Mar 3 2015
–by Christian Martinez*
If Stephen King wrote his next novel about patent litigation, which I expect he’ll do any day now, the wicked character should be named Alice. She is a dirty word in the Plaintiff’s bar. She has murdered more software patents than any of her friends, Bilski, Mayo, or KSR in the few months since her vivification.
Defense bar loves her because she gives immediate gratification. Historically, patents were assumed to be valid. If it issues, it’s alive. No more. Alice stars in this slasher story, and patent zombies are stumbling about waiting to be dispatched by the stroke of a judge’s pen. No depositions, trials, or even oral argument needed for Alice to strike. She can challenge patentability as a threshold test to any patent case.
Since Alice was released on June 19, 2014, there are numerous examples of software patents getting the boot:
On September 22, 2014, a California Court dismissed a bunch of cases related to McRO, Inc.’s patents on animation related to lip syncing. Defendants were Sega, EA, Disney, LucasArts Entertainment, Sony Computer Entertainment America, and Warner Bros.
On September 3, 2014, a Delaware Court dismissed a patent case on the pleadings, holding that an ecommerce patent that taught a method of upselling was invalid.
On September 11, 2014, a Florida Court invalidated two patents directed at automated charitable giving by rounding up or down, depending on whether the donor is depositing or withdrawing funds.
There are many more.
By now you’re asking yourself, “Who is Alice?”
Alice Corp. Pty. Ltd. v. CLS Bank Int’l, is a July, 2014 U.S. Supreme Court case which invalidated a computer software patent because it was directed to an abstract idea. Alice Corporation pulled the rug out from under thousands of software patents because its ruling calls into question whether any software patents are patentable subject matter at all. It was difficult enough to enforce your own patent rights in Court. But now, the presumption that your software patent is valid is arguably rebutted by the Supreme Court’s ontological declaration that, like Oakland, there is no there, there.
Alice created a two-part test.
First, a court determines whether the patent is directed to a patent-ineligible concept.
If so, the court nonetheless could spare the patent by finding a sufficient “inventive concept” that saves the patent from the patent abyss. On January 27, 2015, the USPTO released its guidelines based on the morass of cases trying to deal with which software patents are eligible, and which are not. While somewhat helpful, they don’t add much comfort. Gene Quinn at Ipwatchdog.com offers a great summary and commentary.
Regardless, District Courts are dismissing patent suits as “clearly and convincingly” invalid at the pleading stage. Realize what that means? It means you can’t even get past the first inning in Court if you have a software patent. Even the United Nations’ World Intellectual Property Organization, which isn’t known for sticking it in anyone’s eye, published a comic book on the current mess.
What does this mean to the gaming industry?
Software patents are hurting. You can’t monetize them. Forget it. If you’re a startup hoping to tout your patent portfolio as an asset, Alice is holding an axe over your head, and Congress is threatening even more anti-patent reforms (there were a dozen bills pending in the 113th Congress until Harry Reid took them off the table). Patent analytics company Lex Machina recently reported a 40% drop in patent cases being filed from September ’13 to September ’14, and largely blames Alice.
The financial effect is palpable. If you’re EA, Blizzard, or Zynga, or any other company that has a portfolio created internally, its assets never showed up on its corporate disclosure balance sheets, so other than perhaps deflating patent-dependent company’s stock price, the company is unaffected. But companies that acquired patents will suffer from an impairment loss. Efrat Kasnik of Foresight Valuation gives a great run-down on accounting principles and intangible assets in view of Alice v. CLS.
In other words, based on the apparent decline in a return on investment, you might see the patent budget at gaming companies shrink significantly in favor of trade secrets, copyrights, or other marketing activities. There will still be great developments in gaming, but the tools to protect those innovations will change due to Alice’s monkey wrench.
Here are the key points when managing your IP portfolio.
- Reconsider the investment. Gaming companies should really consider what it gets for its investment when weighing its patent strategy. In my view, investors haven’t yet fully appreciated the blow software patents have suffered. Investors just want to hear the buzzwords, that there is “patent protection.” Alice was just the latest (and most devastating) in a series of anti-patent rulings by the Supreme Court. So, consider whether less patents will suffice.
- Consider registering a copyright. There’s always copyright law, which overlaps with patent law, and although it won’t protect your idea, it would nonetheless protect your code.
- Keep it to yourself. The opposite of patents would be trade secrets, which in my view is going to rise in prominence due to the beleaguered patent. In fact, Congress is considering creating a federal trade secret law with a private cause of action. Currently trade secret law is governed by each state. Although the Uniform Trade Secret Act has been widely adopted by the states, there are still significant differences. Now might be a good time to review your current procedures regarding trade secrets. Do you you’re your employees sign NDAs and assignment agreements? Do you inquire of new hires as to what agreements or obligations they have with their old employer? Do you take reasonable steps to maintain the secrecy of your trade secrets?
- Pick up a few design patents. If you’re interested in protecting your interface, or some other “ornamental” feature, consider applying for a design patent. The prosecution is simple (Here’s an example) and it should be much cheaper than utility patents.
(*Christian J. Martinez is an intellectual property attorney and former General Counsel of Wordtech Systems, Inc., a manufacturer of robotic technology protected by a large portfolio of patents, which he monetized over the course of several years. He is a graduate of USF and Berkeley Law and specializes in licensing and dispute resolution. He can be reached at email@example.com.)