Patentability of Software Inventions

Author: Dr. Kalyan C. Kankanala1 Introduction Today, there is no field in which

software is not used. Surveys across the world have indicated that 99 percent of
the industries use software. All fields ranging from telecommunications to
agriculture use software at different levels. While the utility of software is
unquestionable, many questions and concerns have been raised with respect to
patentability of software. The main concern with respect to software patentability
revolves around the line between algorithms that are not capable of patent
protection and software applications using the algorithms that may be protectable.
Another issue concerning software patents relates to the extent of tangibility or
technical effect required to obtain protection. This chapter gives an insight into
the law relating to software patentability in USA, Europe and India. The discussion
in the chapter is limited to patentable subject matter, which has been the centre
of controversy with respect to software patent protection. The discussion with
respect to Europe is limited to the European Patent Convention. Philosophical
discussions regarding patent protection for software have not been discussed in
this chapter. Patentability of Software Inventions in USA As pointed out in the
earlier chapters, there are three judicially created exclusions to patentable
subject matter in USA. They are abstract ideas, physical phenomenon and laws of
nature. The exclusion most relevant to software inventions is abstract ideas
exclusion. The exclusion is deemed most relevant because mathematical equations,
methods and algorithms are considered as abstract ideas. As computer programs at
some level implement a mathematical algorithm or method, they are deemed to be not
patentable. The scope and extent of software patentability has been expounded by
various US court decisions in the light of abstract ideas exclusion. Though the
courts dealt with the software patent issue in 1968, the first substantive decision
dealing with computer programs was given in the year 1972. The initial decisions of
the courts with respect to software patentability were based on two doctrines, the
‘mental steps’ doctrine and the ‘function of the machine’ doctrine.2 The mental
steps doctrine postulates that processes involving mental operations are
unpatentable.3 The mental-steps doctrine was based upon the familiar principle that
a scientific concept or

Chief IP Counsel and Co- founder, Brain League IP Services. e-mail:

kalyan@brainleague.com blog: www.sinapseblog.com.
2 3

Diamond v. Diehr, 450 U.S. 175, (1981) at 195. Id. at 195.

mere idea cannot be the subject of a valid patent.4 The ‘function of a machine’
doctrine postulates that a machine is patentable but its functions are not
patentable. The mental steps doctrine was regularly invoked by courts to deny
patents to inventions consisting primarily of mathematical formula or methods of
computation or in which the sole inventive contribution was a mental operation or
mathematical computation.5 Based on the mental steps doctrine the patent office
adopted guidelines on the examination of application for patents on computer
programs in the year 1968, which provided that computer programs claimed as an
apparatus or a process were not patentable.6 However, the patent office indicated
that a programmed computer could be a component of a patentable process if combined
with unobvious elements to produce a physical result. The Patent Office formally
adopted the guidelines in 1968.7 In the same year, the Court of Customs and Patent
Appeals (CCPA) changed the law completely by repudiating both the 'function of a
machine' and 'mental steps' doctrines in two separate decisions and expanded the
scope of patentable subject matter to include computer programs.8 The Prater
decision opened the gates for processes involving computer programs by holding that
a process involving mental steps would not be unpatentable if the steps can also be
performed without mental operation.9 In re Bernhart, the court reaffirmed Prater,
and indicated that all that remained of the mental-steps doctrine was a prohibition
on the granting of a patent that would confer a monopoly on all uses of a
scientific principle or mathematical equation.10 The court also announced that a
computer programmed with a new and unobvious program was physically different from
the same computer without that program; the programmed computer was a new machine
or at least a new improvement over the unprogrammed computer.11 After the CCPA
opened the door for patents on computer programs, the US Supreme Court and Federal
Courts tried to clarify the issue in Benson, Parker, Diamond, Alappat and State
Street Bank, by differentiating patentable computer programs from non patentable
abstract ideas, natural phenomena and laws of nature.12 In the process, the courts
designed and tried different patentability tests. The uncertainty in applying
patent

