uniform thought on how broadly software should be excluded under the EPC, and that the concern about excluding certain subject matter seems to have lost support. It is difficult to distinguish a clear intention from EPO case law, due to the differing interpretations of the scope of the exclusion clause.

512 For a comprehensive description of this development see Chapter 3.1. 513 As indicated by Bradstreet, “intellectual property played a far less significant role in the marketplace” at the time § 101 was drafted. See Bradstreet 2013-II, p.506. 514 For a more detailed description of this approach, see Chapter 4.1.3. 83

6.2.3. Has the Exclusion Clause Become Meaningless? In general, the intended purpose of the exclusion clause in Art.52 EPC is to filter out inventions that are unworthy of patent protection due to their abstract nature. Software inventions were a new phenomenon at the time the EPC was drafted, and were treated with caution. Therefore, the exclusion clause was intended to be a flexible provision, capable of adapting to new and unforeseen technologies, and the scope of the exclusion clause was not to be applied broadly. Although the framers of the EPC tried to provide for legal certainty, the Boards of Appeal were expected to provide more clarity on the exact boundaries. However, Boards of Appeal have interpreted the exclusion clause very differently over time.

Clearly, the current legal standard still fulfills the minimal role the exclusion clause was intended to fulfill. Truly abstract subject matter is filtered out of the patent system, because no technical subject matter is involved. For example, the simple mathematical algorithm of 1+1=2 cannot pass the invention hurdle on its own. It can only do so, if it is incorporated into a computer program and claimed in combination with a technical element, such as a general computer or storage medium. If it were not for Art.52 EPC, there would be no provision based on which the abovementioned algorithm could be excluded. Also, there is a relatively high level of legal certainty under the combination approach.515 In light of the fact that the exclusion clause was not intended to be applied broadly, and was intended to be a flexible provision capable of adapting to new technologies, this could be a justifiable approach.

Other than this very basic function, however, there is little left of the scope of EPC Art.52(2)(c), and it provides an insignificant hurdle for software patent applications. Nowadays, software is very commonplace, and every piece of software can easily be combined with a technical element such as a storage medium. Thus, although in theory the abstract mathematical algorithm as mentioned above is excluded, it takes only a small and unsubstantial step to make it an invention in the sense of the EPC. Given the fact that the bias against software patents was quite strong when the EPC was adopted, and the fact that Boards of Appeal have expressed concerns about the exclusion clause becoming meaningless, it seems ironic that such a low threshold is now sufficient.516 In any event, if a statutory exclusion can be circumvented so easily, it is safe to say that the provision has lost most of its

515 There is a minimum amount of criteria under the combination approach, and these do not include subjective and unpredictable elements. The further technical effect approach is slightly less clear, but nonetheless not alarmingly vague. 516 The Guidelines for Examination even once stated that “a computer program claimed by itself or as a record on a carrier is not patentable irrespective of its contents”, for which see Hart, Holmes & Reid 2000, p.11; Park 2005, p.33. Hart, Holmes & Reid 2000, p.13 describe the combination approach as a “very radical approach”. 84 meaning.517 Interestingly, the Enlarged Board of Appeal made a statement along similar lines in G 3/08, in which it held that:

Indeed, if the Boards continue to follow the precepts of T 1173/97 it follows that a claim to a computer implemented method or a computer program on a computer-readable storage medium will never fall within the exclusion of claimed subject-matter under Articles 52(2) and (3) EPC […].518

Nevertheless, the exclusion clause still has a filtering function for truly abstract subject matter, and has thus not lost all of its meaning within the current patent system.

6.3 Is § 101 of the U.S. Patent Act Eroded? This section will turn to a similar analysis for the U.S. legal system. An important difference to start with in this analysis is that there is no statutory exclusion of software in the U.S. Nevertheless, the U.S. Patent Act contains § 101, which indicates the types of patentable subject matter: “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof”. Little is known about whether Congress intended the Patent Act to allow patents on software, as this area of technology did not exist at the time the Patent Act was drafted.519 However, there are indications in case law as to the intended scope of § 101. The most important principle underlying § 101 is that laws of nature, physical phenomena and abstract ideas are excluded from patentability. This section will address whether the current legal standard is still in line with the intended scope of § 101, and whether the exclusion of software based on the invention hurdle is still meaningful. The analysis will be based on the findings of Chapters 3 and 5. Similar to the previous section, the findings of these chapters will be repeated concisely.

6.3.1. Original Intention Behind § 101 – Case Law The starting point in the U.S. is that anything under the sun is patentable. Additionally, the broad wording of § 101 indicates that Congress the patent-eligibility requirement to be

517 Ballardini 2008, p.574; Cook 2000, p.123. 518 G 3/08 (point 10.13.1 of the reasons). 519 See Chapter 3 for further details on this. However, under the useful, concrete and tangible result approach it was held that Congress did not intend to place restrictions on patentable subject matter, for which see 5.1.4. 85 broad.520 Despite the lack of guidance on the intention of Congress, it was often held that courts “should not read into the patent laws limitations and conditions which the legislator has not expressed”.521 Therefore, courts have been cautious with interpreting § 101 strictly, and on numerous occasions stated that any limitations have to be initiated by Congress.522 In that regard, the Court in Freeman stated that the Benson decision must not be interpreted as excluding computer programs from patent protection in general.523 According to the Court, such a conclusion would “sweep too wide” and has no basis in law.524

Nevertheless, laws of nature, physical phenomena and abstract ideas are excluded from patentability. Similarly, there is case law that focusses on the concern of an overly broad interpretation of the invention threshold, which would in consequence allow too much subject matter to pass the invention hurdle and make the provision a dead letter. For example, under the point of novelty approach it was held that exclusion cannot be circumvented by adding post-solution activity to the claimed invention, as this would open the door to smart claim drafting and thus “exalts form over substance”.525 For the same reason, the mere application of a mathematical algorithm was held to be insufficient.526 This implies that the limits to patentability are not endless.

The Supreme Court recently confirmed the concerns of § 101 becoming meaningless. For example, the Supreme Court in Alice held that the mere implementation in a computer system does not transform the abstract idea into patentable subject matter.527 The Court was of the opinion that computer implementation in and of itself adds nothing substantial that would

520 Wisecup 2012, p.1651. 521 Diamond v. Chakrabarty, p.308. See also Diamond v. Diehr, p.182; Bilski v. Kappos, p.3225; Perel 2013, p.254; Peterson 1995, p.100 & 115. 522 Gottschalk v. Benson, p. 73; Parker v. Flook, p.595; In re Meyer, p.794; Arrhythmia Research Technology v. Corazonix Corporation, concurring opinion, p.1064-1065; State Street Bank v. SFG, p.1373; Bilski v. Kappos, p.3253; In re Alappat, p.1542; Mayo v. Prometheus, p.1305. 523 In re Freeman, p.1244. 524 In re Freeman, p.1245. Similarly, the Court in Abele held that an algorithm must simply be "applied in any manner to physical elements or process steps", for which see In re Abele, p.907; In re Meyer, p.795. This is subject to the condition that the "application is circumscribed by more than a field of use limitation or non-essential post-solution activity". The useful, concrete and tangible result approach also reflects this low hurdle. 525 Parker v. Flook, p.590; Bilski v. Kappos, p.3231; Wisecup 2013, p.1656; Pierce 2012, p.235-236. This shows some similarities to the purpose bound limitations under the EPC. The Court in Mayo v. Prometheus added that limiting the claims to a particular technological environment is also insufficient. Smart draftsmanship has been a profound concern that was raised on several occasions during the past 40 years of case law on the patentability of abstract ideas and laws of nature. 526 Parker v. Flook, p.593. This concern was reiterated in Mayo v. Prometheus, p.1294. 527 Alice Corporation v. CLS Bank, p.2352; Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al, June 25, 2014. The Court held that, “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce”. for which see Alice Corporation v. CLS Bank, p.2356. 86 make it significantly more than the algorithm alone.528 According to the Court, it is unlikely for a computer not to include the general hardware elements as required by the claimed invention, such as a data storage unit.529 Therefore, it would not really be a limitation to the claimed subject matter if the involvement of a piece of hardware would be “the end of the § 101 inquiry”.530

6.3.2. Has the U.S. Invention Hurdle Become Meaningless? U.S. patent law stems from a liberal approach as to the subject matter that can be seen as statutory. Nevertheless, an important underlying concern embodied in § 101 of the Patent Act is that there can be no preemption of subject matter that should be free for all to use.531 This is reflected in the judicially created exclusion of patentability for laws of nature, natural phenomena and abstract ideas. However, as can be seen in the analysis above, U.S. courts have interpreted this rule differently, ranging from a very broad to a very limited interpretation. Therefore, it is difficult to extract a uniform intention on the scope of the exclusionary rule. It can be argued, however, that limitations to patentability should be limited.

The recent Supreme Court decisions in Mayo and Alice have significantly heightened the patent-eligibility threshold for software, excluding more than purely abstract laws of nature or abstract ideas.532 This means that the exclusion of software in the U.S. has become far from meaningless. In fact, it the patent-eligibility threshold is higher than what it was originally intended to be, which means that the current legal standard excludes more than just laws of nature, physical phenomena and abstract ideas. Therefore, it can be concluded that the U.S. exclusionary rule has been given a broader scope and has thus not become meaningless. Nevertheless, the criteria under which subject matter must be assessed remain vague and leave room for uncertainty. It is notable that the conclusion as to the meaningfulness of § 101 would have been different several years ago, when the useful, concrete and tangible result approach was the leading standard.

Before turning to the second part of the research question which asks whether there is room for possible improvements, the following section will discuss the problems that are related to

528 Alice Corporation v. CLS Bank, p.2353. 529 Alice Corporation v. CLS Bank, p.2360. 530 Alice Corporation v. CLS Bank, p.3259. 531 Alice Corporation v. CLS Bank, p.2354. 532 See Chapter 5.1.5. & 5.1.6. for a comprehensive discussion of these decisions. 87

software patents, in order to provide a full view of the current system’s functioning and which issues need to be addressed when discussing patent law reform.

6.4. Problems Faced in Both Legal Systems Due to the abstract nature of software, a commonly heard complaint is that software patents go hand in hand with many problems; more problems than the benefits that software patents provide for society as a whole.533 This section discusses the most prominent problems that are caused by patents granted in this area of technology.534 Software balances on a fine line between abstract and concrete, and is therefore open to the risk of all-encompassing patents that cover more than what is actually invented. An often heard concern is the problem of overly broad patents, which could ultimately stifle innovation and thus be contrary to the fundamental goals of patent law itself.535 Related problems are patent thickets, patent trolls, defensive patenting and litigation risks. Another problem is the lack of interference by lawmakers. There simply seems to be insufficient political momentum to mingle in the discussion on software patentability, and to provide for conclusive answers. Finally, there is the difficulty in formulating a clear-cut legal standard.

6.4.1. Overly Broad Patents Literature points out that a prominent problem related to software patents is the granting of overly broad patents; patents so broad as to cover the algorithms underlying the software or patents that cover multiple functional effects.536 Business method software is even more prone to this problem than regular software. As indicated by Collins, “[c]ompared to patents in other fields of endeavor, they routinely grant inventors rights that extend further beyond the technology that an inventor has actually invented and disclosed”.537 In other words, they embody principles that are used in many practical applications. If these building blocks of software are patented, future innovators are unable to use them unless they are granted

533 Lemley 2012, p.906 & 928; Bessen 2012, p.260; Nieh 2010, p.309; Grosche 2006, p.267-268; Zekos 2006, p.437; Thomas 2000, p.121. This harm is commonly believed to be greater with software patents than in other areas of technology. It would go beyond the scope of this thesis to discuss the movement in any detail. However, many of their arguments against software patenting are reflected in the problems addressed in this chapter. 534 For a more comprehensive review of the problems involved with software patents, see Lemley 2012. See Esteve 2006, p.290-291 for a response to software patent critics. 535 Chien 2012, p.3. It must be noted, however, that this concern is not unique to software patents. 536 Collins 2013, p.1400; Lemley 2012, p.907-908; Oppenheimer 2012, p.38; Bergstra & Klint 2005, p.1; Hart, Holmes & Reid 2000, p.34. It is argued to be a problem primarily in software. As Lemley stated, compare software to the pharmaceutical industry, and you will see that pharmaceutical inventors do not claim “an arrangement of atoms that cures cancer”, for which see Lemley 2012, p.908. Aside from the algorithms underlying software inventions, some scholars also see business methods as intrinsically overbroad. 537 Collins 2013, p.1400. 88 permission by the patent holder, which can have a blocking effect.538 Therefore, overly broad patents have the potential of hindering future innovation, which is contrary to the goal of patent law.539

Several causes can be distinguished for overly broad patents. Part of the problem resides in a lack of expertise and resources at the patent offices.540 The functioning and efficiency of patent offices is not optimal.541 In that regard, the USPTO has been specifically criticized for “failing to do a serious job of examining patents, thus allowing bad patents to slip through the system”.542 There is simply not enough time, money and expertise for patent offices to thoroughly examine the large flow of (software) patent applications.543 Broad patents can also partly be attributed to smart claim drafting, which complicates the examination process.544 Although the USPTO is taken as an example, it is not a problem unique to the U.S. legal system. This may sound like an easy problem to address, but solutions go hand in hand with many costs, for which there is probably little political support in times of crisis.545

Another part of the problem can be attributed to a strong growth in the sheer number software patents.546 According to empirical research, the number of software patents in the U.S. “has grown from about 1% of total patents to approximately 15% (24,891 of 167,438) by 2002" since 1980.547 Especially after the broad standard adopted in State Street Bank and AT&T, there was a large increase of software patents, reaching over 170,000 of such patents.548 In

538 Chien 2012, p.10; Lambilotte 2012, p.650; Diver 2008, p.130; Valgaeren 2004, p.2; Bakels & Hugenholtz 2002, p.22. Problems relating to competition law, such as market power due to patent portfolio’s, will not be discussed in this thesis. 539 Pinxten 2009, p.660; Grosche 2006, p.280. 540 Seltzer 2012, p.954-955; Bakels & Harison 2005, p.42; Smith & Mann 2004, p.258; Valgaeren 2004, p.2; Hughes 2003, p.66-67; Bender 2001, p.3; Thomas 2000, p.121. This was also held by leading economists, for which see Menell 2007, p.496. This is also related to a lack of prior art in the software industry, for which see Grosche 2006, p.298. 541 Lemley 2012, p.906; Hart, Holmes & Reid 2000, p.34-35; Lemley 2001, p.1. 542 Lemley 2001, p.1. In fact, a special Presidential Commission in the US emphasized that the USPTO would not be capable of handling computer program applications, for which see Diamond v. Diehr, p.197. 543 Menell 2007, p.504. 544 Bradstreet 2013, p.382; Bradstreet 2013-II, p.507; Bakels 2002, p.347-352. 545 Lemley 2001, p.13-15. Nevertheless, Smith and Mann show that there are some attempts to improve examiner training and patent office funding in the US, for which see Smith & Mann 2004, p.260. 546 It is difficult to give precise numbers, because software patents are difficult to demarcate, which is confirmed by Bessen & Hunt. They also indicate a greater appropriability and lower costs, for which see Bessen & Hunt 2007, p.162. See also Park 2005, p.336. Part of the problem can also be attributed to a general growth in patents. 547 Menell 2007, p.506, citing Bessen & Hunt. According to a press release by the European Commission, the number of software patents under the EPC in 2002 was similar, reaching up to over 30,000 software patents, for which see http://europa.eu/rapid/press-release_MEMO-02-32_en.htm?locale=en (last visited 1 December 2014); González 2006, p.7 note 60-61; Grosche 2006, p.305; Esteve 2006, p.287. However, Cook indicates that the number of software patents was around 13,000 in the year 2000, for which see Cook 2000, p.123. Cook does not mention the source of this information, which makes this number less trustworthy. See also Marius Keeley-Domokos 1999, p.153. 548 Ernstmeyer 2009, p.1276. See also earlier research done by Bessen & Hunt, p.163, which identified around 130,000 software patents in the US. An interesting, related, and as of yet unanswerable question is whether the growth of software patents will come to a halt after the recently adopted significant additional features approach in the US. 89 fact, about ten years ago over 20,000 software patents were granted annually in the U.S.549 Similarly, the total number of software patents in Europe in 2004 was around 131,000 patents.550 For both legal systems, the growth in software patents can partly be attributed to low patentability hurdles.551 A growth in software patents combined with a lack of resources at the patent offices, almost inevitably leads to the granting of “bad patents”.

So why exactly are overly broad patents problematic? Overly broad patents, especially when claimed in large numbers, have the potential to form a patent thicket, which is in essence a “minefield that innovators would need to tread cautiously across, even when utilizing their own technology”.552 Broad patents naturally overlap, and can thus create patches of rights that are hard for inventors to circumvent. This is even more problematic in areas of cumulative innovation, of which the software industry is a prime example.553 These thickets can not only harm the innovation that should be stimulated by patents, but can present risks on a broader economic level.554 In addition to the broad scope and number of software patents, almost 50% is estimated to be invalid, which makes them even more disturbing.555 Although broad patents are easier to invalidate, invalidating a patent at a patent office or court a costly and time consuming process.556

Overly broad patents also create an increased likelihood of infringement; the broader the scope of a patent, the wider the range of acts that will fall under its the scope. This is even more problematic due to the fact that software is usually claimed based upon its functionality, which increases the chances of infringement. Additionally, the exact boundaries of software

549 Bessen & Hunt 2007, p.158. 550 Mann 2005, p.1000. According to Bakels & Harison, p.65 “patent statistics in the U.S. and in Europe show a stable growth in the number of patents in all classes and exponential increase in […] software and biotechnology, during the last decade”. 551 Lemley 2012, p.923; Pinxten 2009, p.660. It must be noted, however, that the U.S. patentability standard has recently been heightened. 552 Bradstreet 2013, p.382; Bradstreet 2013-II, p.507; Diver 2008, p.135; Esteve 2006, p.289; Huhges 2003, p.70. According to Oppenheimer, "A closely related concern is that patents may be granted to incompletely developed ideas, foreclosing further development during the term of the patent". See Oppenheimer 2012, p.40. It must be noted that there is no empirical evidence on the actual existence of patent thickets in the software industry. 553 Menell 2007, p.492; Esteve 2006, p.289-290; Bakels & Hugenholtz 2002, p.22; Hart, Holmes & Reid 2000, p.29-30. In areas of cumulative innovation, “first generation inventions become inputs for second generation innovators”. As was also held by Ernstmeyer, “an essential feature of software innovation is that software developers build incrementally upon existing blocks of code that perform functions that contribute to the software being developed", for which see Ernstmeyer 2009, p.1276. However, arguably all innovation is cumulative to a certain extent. 554 Bradstreet 2013, p.382; Bradstreet 2013-II, p.508; Oppenheimer 2012, p.46. For example, if a big bundle of is required to even start producing a product, the price of that product is likely to be higher than without the clearance of a patent thicket, thus lowering consumer welfare. This will become even more problematic due to the fact that software is taking a more prominent position across an increasing amount of products. 555 Lemley 2012, p.931; Hart, Holms & Reid 2000, p.34. 556 Lemley 2012, p.908. 90

patents are often hard to pinpoint due to insufficient disclosure in the claims.557 This prevents others from making a sound judgment on whether their product could infringe the patent, and is contrary to the patent trade-off; in return for granting a patent, the invention must be fully disclosed for others to be able to build upon it. In short, it is very likely that many companies are harmed by “opportunistic patent litigation” and “enforcement of controversial patents”.558

6.4.2. Patent Tickets and Patent Trolls Patent thickets and patent trolls are intrinsically linked to overly broad patents. As was mentioned above, overly broad patents have the tendency to overlap, thereby forming patches of overlapping patents that can lead to a minefield of potential infringements.559 These thickets can partly be caused by overly broad patents, but also by technology that is patented at an early stage of innovation. There is an incentive for inventors “to fix more of the pieces at an early stage, thereby freezing the development before refactoring”.560 Especially with software, developers can easily describe the functions that software is designed to encompass before they have written the suitable code.561 Combine this with the pressure to patent early on in the development process, for example to gain funding, and a thicket of “pre- implementation claims” arises.562 Due to the fact that each patent covers only a small section of the software, all of these patents bundled together can have a substantial blocking effect.563

It takes only a few infringements to deprive the inventor of the secondary product of all profits made on the new software product, and infringement cannot be fended off by independent invention.564 As mentioned above, even if the allegedly infringed patent is too broad or invalid, invalidating the patent is a costly and time consuming process, which can lead to delayed production, debts, or even bankruptcy. Patent pools are an often proposed

557 As stated in Lemley 2012, p.923, “As a practical matter, claims with a trivial structure element that everyone must include are claims to function, not structure.” See also Lemley 2012, p.925-926; Bessen & Hunt 2007, p.160. 558 Bradstreet 2013, p.382. 559 This is even more so in complex technologies, for which see Grosche 2006, p.301; Bakels & Harison 2005, p.69. See also Collins 2013, p.1411-1412; Lemley 2012, p.908; González 2006, p.9; Mann 2005, p.999; Bessen 2003. Patent thickets are sometimes referred to as a property fences, for which see Ernstmeyer 2009, p.1277. It must be noted, however, that there is no empirical data that confirms the existence of patent thickets in this field of technology. 560 Seltzer 2012, p.952; Bakels & Harison 2005, p.65. An example of the negative effects of early and unsuccessful patenting is given in Seltzer 2012, p.951. There, it was held that "Had Chandler chosen to patent rather than follow an open route, its unsuccessful application development could still block or hold-up Apple's and Google's operational projects, both widely used today". 561 Seltzer 2012, p.972. 562 Seltzer 2012, p.972. 563 Seltzer 2012, p.978; González 2006, p.9; Mann 2005, p.999; Bakels 2005, p.1; Bakels & Harison 2005, p.73. 564 Vasudeva 2013, p.98; Seltzer 2012, p.978; Nieh 2010, p.313; Bakels 2005, p.1. On the contrary, Mann argues that the risk of infringing another’s software patent poses no significant concern for players in this industry, for which see Mann 2005, p.1005. 91 solution to patent thickets. In short, patent pools are shared portfolios of essential patents in which all the associated companies cross- their patents.565 However, if a company does not have essential patents to bring into the pool it is left empty handed, which can be mainly a problem for start-ups and relatively small enterprises.566 Also, patent trolls have no incentive to enter such pools, because they don't need licenses for their business model to be effective.

Software patents are even more problematic when the companies who own them go bankrupt. The first to come knocking for patents, are patent trolls.567 Patent trolls, also known as non- practicing entities or NPEs, are companies that collect patents in order to enforce them against others who produce allegedly infringing products.568 Given the fact that patents are not invalidated by bankruptcy, this provides a golden opportunity for patent trolls to obtain patents at a low price.569 There is a strong bias against such business activities, not to mention the potential to significantly impede overall consumer welfare.570 However, it is not unlawful.571 Defensive patenting, which will be discussed in the subsequent section, also provides no safety from patent trolls, as it is impossible to counter-sue a company that does not actually produce products. Although patent trolls are not unique to the software industry, they are particularly problematic in that area of technology.

6.4.3. Defensive Patenting and Litigation Risks Another problem with software patents is that they are not necessarily obtained to recoup research and development investments. Rather, they are obtained as a defense mechanism.572

565 Seltzer 2012, p.979; Hart, Holmes & Reid 2000, p.37. This was also indirectly addressed in Grosche 2006, p.304. 566 Bakels & Harison 2005, p.70. 567 Bakels & Harison 2005, p.70. 568 Perel 2012, p.292; Bakels & Harison 2005, p.70. As stated by Seltzer, "They maintain their patents solely for the purpose of perfecting claims for a share of the profits of others who actually make things - claims asserted in legal threats and costly litigation against manufacturing entities". Menell gave a striking example of the costs involved in such strategies, stating that "[o]ne such entity, for example, acquired a patent for $50,000 that it subsequently asserted against Intel Corporation, seeking $8 billion in damages and a permanent injunction". See Menell 2007, p.507. See Bakels & Harison 2005, p.70 for more examples. 569 Seltzer 2012, p.977. 570 For example, "[t]he worst of these are those that are sought solely for the purpose of initiating infringement lawsuits and extorting licensing fees from competitors". By doing this, trolls take money away from research and development, because high costs are made for litigation. See Perel 2012, p.288 & 293; Nieh 2010, p.210; Mann 2005, p.999. 571 A proposed solution to patent trolls is the addition of an “intended commercial use” requirement into patent law, for which see Perel 2012, p.288. Whether this would work depends highly on how this principle is interpreted. For example, a company that goes bankrupt could well have intended to commercially exploit the patent upon the time it was granted. 572 “Companies are even making acquisitions with a primary aim to obtain patents”, for which see Seltzer 2012, p.933. A good example of defensive patenting is Oracle, which did not want to patent its technology but started doing it anyway in 2004 due to peer pressure, for which see Menell 2007, p.506. According to Menell, "The growing evidence is that most software patenting is driven by strategic considerations (such as building patent portfolios for defensive purposes) and not as support for innovation", for which see Menell 2007, p.506. See also Chien 2012, p.3; Nieh 2010, p.311; Sterckx & 92

The growing amount of patents in this area of technology and the uncertainty surrounding the scope of these software patents led to a patent “arms race” of companies trying to obtain patents “to protect themselves against the risk that competitors will enforce their patents”.573 The underlying idea is that obtaining patents allows companies to countersue when they are faced with an infringement claim. This trend is confirmed to some extent by the fact that most software patents are owned by companies outside the software developing industry.574 Aside from the fact that this development thickens the thicket, it stimulates the growth in software patent applications and thereby increases the workload for patent offices. It further leads to “wasted expenditure” and prevents other corporations from “using technology that may not otherwise have been patented, hindering - rather than promoting - technological development”.575

Some empirical research shows that the costs associated with defensive patenting are tremendous. For example, in the smartphone industry, companies “have spent $15-20 billion buying patents to use in defending themselves against each other, and probably $1 billion just paying their lawyers”.576 Thus, this arms race has significant economic consequences.577 The risk of being sued and faced with litigation costs is sufficient incentive for companies to gather as many patents as possible as soon as possible in order to have some leverage.578 To give an example, “the average cost of patent litigation for a claim of less than $1 million [is estimated] to be $916,000 with just over half of that amount accounting for the process up to the end of discovery", not to speak of eventual damages.579 Additionally, litigation risks increase due to the overly broad scope of many software patents. In an ideal situation, a company would conduct a “patent clearance search” to estimate the risk of infringement.580

Cockbain 2010, p.368; Bessen & Hunt 2007, p.158,162 & 182; Esteve 2006, p.289; Bakels 2005, p.1; Bakels & Harison 2005, p.64 & 66; Bakels 2002, p.349; Bakels & Hugenholtz 2002, p.22. 573 Lemley 2012, p.931; Grosche 2006, p.297. 574 Diver 2008, p.135; Bessen & Hunt 2007, p.158 & 171. Most software patents, around 75%, were held by the manufacturing sector. 575 Bradstreet 2013, p.381. 576 Lemley 2012, p.931-932. 577 Bradstreet 2013-II, p.507; Lemley 2012, p.936. 578 Bradstreet 2013, p.381; Bessen 2012, p.248; Nieh 2010, p.312. Thus, patents are obtained even if companies do not seek to enforce these patents independently. It could also lead to less R&D, for which see Diver 2008, p.135. 579 Bradstreet 2013, p.381, citing a survey conducted by the American Intellectual Property Law Association in 2011; Bradstreet 2013-II, p.507. This number was confirmed by Seltzer, who stated that "[l]itigation costs start at nearly half a million dollars before a case even gets to trial. Damages in the event of a loss can run to millions of dollars”, for which see Seltzer 2012, p.933. It must be noted that this data relates exclusively to the U.S. situation. Unfortunately, similar data about the European situation is not available. 580 Bessen 2012, p.248. 93

However, it is unlikely for companies to do so, as the costs are too high and it is unlikely to provide certainty, which leaves the companies vulnerable to litigation risks.581

Patent trolls further complicate the matter.582 Due to the fact that their primary purpose of existence is to enforce patents, these trolls create a large litigation threat for other players in the market who actually produce products. In fact, most US litigation up until 2007 was initiated by patent trolls.583 Unfortunately, there is no European data about this. Due to the costs involved in litigation, it is often more feasible for companies faced with infringement claims to settle rather than litigate, which means that even “bad patents” have potentially far reaching effects.584 If these patents were fully litigated in court, however, the claims based upon them would probably be unsuccessful.585

The fact that this is a serious problem is confirmed by empirical research that shows that “software patents are nearly five times as likely to be in a lawsuit than are chemical patents; business method patents are nearly fourteen times as likely to be litigated”.586 This likelihood is in turn confirmed by the fact that up until 2009 there was a rapid growth of software patent lawsuits.587 Especially for small to medium sized companies, the risk of litigation can be a reason for bankruptcy.588 Usually, the only way of avoiding litigation risks is by negotiating licenses with every patent holder, if all patent holders can even be identified.589 Other options are entering into settlement agreements or countersuing, which can be costly and is

581 Bessen 2012, p.248; Mann 2005, p.1004. Patent clearances are sometimes even completely disregarded for the abovementioned reasons, for which see Huhges 2003, p.70. See also Hart, Holmes & Reid 2000, p.30. The remaining uncertainty after a patent search can in part be attributed to overly broad patents with vague boundaries. 582 Lemley 2012, p.932-933, in which it was stated that “[e]mpirical evidence suggests that the most-litigated patents […] are overwhelmingly software patents, overwhelmingly filed by patent trolls, and overwhelmingly unsuccessful in court”. See also Menell 2007, p.507. Patent trolls are not a problem unique to software patents. 583 Menell 2007, p.507. 584 Bradstreet 2013-II, p.507; Chien 2012, p.13. Judicial procedures often take many years, after which the product a company tries to bring on the market will no longer produce the intended and needed revenues. As indicated by Sarvas, “Especially small and medium sized enterprises are worried about the monopolizing effect software patents might have on the industry”, for which see Sarvas 2001. 585 Lemley 2012, p.932-933. 586 Bessen 2012, p.249, referring to research performed by Bessen and Meurer. It is important to note that this data reflects the U.S. legal environment. See also Nieh 2010, p.312. 587 Bessen 2012, p.259, Figure 3. According to Bessen, “the number of lawsuits involving software patents has more than trippled since 1999. This represents a substantial increase in litigation risk and hence a disincentive to invest in innovation", for which see Bessen 2012, p.261 & Bakels 2005, p.1. 588 Menell 2007, p.507, stating that "Start-up companies are easy targets for holders of weak patents of ambiguous scope because of the fragility of their funding and the time-sensitivity of their business plan". The deterring effects of litigation risks are described more generally in Bakels & Hugenholtz 2002, p.23. 589 In this regard, it was noted that “the costs of figuring out which of the [patents] you are using belong to whom and negotiating the necessary licenses may be high”, for which see Hart, Holmes & Reid 2000, p.30. 94

ineffective against patent trolls.590 It must be noted, however, that the abovementioned data relates exclusively to the US legal system.591

6.4.4. Lack of Interference by Lawmakers Despite the fact that over the last 40 years judicial authorities in both legal systems have tried to formulate clear and concise criteria, there is still little certainty on when software constitutes patentable subject matter. This indicates that it is “time to put an end to judicial intervention”.592 The first reason to turn to the legislator instead of the judicial authorities, is that legislative interferences is a good option to achieve absolute clarity in an ambiguous legal area such as software patents.593 Second, many policy questions are involved in deciding whether or not and to what extent to grant patent protection for software.594 The legislator is better suited to make decisions on such sensitive topics, and is capable of requesting specific research and of initiating (public) debates in which various interest groups are included.595 Boards of Appeal and courts, on the other hand, are limited in their decision making to the information presented to them in the records of the case.

Nonetheless, it is questionable whether politicians are able to reach a decision on software patentability that provides more clarity than under the current situation.596 Although Europe has seen a legislative initiative, the difficulty of reaching enough political support for uniform patent reform was made painfully clear with the proposed Directive on the Patentability of Computer-Implemented Inventions.597 This Directive was an attempt to harmonize patent law throughout Europe, and to establish a legally binding instrument that obliges countries to follow EPO case law.598 Although this was a golden opportunity to provide for more clarity,

590 Hughes 2003, p.70. 591 Given the fact that this country is known for its high litigation rates and legal fees, it might not be representative for the European situation. There is no data to confirm or deny this. 592 Oppenheimer 2012, p.45. 593 Bakels 2005, p.2. It is important to bear in mind that the Boards of Appeal are not capable of removing an exclusion clause from the EPC, for which see also Sterckx & Cockbain 2010. 594 Grosche 2006, p.258. 595 Wisecup 2013, p.1672-1673; Oppenheimer 2012, p.37 & 46; Peterson 1995, p.126. Nonetheless, clear data would be needed, for otherwise the legislative authorities would be doing the same as the judicial authorities. Also, politicians are accountable for their actions to their political supporters, which means that they are ought to be “more in tune with the needs and desires of the public and better suited to addressing questions of public policy”, for which see Wisecup 2013, p.1672-1673. 596 Lawmakers haven’t even been able to come up with a definition of software, for which see also Grosche 2006, p.287. 597 Directive Cod/2002/0047; Guarda 2013, p.449; Deschamps 2011, p.112; Pinxten 2009, p.657; Diver 2008, p.133; González 2006, p.1; Grosche 2006, p.258-259; Esteve 2006, p.280-281; Ferro 2005, p.1; Park 2005, p.350; Meijboom 2002, p.66; Bakels 2002, p. 350; Bakels & Hugenholtz 2002, p.31. 598 Guarda 2012, p.449; Ballardini 2008, p.574; Esteve 2006, p.281; González 2006, p.1; Pearson 2006, p.88; Park 2005, p.348; Rosser 2005, p.26. 95 the proposed Directive was rejected by a large majority.599 The U.S. legislator has not been much more successful.600 Thus, although legislative intervention sounds promising, all of the aforementioned shows that it is not easy to change software patentability through legislation.601 It is difficult to provide any solutions for this problem, as political will is something that cannot be enforced or argued. It needs momentum, without which there will be no legislative interference.

6.4.5. How to Formulate a Clear-Cut Legal Standard The most difficult problem to address for judicial authorities and eventual legislative interference is how to formulate a clear-cut legal standard based on which the patentability of claimed software inventions can be examined. A clear standard would in all likelihood lead to less unsuccessful patent applications, fewer overly broad patents and les money being wasted on the enforcement of unsuccessful patents. The framers of the EPC explicitly refrained from including a clear patentability standard in the EPC, and held that the Boards of Appeal would have to be relied upon for guidance. The US Patent Act also provides no conclusive answers. However, several factors hindered the Boards of Appeal and courts in formulating an all- encompassing and clear legal standard: • future developments in computer-technology are uncertain; • the types of claimed software inventions change rapidly;602 • it is difficult to establish a bright line between “bad” and “good” software inventions; • a case-by-case analysis allows for more scrutiny; and • the fear to be bound by a standard that can potentially be outdated within a decade.603

Nevertheless, the fact that there are still no clear criteria under which software patentability can be assessed indicates that it is necessary to consider other options. This will be taken account in Chapter 7.

599 Diver 2008, p.134; Grosche 2006, p.259. It was rejected by 648 out of 732 Members of the European Parliament. In this regard, a relevant consideration is that the proposed Directive was heavily influenced by different interest groups who aimed to exclude as much subject matter as possible. This might have had a negative influence on the legislative process. 600 The most recent (and to this topic irrelevant) substantial change to U.S. patent law, was the America Invents Act of 2011. 601 Seltzer 2012, p.986. 602 This was addressed in Ballardini 2008, p.563; Hart, Holmes & Reid 2000, p.30. 603 This was addressed in Bostyn 2001, p.87. 96

6.5. Interim Conclusion The main question that was to be answered in this thesis is whether the exclusion of software from patent protection is a practice to be embraced or to be abandoned. In order to answer this question, a comparison was made between the European and US legal systems.604 In summary, the comparison showed that up until the introduction of the significant additional features approach, both legal systems achieved a fairly similar result with regard to the patentability of software through differing criteria. This converging trend resulted in liberal patenting of software and business methods, in which the US took the most liberal approach.605 Contrary to general belief, this comparison has also shown that it is currently more difficult to obtain patent protection for software in the US. In addition, it has shown that judicial authorities struggle to provide for clarity in this area of law, and that many difficulties remain despite four decades of case law.

In short, the exclusion clause embodied in Art.52 EPC has lost most of its significance. As accurately formulated by Collins, “[t]he problem is rather that software is [currently] intrinsically different in a way that renders the well-developed doctrine ineffective”.606 The lowest hurdle that currently stands between software and patentability in Europe is the inclusion of a general hardware element in the claimed invention. Given the fact that any software can be claimed in combination with the hardware on which it is designed to operate, every piece of software can pass this patentability threshold. In other words, the exclusion clause does not significantly influence the patentability of computer programs. Nonetheless, it still serves as a ground for excluding purely abstract subject matter. In the US, the patent- eligibility threshold is clearly higher. This means that the invention hurdle embodied in § 101 has not become meaningless. Notwithstanding the aforementioned, the broad exclusion of software seems to contradict the original notion of US patent law, which encompasses a liberal approach towards patent-eligibility. Additionally, the patent-eligibility criteria remain rather ambiguous.

The low patentability thresholds that were used in both legal systems have opened the door to overly broad patents, which are in turn related to patent thickets, patent trolls, defensive patenting and high litigation risks. An increase in the workload of patent offices has also contributed to the growth of the abovementioned problems. Although software development

604 For a visualisation of this comparison see Figure 1 in Chapter 6.1.1. 605 Laub explicitly mentions the formal similarities between both systems from 1998-2005, for which see Laub 2006, p.367. 606 Collins 2012, p.1404. 97

has a low entry barrier and is thus likely to attract new market players, the aforementioned problems can prevent companies from engaging and investing in this area of technology. Further complicating factors in the discussion on software patentability are the lack of interference by lawmakers, as well as the difficulty in formulating a clear-cut legal standard.

With these conclusions taken, the final step of this thesis is to assess how to deal with software in an improved manner.607 In this regard, it is important to emphasize that the nature of software is unlikely to change significantly, which opens the door to a definitive decision on the extent to which software should be excluded from patentability, and there is clearly room for improvement to both current system’s functioning.608 An interesting thought to keep in mind for Chapter 7 is that it is not legally mandatory to create an optimal system, and even if it were, optimality does not necessarily reflect perfection. Nevertheless, the law should simplify matters rather than complicate them. Additionally, there are still no clear and unambiguous criteria based on which software patentability can be assessed. Therefore, Chapter 7 will examine possible solutions to the difficulties described in this chapter, and whether there is still room for an exclusion of software under the invention hurdle.

607 Some critics argue, however, that “any proposal to optimize the patent system in respect of software-related inventions is based on nothing more than wild guesses or wishful thinking”, for which see Grosche 2006, p.298, citing Bakels & Hugenholtz 2002. 608 See also Menell 2007, p.508. On the other hand, it is likely that new applications of software will be developed. 98

7. POSSIBLE IMPROVEMENTS TO PATENT LAW According to the analysis in Chapter 6, the exclusion clause embodied in Art.52 EPC has been deprived of most of its meaning with regard to software. The lowest hurdle that currently stands between patentable or non-patentable for software under the EPC is the inclusion of a general hardware element in the claims, such as a storage medium. Although truly abstract subject matter is still filtered out of the system, all software can easily be combined with a hardware element under the current state of technology. This means that it takes such a small step to circumvent the exclusion clause, that it is safe to say it has lost most of its filtering function. On the other hand, since recently the U.S. invention hurdle embodied in § 101 entails a relatively high patent-eligibility threshold. Although this means that the US invention hurdle has not lost most of its filtering function, the broad exclusion of software seems to contradict the originally liberal patent-eligibility notion of U.S. patent law.

Moreover, there are still many problems related to software patents that judicial and legislative authorities have not been able to effectively deal with under the invention hurdle; the legal standards used over the past four decades have proven to be ineffective. In that regard, it would be foolish to leave the situation as it currently is. Therefore, this chapter will turn to possible improvements to patent law with a specific focus on software inventions. In order to come to a practically feasible solution, these improvements are searched for from within patent law.609 Possible improvements that will be considered are to further limit patent protection for software, to abandon the software exclusion clause altogether, to turn to the other patentability requirements of novelty and inventiveness or to implement a combination of these approaches.

7.1. Further Limiting Patent Protection for Software The most basic pieces of software can currently easily circumvent exclusion under the EPC and there are still no clear and unambiguous patentability standards in both legal systems. Combined with the fact that software patents are intertwined with many problems, it seems necessary to consider re-strengthening the exclusion clause.610 Limiting patent protection for software is a popular idea amongst Open Source proponents and can be justified based on

609 Sui generis rights will not be taken into account. There is probably no political support for a separate protection regime, and it would scatter the existing protection regimes even further. Additionally, sui generis rights are not covered by an international protection framework, for which see Bakels & Hugenholtz 2002, p.39. See Bostyn 2001, p.88, note 74 for a critical view on sui generis rights for new technological developments. Another reason to look for a solution within patent law as a whole instead of a technology specific solution is that the problems described in Chapter 6 are not solely related to software patents, for which see also Menell 2007, p.497. 610 The exclusion of software has already been re-strengthened under U.S. patent law, for which see Chapter 5.1.6. 99

both moral and economic reasons.611 A distinction must be made between fully categorically excluding software from patent protection and partially excluding software. Strengthening the exclusion clause to fully exclude software is an attractive option because it brings clarity, whereas excluding software only to a certain extent allows for more flexibility.612 On the other hand, both approaches also have disadvantages. This section examines whether further limitations are likely to improve the patent examination procedure for software.

One of the primary arguments in favor of limiting patent protection for software is that the software industry seems to be capable of sufficient development without patent protection.613 The fact that most software patents are held outside the software developing industry arguably confirms this.614 Most software developers abhor the idea of patenting software, and as was stated by González, “[i]t is difficult to justify protection for a field of endeavor in which significant innovation comes from developers who have no interest in obtaining patents”.615 This is partly related to the fact that there are other protection schemes available for software, such as copyright.616

The costs of research and development and technological risks associated with an area of technology are an important reason to grant patent protection.617 This is problematic for software because the risks and costs associated with software development are relatively low.618 As was addressed under the previous chapter, software patents are more often used as a defense mechanism than as an instrument to recoup investments.619 Another commonly heard argument against software patents is the broad scope of such patents and litigation risks involved with them.620 For these reasons, it is argued that society would be better off without software patents.621

611 Bakels & Harison 2005, p.77. For more information about open source see http://opensource.org/ (last visited 1 December 2014) and Esteve 2006; Valimaki 2004; Engelfriet 2003. As indicated under Chapter 6.4., it would go beyond the scope of this thesis to discuss the open source movement in any detail. 612 Bakels 2002, p.351. 613 Diver 2008, p.134; Bessen & Hunt 2007, p.162; Esteve 2006, p.287; González 2006, p.11; Grosche 2006, p.294; Bakels 2005, p.18; Bakels 2002, p.347-348; Bakels & Hugenholtz 2002, p.21; Marius Keeley-Domokos 1999, p.168. 614 Cook 2000, p.123. It could also mean, however, that software developers generate sufficient income from selling the patents they obtained on their software. 615 González 2006, p.11; Grosche 2006, p.286. 616 Gladstone 2002, p.230. As will become clear in Section 7.2., this is not a largely accepted view. 617 Menell 2007, p.494. This was disputed by Bakels, for which see Bakels 2002, p.349. 618 Menell 2007, p.494; Gladstone 2002, p.230. 619 See Chapter 6.3.3.; Menell 2007, p.506. 620 Gladstone 2002, p.230; Hart, Holmes & Reid 2000, p.30, citing Friedman. 621 Grosche 2006, p.280 & 308. See Bradstreet 2013-II, p.508 for the same conclusion with regard to business methods. As stated by Hart, Holmes & Reid 2000, p.30, citing Friedman, in radical terms “the argument against making algorithms private property is similar to the argument against making words private property”. 100

The arguments above are problematic to properly assess because there is little empirical evidence to support them.622 Even if the arguments are accepted, both legal systems have struggled with finding a correct legal standard to exclude software from patent protection under the invention hurdle. It is simply not possible to draw a clear-cut line between patentable and non-patentable software.623 Therefore, it is unlikely that further limiting patent protection for software will diminish this ambiguity and lead to a better situation, unless software would be fully excluded under all circumstances.624

Unsurprisingly, excluding software altogether also has its disadvantages. Software is becoming increasingly important across different areas of technology, and in fact, many technological breakthroughs involve software to some extent. Some machines that undoubtedly fall within the intended scope of patent law, rely mainly on software for their functioning. It would be contrary to the goal of patent law to deprive such inventions of patent protection simply because modern technology is involved. As was acknowledged by the Supreme Court, excluding software per se would have a damaging effect on the economy and the software industry.625 Moreover, software as a category of subject matter is difficult if not impossible to define. For these reasons, it can be concluded that re-strengthening the exclusion clause in any way has no potential to substantially improve the current situation.626

7.2. Abandon the Exclusion of Software Another option that naturally comes to mind is to abandon the exclusion of software altogether, which means that software is no longer seen as unpatentable subject matter.627 Although this seems counter-intuitive at first sight, there are a few obvious advantages to this approach such as increased legal certainty and the end of a long tradition of contradictory case law.628 It takes away the difficulty of formulating a clear-cut legal standard. Another often heard argument in favor of allowing patent protection for software is that other protection regimes provide insufficient protection.629 Also, although little is known about the intended scope of the exclusion clause embodied in Art.52 EPC and the exclusionary rule

622 Pinxten 2009, p.658; Bakels 2002, p.350. Diver used this as an argument against software patents, and stated that an “[i]ncrease in patenting has not resulted in an empirically demonstrated increase in research and development”, for which see Diver 2008, p.135. 623 Bakels & Harison 2005, p.77 & 85. 624 Bakels & Harison 2005, p.85. 625 Meyer 2014, p.148. 626 Therefore, the recently adopted patent-eligibility approach in the U.S. has clearly not improved the situation. 627 Pinxten 2009, p.659; Meijboom 2002, p.66. 628 Pinxten 2009, p.659. 629 Pinxten 2009, p.659. 101

under U.S. patent law, it was not meant to be broad. Some even argue that the EPC exclusion clause was meant to be of “negligible practical significance”.630 In light thereof, it makes sense to abandon the exclusion of software altogether, as it denies protection for an area of technology that has become increasingly important.

In spite of these arguments, abandoning the software exclusion clause is far from ideal. Under the EPC it takes away the hook based on which truly abstract software can be excluded from the patent system. As was mentioned in the previous chapter, the simple mathematical algorithm of 1+1=2 embodied in a computer program is still excluded from patentability under the current legal standard. Thus, the exclusion clause still provides a basic but minimalistic filtering function, and it is questionable whether the other patentability requirements are able to do the same. Although algorithms such as the one mentioned above would also be excluded based on Art.52(2)(a) EPC, in which mathematical methods are excluded as a distinct category, not all computer programs are necessarily identical to mathematical algorithms. Therefore, some abstract and undesirable software will be able to slip into the system if the specific exclusion clause for software is removed from the EPC.631 The same analysis holds for the judicially created exclusion of laws of nature, physical phenomena and abstract ideas under U.S. patent law.

For the abovementioned reasons, it is recommended to keep the software exclusion clause in the EPC so that there is still a provision based on which purely abstract software can be denied patent protection. Similarly, the exclusion of laws of nature, physical phenomena and abstract ideas should also not be abandoned. Due to the recent critique on software and business method patents, there is probably insufficient political support to abolish the exclusion of software altogether. For example, an earlier proposal to remove the exclusion clause from the EPC to make it in line with Art.27 TRIPS did not make it through the legislative process.632 The U.S. exclusionary rule is also unlikely to be abandoned in the near future. Without other safeguards, this approach would make it fairly easy for bad patents to slip into the system. This is where the other patentability criteria come into play, which will be addressed below.

630 Hart, Holmes & Reid 2000, p.1. This was confirmed by Bakels 2005, p.18. 631 Bostyn 2001, p.87. 632 Sterckx & Cockbain 2010, p.372; Bostyn 2001, p.87; Cook 2000, p.125, note 3. See http://www.epo.org/law- practice/legal-texts/archive/documentation/diplomatic-conference.html and http://www.epo.org/law-practice/legal- texts/archive/documentation/travaux-preparatoires/dc-documents.html for all documents on the diplomatic conference on the revision of the EPC (last visited 1 December 2014). 102

7.3. Exclude Subject Matter Through Other Patentability Requirements An option that was explicitly recognized by both the Enlarged Board of Appeal and the Supreme Court is to turn to the other patentability requirements for the exclusion of undesirable subject matter.633 The requirements to turn to are the novelty requirement embodied in Art.54 EPC and 35 U.S.C. § 102, and the inventive step requirement embodied in Art.56 EPC and 35 U.S.C. § 103.634 During the drafting of the EPC it was also held that “a computer programme was basically not inventive and was merely the mathematical application of a logical series of steps in a process […]”.635 This section will discuss to what extent these requirements are able to filter out trivial and overly broad software inventions.

Many software inventions are criticized for the fact that they simply embody the mere computer implementation of something already well-known. Therefore, it seems likely that the novelty criterion can fulfill a filtering function; if something was already known, how can it still be novel? However, the novelty test has quite a limited scope.636 In short, the novelty of an invention depends on prior art, and patent offices in both legal systems have databases for prior art searches.637 Patent offices are restrained in their novelty assessment due to the fact that software is often poorly documented, which creates a lack of prior art.638 Also, there is often an insufficient disclosure of software inventions, which creates difficulties for the assessment of future inventions.639 If there is no prior art on a specific computerized method it is likely to be deemed novel, even if the method itself was already well-known. Also, the novelty of claimed inventions is currently already assessed but trivial patents are still granted, which confirms that the current filtering function of the novelty criterion is questionable. In order for the novelty assessment to play a role in the exclusion of undesirable software, more time and resources must be invested in an increased availability of prior art, as well as a more stringent approach towards a sufficient disclosure of inventions.

633 G 3/08 (point 10.13.1. & 10.13.2. of the reasons); State Street Bank v. SFG, p.1376; T 258/03; T 931/95; Guarda 2013, p.451; Bainbridge 2007, p.202 & 204; Bakels & Harison 2005, p.40-41; Burk & Lemley 2002; Bender 2001, p.375. For example, the Court in State Street Bank held that whether a patent application’s claims are too broad is not a question to be answered under § 101, for which see State Street Bank v. SFG, p.1377. 634 Under U.S. patent law the inventive step is referred to as obviousness. This thesis will use the term inventiveness. 635 Travaux Préparatoires, Minutes of the 9th meeting of Working Party I, held from 12 to 22 October 1971, in Luxembourg (BR/135/71), p.50 (emphasis added). 636 Guidelines for Examination in the EPO, Part G, Chapter VI-1 & VI-2. For example, the guidelines state that “when considering novelty, it is not correct to interpret the teaching of a document as embracing well-known equivalents which are not disclosed in the documents; this is a matter of obviousness”. 637 For a full description on how to assess novelty under the EPC, see the Guidelines for Examination in the EPO, Part G, Chapter VI; Bakels & Harison 2005, p.23. 638 Grosche 2006, p.298 addresses a lack of prior art in the software industry. 639 Bakels & Harison 2005, p.23; Bakels & Hugenholtz 2002, p.36. 103

The inventive step criterion is more suitable to fulfill a filtering function. Inventiveness already plays a crucial role in patent law, and it has been referred to numerous times as a possible solution to bad patents.640 Inventiveness is usually considered to be the biggest obstacle in the patent examination process. In order to assess the inventiveness of subject matter in both legal systems, one must look at whether the claimed invention would have been obvious to a person skilled in the art before the filing or priority date of the claimed invention.641 Under European patent law, “[a]n invention is only considered obvious if the “person skilled in the art” would have arrived at the particular invention, not when he merely could have found that solution”.642 Under the EPC, the examination process of this criterion is divided into the following three steps:

(i) determining the “closest prior art”; (ii) establishing the “objective technical problem” to be solved; and (iii) considering whether or not the claimed invention, starting from the closest prior art and the objective technical problem, would have been obvious to the skilled person.643

This is also referred to as the problem-and-solution approach.644 The person skilled in the art can best be described as “a skilled practitioner in the relevant field of technology, who is possessed of average knowledge and ability and is aware of what was common general knowledge in the art at the relevant date”.645 Non-technical elements of an invention, such as economic benefits, cannot be taken into account when determining the objective technical problem.646

Under U.S. patent law, inventiveness is referred to as the obviousness of an invention. For purposes of consistency, the term inventiveness will be used throughout this thesis instead of

640 G 3/08 (point 10.13.1. & 10.13.2. of the reasons); T 258/03; T 931/95; In re Schrader, p.298; Guarda 2013, p.451; Ballardini 2008, p.575; Bainbridge 2007, p.202 & 204; Bakels & Harison 2005, p.40; Bakels & Hugenholtz 2002, p.36; Bakels 2002, p.351; Marius Keeley-Domokos 1999, p.163, referring to State Street Bank. On the contrary, some have argued that the inventive step cannot be applied to abstract subject matter, for which see Bessen & Hunt 2007, p.159, referring to Judge Archer’s dissent in In re Alappat. As early as 1888, the Supreme Court denied patent protection for a business method based on its lack of inventiveness, for which see Munson v. Mayor of City of New York, 124 U.S. 601 (1888). 641 Guidelines for Examination in the EPO, Part G, Chapter VII-4; Bakels & Harison 2005, p.24. 642 Bakels & Harison 2005, p.24. See also Guidelines for Examination in the EPO, Part G, Chapter VII-5. 643 Guidelines for Examination in the EPO, Part G, Chapter VII-5. Fox & Corbett 2014, p.571 mention a fourth step, which is to “identify the technical benefits which can be said to flow from the differences between the claimed invention and the closest prior art”. 644 Fox & Corbett 2014, p.571. 645 Guidelines for Examination in the EPO, Part G, Chapter VII-3; T 4/98; T 143/94; T 426;88. 646 Guidelines for Examination in the EPO, Part G, Chapter VII-5.2; Fox & Corbett 2014, p.571. 104

obviousness. As was indicated by the Supreme Court in Graham v. John Deere, the following steps must be followed under § 103:

(i) the scope and content of the prior art are to be determined; (ii) differences between the prior art and the claims at issue are to be ascertained; and (iii) the level of ordinary skill in the pertinent art resolved.647

As later indicated by the CAFC, one must look at whether the person skilled in the art would have come to the claimed invention based on teachings in the prior art.648 This is also referred to as the teaching, suggestion, motivation test.649 The Supreme Court in KSR v. Teleflex correctively indicated, however, that this test can merely serve as an indication of inventiveness.650

Although inventiveness seems like a rather high standard, it is generally acknowledged to be relatively easy to pass this hurdle in both legal systems.651 The fact that overly broad patents and trivial patents that embody incremental improvements upon existing technology are still granted, confirms this.652 The primary reason for the low threshold is likely to be the high workload and backlog at patent offices, which induces them to grant more patents and to apply the patentability criteria in a lenient manner. The financing structure of patent offices are also likely to be an important factor, as income is generated from granted patents.653

The increased workload can be further illustrated by the strong increase and relatively high number of patent applications. Over the past 20 years, the amount of pending patent applications in the U.S. increased dramatically, from 244,646 in 1993 to 1,148,823 in 2013. The amount of pending patent applications in Europe is also high, and reached 637,823

647 Graham v. John Deere, p.17 (numbering added). As indicated by the Court, “secondary considerations as commercial success, long felt but unsolved needs, failure of others, etc., might be utilized to give light to the circumstances surrounding the origin of the subject matter sought to be patented”. 648 See for example Winner International Royalty Corp. v. Wang. 649 KSR International Co. v. Teleflex, p.339 & 418-419. 650 KSR International Co. v. Teleflex, p.419. 651 Moir 2013, p.166-270; Jaffe & Lerner 2011, p.129; Bakels & Harison 2005, p.25; Huydecoper, Van Nispen & Van Nieuwenhoven Helbach 2002, p.91-92. For these and other examples see also L. Pessers, The Evolution of the Inventiveness Requirement (2014) manuscript in preparation on file with the author. 652 Nieh 2010, p.320; Bakels & Harison 2005, p.47. 653 See for example Table 2 about the EPO’s income since 1990, which clearly shows an increased income from granted patents in http://www.suepo.org/public/press/sup0807fine.pdf (last visited 3 December 2014). Similarly, the USPTO Fiscal Year 2015 document shows that most income Is generated by patent fees, for which see http://www.uspto.gov/about/stratplan/budget/fy15pbr.pdf (last visited 3 December 2014). 105

pending patent applications in 2012.654 Such an increase in patent applications inevitably leads to a higher workload and thus more pressure to get them through the system easily and quickly. Additionally, the criteria with which inventiveness should be assessed are vague and it is difficult to assess software patents for inventiveness, which leads to erroneous applications of the standard.655

For the inventive step requirement to play a role in the exclusion of trivial software inventions, changes need to be made to the application of this criterion. It seems quite obvious that the mere computer implementation of an already known method shows little inventiveness.656 Overly broad software, among which many business methods, is also likely to be found obvious to a person skilled in the art. Therefore, a correct application of this criterion should theoretically filter out most “bad patent applications”, which means that there is probably no need to amend the existing criteria. In order to be able to conclude whether a revision of inventiveness is necessary or not, however, a full legal examination must be made of how it is interpreted in case law and how high the threshold actually is. Unfortunately, it goes beyond the scope of this thesis to conduct such an analysis. Nonetheless, if the inventiveness hurdle is found to be too low, the inventive step could be revised so as to heighten the threshold.657

In spite of the potential filtering function of the novelty and inventiveness criteria, they are insufficient to filter out trivial and overly broad software patents on their own. Therefore, the following section will discuss a combination of the aforementioned approaches, which according to the author of this thesis establishes the most feasible and potentially successful approach towards software patentability.

7.4. Combination of Improvements As became clear from the analysis above, none of the suggested approaches can change the system for the better on their own. However, a combination of the invention hurdle as described under Section 7.2. with the novelty and inventive step criteria as described under Section 7.3. has the potential to provide a practically feasible and significantly improved

654 USPTO Performance and Accountability Report for fiscal year 2013 at 190; WIPO, World Intellectual Property Indicators 2013 at 86. The author has found no comparable historical data about European patents. 655 Menell 2007, p.504; Bostyn 2001, p.86. 656 Bostyn 2001, p.86. 657 Moir 2013, p.166-170; Pinxten 2009, p.660; Ballardini 2008, p.574-575; Guellec & Van Pottelsberghe 2007, p.226. Ballardini argues to combine this with limiting the scope of patents. A proposal that was made in the U.S. was to introduce an assumption of obviousness for certain inventions, for which see Bostyn 2001, p.86-87, referring to H.R. 5364. 106

situation. This combination of filters has the highest potential to rule out software patent applications that are too trivial or overly broad, and thus limits the negative effects related to such patents. Moreover, it puts an end to the age old discussion about what the scope of the invention hurdle should be by implementing a minimalistic and unambiguous patentability threshold. This section discusses the details of what this hybrid solution should look like.

As already mentioned, the invention hurdle should fulfil a minimal filtering function so that it only excludes purely abstract subject matter; subject matter of which there is little discussion as to its unpatentability. Both the exclusion clause embodied in Art.52 EPC as well as the judicially created exceptions to patentability in the U.S. provide the basis for such an approach. Under the EPC this will not pose many difficulties, as it is in line with what was held under the combination approach. The situation is slightly more difficult in the U.S., because the proposed approach is contrary to what was recently held by the Supreme Court in Mayo and Alice. Nevertheless, it is in accordance with the originally liberal approach towards patent-eligibility in the U.S. and any improvement to the current situation will almost inevitably be in contrast with the current legal standard. Overall, this leads to a situation in which software that is claimed by itself and is thus of a purely abstract nature is filtered out of the system at the doorstep.

It is also recommended to add a functionality requirement to the invention hurdle.658 This means that software that is claimed in combination with hardware must provide that hardware with a further functionality; a functionality that was not present before the software implementation.659 Aside from the fact that this is an unambiguous threshold, slightly heightening the patentability threshold in this way has the beneficial effect of filtering out more trivial and overly broad software inventions. It remains a relatively low threshold, however, which means that bad software patents will not be filtered out immediately. This problem is overcome due to the fact that software inventions still have to pass the novelty and inventiveness criteria. Moreover, the granting of patents was never intended to be based on a

658 Lemley has argued to limit software patents by introducing a means-plus-function requirement, which is different from what the author in this thesis means with a functionality requirement. 659 This does not mean that the further functionality must be a novel functionality. It is fairly similar to the further technical effect approach, under which it was held that the claimed software enhances or has the potential to enhance the hardware on which it runs. 107

single filtering criterion. Ideally, an explanatory rule should be added to the EPC and U.S. Patent Act to ensure a consistent application of the invention hurdle.660

The second filter in the proposed solution is the novelty criterion. The novelty criterion of both legal systems is capable of filtering out trivial software inventions to some extent, as long as software inventions are well-documented and fully disclosed. This is currently not the case, which means that the documentation and disclosure of inventions requires improvement before the novelty criterion can fulfill a meaningful filtering function.

The inventiveness criterion is the third and final phase of the examination process in which trivial or overly broad software inventions can be filtered out of the system.661 The existing criteria under which inventiveness is assessed seem to be capable of excluding undesirable subject matter.662 However, similar to the novelty criterion, it is not applied with enough scrutiny. As was mentioned in Section 7.3., for the inventive step requirement to play a role in the exclusion of trivial software inventions changes need to be made to the application of this criterion. In practice this comes down to an investment in patent offices in order to reduce the backlog and to give patent examiners proper training.663 A more fundamental issue to address is the funding structures of patent offices, which currently induces them to grant more patents.

A beneficial aspect of this combination of approaches is that the solution is found within already existing criteria, and that all the examination criteria fully complement each other. It can therefore be assumed that the system itself needs little altering. With the introduction of an unambiguous and easily understandable invention threshold, the proposed solution also ends the discussion on the scope of the invention hurdle which has been haunting both legal systems over the past four decades. Bad patents might still be granted, but these should be seen as the price to pay for a nonetheless well-functioning patent system. Under the proposed

660 This might not be practically feasible, however, due to the fact that amending these legal instruments is a time- consuming and politically difficult process. 661 As also held by the Enlarged Board of Appeal, trivial software will still always have to pass the inventive step hurdle, which is believed to rule out “bad patents” and seems to have been the main reason for the Board to accept the low patentability threshold, for which see G 3/08; T 258/03; T 931/95; Guarda 2013, p.451; Bainbridge 2007, p.202 & 204. 662 In order to be able make a well-founded conclusion about whether a revision of inventiveness is necessary or not, a full legal examination must be made of how it is interpreted in case law and how high the threshold actually is. Unfortunately, it goes beyond the scope of this thesis to conduct such an analysis. 663 Smith and Mann show that there are already some attempts to improve examiner training and patent office funding in the US, for which see Smith & Mann 2004, p.260. A USPTO document also shows that the USPTO has taken initiatives to reduce backlog, for which see http://www.uspto.gov/about/stratplan/budget/fy15pbr.pdf page 65-66. Patent examiner training is addressed at p.68 (last visited 3 December 2014). Nonetheless, These proposals are still relatively vague. 108 solution, improving the current situation is mainly a matter of time and resources in order to assure a correct application of the already existing criteria. The proposed solution also puts an end to the age-old discussion on the scope of the invention hurdle.

7.5. Interim Conclusion As became clear in the sections above, none of the proposed improvements are able to change the situation for the better on their own. However, an approach in which the invention hurdle, novelty requirement and inventive step requirement are combined in an effective way, has the potential to create an improved situation. In short, the proposed solution is as follows. The invention hurdle should be used to exclude purely abstract software. This means that the exclusion clause should not be deleted from the EPC. In the U.S., courts can rely on the well- settled exclusion of laws of nature, physical phenomena and abstract ideas. Both exclusionary rules should be interpreted narrowly, so that they only exclude software that is not combined with a hardware element and that does not provide the hardware with a further functionality. The further functionality does not have to be novel. It merely means that the software must change the functioning of the hardware on which it is implemented. This invention hurdle is unlikely to be outdated any time soon, due to the fact that software will always need hardware implementation for it to be functional.

The proposed solution is in line with European case law and resembles close similarities to the combination approach and further technical effect approach. It is more difficult to implement in the U.S., due to the fact that it contradicts the two most recent Supreme Court cases on patent-eligibility, Mayo and Alice. Ideally, this approach would be implemented in the EPC and U.S.C., which would put an end to the everlasting discussion on the scope of the exclusionary rules for software. The author recognizes, however, that this might not be practically feasible due to the complex nature of amending both legislative instruments.

The following part of the proposed solution lies in the other patentability requirements. Patents that are too trivial and thereby cause many problems for the system as a whole, even if combined with hardware elements to which the software adds a further functionality, should be filtered out based on the novelty and inventive step criteria. The problem with most trivial and overly broad software patents seems to lie in their lack of inventiveness; trivial improvements as well as abstract inventions are likely to be obvious to the person skilled in

109 the art. The novelty of such inventions is also questionable, but the inventive step is better capable of filtering out trivial or overly broad patent applications.

It is important to emphasize that there seems to be no need to alter the inventive step hurdle. An increased backlog and lack of expertise and resources at patent offices deteriorated the thoroughness of the patent examination process. Therefore, in order to achieve a proper application of the inventive step criterion and to ensure the overall quality of patents, it is necessary to address this problem. Allocating more resources towards achieving a proper application of the novelty and inventive step requirements should already constitute a major improvement. However, to make conclusive statements about the current application and filtering possibilities of the inventive step criterion, further research is needed, which does not fit within the scope of this thesis.

Even though the proposed improvement builds mainly upon the European situation, it can theoretically be implemented under both the EPC as well as the U.S.C. The proposed solution also reflects the development that software went through, in which it has obtained a dominant position that spreads out across many areas of technology. Such technology should be patent- eligible, as long as all patentability requirements are applied correctly. Accepting a low invention hurdle confirms that software is no longer a new and ambiguous area of technology, and gives software a fair shot at patent protection. The proper way to address bad software patents is by effectively combining all the patentability filters of patent law.

There will never be a clear and predictable rule due to the subjectivity of the inventive step, and bad patents will always slip into the system to some extent. Based on the comparative analysis and the problems that were described in this thesis it can safely be concluded that there is no “golden solution” that will take away all problems. Bad patents on, for example, broad business methods that still make it into the system under the proposed solution can be considered a reasonable price to pay for a well-functioning and less ambiguous system, in which there is legal certainty as to the scope of the invention hurdle. The approach that was proposed in this Chapter has the potential to change patent law for the better, and to create such an improved situation. The upcoming Unified Patent Court can potentially contribute to the further harmonization and clarification of this area of patent law.

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8. CONCLUSION This thesis aimed to examine whether the exclusion of software from patent protection is still meaningful in light of its historical development and current application, and whether there is still room for improvement. In order to answer this question, this thesis was divided into a threefold analysis. The first part consisted of mapping the history of European and U.S. patent law with regard to software patents. The second part provided a detailed description of the previous and current legal standards under which software is assessed for patentability. In the third part, both legal systems were compared to one another, which has shown that it is, contrary to general belief, currently more difficult for software to constitute an invention under U.S. patent law. Based on this research, it was possible to conclude that the exclusion of software is outdated and unnecessarily complex, and that there are still many problems related to software patents. Based on this threefold analysis, this thesis discussed possible improvements to the patent laws of both legal systems in order to minimize the problems caused by overly broad and trivial software patents, and to decrease the lack of clarity as to the scope of the invention hurdle.

Historically, it is difficult to pinpoint the intended scope of the exclusion clause for software which is embodied in Art.52(2)(c) EPC. Nevertheless, it has clearly lost most of its meaning over the past four decades of legal development. Currently, software patentability is assessed under the combination approach as well as the further technical effect approach. The combination approach is the most lenient of the two, and allows software to pass the invention hurdle if it is combined with technical elements, such as a general purpose computer or storage medium. The further technical effect approach requires that the software enhances, or has the potential of enhancing the functioning of the hardware on which it runs, which goes beyond the basic software/hardware interaction. The development of the legal standards has shown that the criteria under which software can constitute an invention have been lowered significantly since the adoption of the EPC. Nevertheless, purely abstract subject matter can still be filtered out of the system based on the exclusion clause, which is sufficient reason to leave it in the EPC.

Under US patent law, patent-eligible subject matter is defined in § 101 U.S.C. However, there is no specific exclusion clause for software. Although § 101 was intended to have a broad scope, case law has excluded mathematical algorithms, physical phenomena and abstract ideas from patent protection. The current legal standard based on which software

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patent applications are assessed is the significant additional features approach. Under this relatively high invention hurdle, there must be significant additional features included in the claims, which features transform the underlying algorithm into a patentable application of said algorithm. This approach is based on the aforementioned exclusionary rule, and makes it more difficult than before for software to pass the invention hurdle and thus constitute an invention. Therefore, it can be concluded that the U.S. exclusionary rule has been given a broader scope throughout the past few years and has thus not become meaningless. Interestingly, this conclusion would have been different about a decade ago.

Finding a clear and meaningful legal standard that can be applied under the invention hurdle has been a daunting task in which neither of the legal systems has been successful. Boards of Appeal have not been able to properly define when subject matter has a technical character and U.S. courts have not been able to provide any clearer standards. Over time, both systems have adopted both broad and narrow exclusionary rules for software, none of which have proven to be able to strike the right balance. In light of the comprehensive history of the different legal standards in both systems and the fact that there are still many problems and ambiguities related to software patents, it can safely be concluded that it is simply not possible to exclude all “bad software” under the invention hurdle. Additionally, the increasingly important role of software across different areas of technology, as well as the fact that it is nearly impossible to think of technological breakthroughs without taking software into account, is reason to reconsider whether or not software should still be seen as excludable subject matter.

In order to establish an improved examination process for software patent applications, this thesis has come to the following three-step solution: by effectively combining the (1) invention hurdle with the existing patentability criteria of (2) novelty and (3) inventiveness, most trivial and overly broad software patent applications can be filtered out of the system. Both patent systems encompass an existing framework to conduct such a three step filtering process in which most undesirable subject matter can be filtered out. After all, there are multiple thresholds for a reason, which all have to be met before a patent can be granted. At the same time, the proposed solution allows for a more equal treatment of software compared to other important areas of technology in which there is frequent innovation.

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The first step of the proposed solution is to accept that the invention hurdle should merely be used to exclude subject matter of which there is little discussion as to its patentability; purely abstract subject matter that is not combined with any hardware implementation. A further limitation that should be added to the invention hurdle is that claimed software must provide the hardware with a further functionality, which was not present before the software implementation. This further functionality does not have to be novel. It is clear that this approach allows many of the software inventions that are deemed problematic to make it into the patent system, such as inherently broad business methods. Nonetheless, these can be filtered out based on the novelty requirement and inventiveness requirements. Under the second step of the proposed solution, the novelty is assessed, which comes down to an analysis of prior art in order to find whether the claimed invention portrays too many similarities. Under the third step, patent applications are submitted to an inventiveness assessment, in order to determine whether the claimed invention would have been obvious to a person skilled in the art.

A legitimate question to ask is why bad patents are still being granted, despite the fact that they are already tested for novelty and inventiveness. The main reason for this is the fact that the patent examination process of both legal systems is deteriorated, which seems to be primarily caused by a significant backlog at the patent offices, insufficient expertise of patent examiners, a lack of prior art and insufficient disclosure of inventions. The financing structures of patent offices are also an important deteriorating factor, as they stimulate the granting of patents. Thus, in order for the proposed solution to be meaningful, resources should be allocated towards an improvement of the patent examination process.

Whether the inventiveness requirement needs to be substantively altered in any way in order for it to have a better filtering function is difficult to determine without a full legal examination of how it is currently applied. Unfortunately, this did not fit within the scope of this thesis and can therefore be regarded as an area in which further research is needed. Nevertheless, even if further research indicates that the inventive step needs altering, the inventiveness requirement is the proper place to filter out most trivial and overly broad software patents. Therefore, an important recommendation is to shift the focus of the debate to the inventiveness requirement instead of the invention hurdle.

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Theoretically, the proposed solution provides a practically feasible improvement to patent law. The suggested approach is unlikely to be outdated in the near future by technological advancements, due to the fact that the nature of software will probably remain the same; software will always be abstract in nature and will always need hardware implementation for it to be functional. Nevertheless, political support is needed in order to put these changes into practice. Perhaps the upcoming unitary patent court can have a harmonizing role here for European patent law. Under U.S. patent law such changes will have to be initiated by Congress or the Supreme Court, which is unlikely to happen any time soon due to the recent Supreme Court decisions that relied heavily on the use of the invention hurdle. If the proposed improvements are eventually accepted, however, they will bring an end to the age- old discussion about what the scope of the invention hurdle should be, which would make the patentability of software significantly more understandable and at the same time reduce the negative effects caused by trivial and overly broad software patents.

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Ernstmeyer 2009 J. Ernstmeyer, Does Strict Territoriality Toll the End of Software Patents?, Boston University Law Review, Vol.89, p.1267-1303 (2009).

Ferro 2002 F.N. Ferro, Het land van de onbeperkte mogelijkheden, het octrooieren van business methods in de Verenigde Staten, Bijblad Industriële Eigendom, Vol.70, No.10, p.369-373 (2002).

Gladstone 2002 J.A. Gladstone, Why Patenting Information Technology and Business Methods is Not Sound Policy: Lessons From History and Prophecies For the Future, Hamline Law Review, Vol.25, No.2, p.217-233 (2002).

Hughes 2003 A. Hughes, A Comment on Software, Patents, Innovation and , Journal of Law and Information Science, Vol.14, p.50-100 (2003).

Hughes 2007 A. Hughes, Avoiding the Software Patent Problem: An Alternative Fix For TRIPS Junkies, eLaw Journal, Vol.14, p.100-116 (2007).

Jorda 1997 K.F. Jorda, Software Protection: , Patents, Trade Secrets and/or Sui Generis, ILSA Journal of International & Comparative Law, Vol.4, p.337-338 (1997).

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Case Law European Patent Office Case Law 1. Computer Related Invention/Vicom, T 0208/84 (1986). 2. X-Ray Apparatus/Koch & Sterzel, T 0026/86 (1987). 3. IBM/Data Processor Network, T 0006/83 (1988). 4. Computer-related Invention/IBM, T 0115/85 (1988). 5. Document Abstracting and Retrieving/IBM, T 0022/85 (1988). 6. Spelling Checking/IBM, T 0121/85 (1989). 7. Listing of Semantically Related Linguistic Expressions/IBM, T 0052/85 (1989). 8. Siemens, T 0158/88 (1989). 9. Text Processing/IBM, T 0038/86 (1989). 10. Beattie, T 0603/89 (1990). 11. Text Editing/IBM, T 0095/86 (1990). 12. Card Reader/IBM, T 0854/90 (1992). 13. Editable Document Form/IBM, T 0110/90 (1993). 14. Texas Instruments, T 0236/91 (1993). 15. IBM, T 0833/91 (1993). 16. IBM, T 0071/91 (1993). 17. American Telephone and Telegraph Company, T 0204/93 (1993). 18. General Purpose Management System, T 0769/92 (1994). 19. Broselow, T 0077/92 (1995). 20. IBM I, T 1173/97 (1998).

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21. IBM II, T 0935/97 (1999). 22. Pension Benefit Systems, T 0931/95 (2001). 23. Systran/Siemens Nixdorf, T 1177/97 (2002). 24. COMVIK/Deutsche Telekom MobilNet, T 0641/00 (2002). 25. Ricoh Company, T 0172/03 (2003). 26. Hitachi, T 0258/03 (2004). 27. G 1/04 (2005). 28. Microsoft Corporation I, T 0424/03 (2006). 29. Microsoft Corporation II, T 0411/03 (2006). 30. Quest International, T 0619/02 (2006). 31. Duns Licensing Associates, T 0154/04 (2006). 32. Infineon Technologies, T 1227/05 (2006). 33. Fujitsu, T 1351/04 (2007). 34. G 3/08 (2010). 35. Amazon.Com, T 0313/10 (2012). 36. Nintendo, T 0188/11 (2013). 37. SAP, T 0964/12 (2013). 38. Deutsche Börse, T 2078/08 (2013).

United States Case Law 1. Cochrane v. Deener, 94 US 780 (1876). 2. Munson v. Mayor of City of New York, 124 U.S. 601 (1888). 3. McClain v. Ortmayer, 141 U.S. 419, 427 (1891). 4. Funk Bros. Seed Co. v. Kalo Inoculant Co., 333 U.S. 127 (1948). 5. Graham v. John Deere Co., 383 U.S. 1 (1966). 6. Brenner v. Manson, 383 U.S. 519 (1966). 7. Gottschalk v. Benson, 409 U.S. 63 (1972). 8. In re Freeman, 573 F.2d 1237 (1978). 9. Parker v. Flook, 437 U.S. 584 (1978). 10. In re Sarkar, 588 F.2d 1330 (1978). 11. In re Johnson, 589 F.2d 1070 (1978). 12. In re Gelnovatch, 595 F.2d 32 (1979). 13. In re Bergy, 596 F.2d 952 (1979). 14. Diamond v. Chakrabarty, 447 U.S. 303 (1980).

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15. In re Walter, 618 F.2d 758 (1980). 16. Diamon v. Diehr, 450 U.S. 175 (1981). 17. In re Abele, 684 F.2d 902 (1982). 18. In re Meyer, 688 F.2d 789 (1982). 19. Arrhythmia Research Technology v. Corazonix Corporation, 958 F.2d 1053 (1992). 20. In Re Schrader, 22 F.3d 290 (1994). 21. In re Alappat, 33 F.2d 1526 (1994). 22. In Re Lowry, 32 F.3d 1579 (1994). 23. State Street Bank & Trust v. Signature Financial Group, 149 F.3d 1368 (1998). 24. AT&T Corporation v. Excel Communications, 172 F.3d 1352 (1999). 25. Winner International Royalty Corp. v. Wang, 202 F.3d 1340 (2000). 26. LabCorp v. Metabolite, Inc, 126 S.Ct. 2921 (2006). 27. KSR International Co. v. Teleflex, Inc., 550 U.S. 398 (2007). 28. In Re Bilski, 545 F.3d 943 (2008). 29. Bilski v. Kappos, 561 U.S. 593 (2010). 30. Mayo Collaborative Services v. Prometheus Laboratories, 132 S.Ct. 1289 (2012). 31. CLS Bank v. Alice Corporation, 717F.3d 1269 (2013). 32. Alice Corporation v. CLS Bank, 134 S.Ct. 2347 (2014).

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Appendix I. Chronological overview of the most cited case law regarding the approaches taken by the Boards of Appeal in interpreting Article 52 EPC. This overview does not take into account the Board’s analysis of the patentability criteria other than whether there is an invention.

Case & Date Subject Matter Patentable Approach T 208/84 (1986) Method of digitally Yes Contribution Approach filtering a two- dimensional data array (representing a stored image) in order to enhance or restore the technical quality of digitally processed images. T 26/86 (1987) X-ray apparatus Yes Contribution Approach incorporating a data processing unit in order to combine optimum exposure with adequate protection against overloading of the X- ray tubes. T 22/85 (1988) System for No Contribution Approach automatically abstracting a document, storing the resulting abstract, and retrieving it in response to an input query. T 115/85 (1988) Method of decoding Yes Technical Effect stored phrases and Approach obtaining a read-out of events in a text processing system, this method using a message build program. T 6/83 (1988) Method for the Yes Technical Effect coordination and Approach control of the internal communication between programs and data files held at different processors in a data processing system. T 52/85 (1989) System for No Contribution Approach automatically generating a list of 131

expressions semantically related to an input linguistic expression. T 121/85 (1989) Automatic spelling No Contribution Approach checking and correction system for written human language (“a program- controlled general- purpose computer, the program instructions causing the processor to carry out the text processing”). T 38/86 (1989) Method for No Contribution Approach automatically detecting and replacing linguistic expressions which exceed a predetermined understandability level in a list of linguistic expressions. T 158/55 (1989) Process for the display No Contribution Approach of characters (letters) & Combination which traditionally Approach occur in different forms depending on whether they are in isolation (i.e. a single character) or at the beginning, in the middle or at the end of a word (e.g. Arabic characters). T 95/86 (1990) Method for assisting an No Combination operator of an Approach interactive text processing system in permitting easy manipulation of the columns in a table which consists of several rows and columns of data. T 603/89 (1990) Marker for facilitating No Combination the reading and playing Approach of music on a keyboard instrument, said marker

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to be used with a system of display for written music. T 854/90 (1992) Automatic self-service No Contribution Approach machine operable upon presentation of a card carrying identification data which is presented to the machine, as well as a method for operation of such a machine. T 110/90 (1993) Transformation of text Yes Contribution Approach from a source document cast in a first editable form to a target document cast in a second editable form, which transformation is independent of the linguistic meaning of the digital text data processed, with the ultimate purpose of controlling hardware such as a printer. T 236/91 (1993) A computer having a Yes Contribution Approach menu-based input system to enable an operator to make a multi-word input, the menus presented after the first menu being determined by the selected entry or entries made from at least one previous menu. T 833/91 (1993) Interactive method for No Contribution Approach dynamically designing a set of external interfaces for a simulated computer application program, on a display device of a programmed digital computer. T 71/91 (1993) Electronic document Yes Contribution Approach distribution system having a network of

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communicating data processors and communicating linkages between said processors, each of which having means for receiving and transmitting a uniform data stream. T 204/93 (1993) System for generating No Contribution Approach concrete software & Combination programs from Approach supplied generic specifications. T 769/92 (1994) Computer system for Yes Contribution Approach plural types for & Combination independent Approach management including at least financial and inventory management. T 77/92 (1995) Method of selecting the Yes Contribution correct patient Approach, treatment values in Combination emergency situations Approach & Technical with the use of Effect measuring tape. T 1173/97 (1998) Method for resource Yes Further Technical recovery in a computer Effect system running an application which requests a work operation involving a resource. T 935/97 (1999) Method in a data Yes Further Technical processing system for Effect displaying information, in which the processing system includes a display and an operating system. T 931/95 ( 2000) Method for controlling Yes Combination a pension benefits Approach program by administering at least one subscriber employer account. T 1177/97 (2002) Method for translation Yes Combination between source and Approach target natural languages using a

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programmable digital computer system. T 641/00 (2002) Method in a digital Yes Combination mobile phone system Approach in which subscriber units are controlled by a subscriber identity module. T 172/03 (2003) Order management No Combination system for Approach automatically placing an order with one of a plurality of suppliers. T 258/03 (2004) Automatic auction Yes Combination method executed in a Approach server computer. T 424/03 (2006) Method in a computer Yes Further Technical system having a Effect & Combination clipboard for Approach performing data transfer of data in a clipboard format. T 411/03 (2006) Method in a computer Yes Further Technical system having a Effect & Combination clipboard for Approach performing data transfer of data in a clipboard format. T 619/02 (2006) Method for odor No Combination selection for selecting Approach an order to match a particular visual or auditory target or priming stimulus. T 154/04 (2006) Method for estimating No Combination sales activity of a Approach product at sales outlets using a data processing system. T 1227/05 (2006) Computer implemented Yes Combination method with Approach mathematical steps for simulating the performance of a circuit subject to 1/f noise. T 1351/04 (2007) Computer-executable Yes Combination index file creation Approach method for creating an index file containing

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management information to be used for searching a file. T 313/10 (2012) Method performed by a No Combination computer system for Approach & Technical identifying an item Effect definition that matches an item description. T 188/11 (2013) Game apparatus Yes Combination allowing the Approach simultaneous operation a plurality of characters by a plurality of players. T 964/12 (2013) Computer implemented Yes Combination data processing method Approach for processing an order. T 2078/08 (2013) Data processing system No Combination for managing bundles Approach of constructs that may individually fail, the bundle being associated with a resource amount usable for counterbalancing a transfer of a failure risk pertaining to the bundle.

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