4 5

Id. citing In re Bolongaro, 62 F.2d 1059, 1060, 20 CCPA (Pat.) 845, 846-847 (1933).
Id. At 195. 6 Diamond v. Diehr, 450 U.S. 175, (1981) at 197. 7 Citing 33 Fed.Reg.
15609 (1968). 8 Id. citing, In In re Tarczy-Hornoch, 397 F.2d 856, 55 CCPA (Pat.)
1441 (1968) (overruled 'function of a machine' doctrine) and In re Prater, 415 F.2d
1378, 56 CCPA (Pat.) 1360 (1968) (overruled 'mental steps' doctrine). 9 Diamond v.
Diehr, 450 U.S. 175, (1981) at 198. 10 417 F.2d 1395, 57 CCPA (Pat.) 737 (1969). 11
Id., at 1400, 57 CCPA (Pat.), at 744.
Gottschalk v. Benson, 409 U.S. 63 (1972) at 71., Gottschalk v. Benson, 409 U.S. 63
(1972) at 72., Parker v. Flook, 437 U.S. 584 (1978)., Diamond v. Diehr, 450 U.S.
175, (1981) at 183.,In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994)., State Street
Bank v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998).
12
principles to computer programs can be seen from the decisions and the reasoning of
the courts. A. Gottschalk v. Benson13 The case involved an invention consisting of
a method for converting Binary-CodedDecimal numerals into pure Binary numerals. The
method was claimed in a generalpurpose computer of any type and was not limited to
a particular art, apparatus or machinery. The claims were rejected by the patent
office but sustained by the CCPA. The Supreme Court reversed the decision of CCPA
and held the claimed invention to be nonpatentable subject matter. The court
started its reasoning by reiterating that phenomena of nature, though just
discovered, mental processes, and abstract intellectual concepts were not
patentable, as they were the basic tools of scientific and technological work.
Based on that principle it reasoned that allowing patent protection over the method
of converting Binary Coded Decimal numerals to pure Binary numerals in this case
would result in patenting of ideas14, because the mathematical formula involved had
no substantial practical application except in connection with a digital computer.
As agreeing to the patentability of the claimed method would wholly pre-empt the
mathematical formula and in practical effect would be a patent on the algorithm
itself the court held that the claimed method was not eligible for patent
protection.15 B. Parker v. Flook16 The dispute in this case related to the
patentability of an invention involving a method for updating alarm limits. The
Court of Customs and Patent Appeals rejected the examiner's decision and held the
invention to be patentable subject matter. The Supreme Court reversed the decision
of CCPA and held the invention to be non-statutory subject matter under section 101
of the Patent Act because the invention just identified post solution applications
of the formula and as the only novel feature of the invention was the mathematical
formula or algorithm. The method in this case consisted of three steps: an initial
step which merely measured the present value of the process variable (e. g., the
temperature); an intermediate step which used an algorithm to calculate an updated
alarm-limit value; and a final step in which the actual alarm limit would be
adjusted to the updated value.17 The court opined that the only difference between
the conventional methods of changing alarm limits and that described in the
invention rested in the second step, which was the mathematical

13

409 U.S. 63 (1972).

14 15
16

Gottschalk v. Benson, 409 U.S. 63 (1972) at 71. Gottschalk v. Benson, 409 U.S. 63
(1972) at 72.
437 U.S. 584, 585-86 (1978).

17

Parker v. Flook, 437 U.S. 584 (1978).

algorithm or formula standing alone, which was not patentable.18 It stated that the
invention was unpatentable under § 101 because once the mathematical algorithm was
assumed to be within the prior art, the invention, considered as a whole did not
have any inventive application of the algorithm. C. Diamond v. Diehr19 The case
related to a dispute over the patentability of a process for molding raw, uncured
synthetic rubber into cured precision products. The invention involved the process
of constantly measuring the temperature inside the mold and feeding the temperature
measurements into a computer that repeatedly recalculates the cure time by use of
the mathematical equation (Arrhenius equation) and then signals a device to open
the press at the proper time. The patent examiner rejected the application on the
ground of nonstatutory subject matter stating that the invention involved nothing
more than a mathematical equation along with conventional industrial methods. The
supreme court disagreed with the patent examiner and agreed with the Court of
Customs and Patent Appeals by holding that a process would not be non patentable
subject matter simply because it employed a mathematical formula, computer program
or digital computer as long as it produced a useful result. The court started its
analysis by stating that a patent would be granted in USA for the invention of some
practical method or means of producing a beneficial result or effect and not for
the result or effect itself.20 As the claimed process described a new method of
producing a result, the court held that it was patentable subject matter, though it
used well-known steps.21 Despite the fact that Arrhenius equation would not be
patentable in isolation, the court opined that the process for curing rubber, which
incorporated in it a more efficient solution of the equation would be patentable.
D. In re Alappat22 The case related to a dispute over the patentability of an
invention, which was a means for creating a smooth waveform display in a digital
oscilloscope. The examiner rejected claims 15-19 of the patent application stating
that the claimed invention was nonstatutory subject matter. The Federal Circuit,
which replaced CCPA as the patent appeals court, disagreed with the examiner and
held that the invention was a machine, which fell under the scope of statutory
subject matter. The court in this case opined that the Supreme Court’s test for
patentability of computer programs was not clear. So, it made an attempt to give
lucidity by interpreting Diehr's (useful result) decision to mean that any computer
program producing a concrete, useful and tangible result would be patentable. Based
on this interpretation the court held the
18
19

Id. at 585.
450 U.S. 175 (1981).

20 21
22

Diamond v. Diehr, 450 U.S. 175, (1981) at 183. Diamond v. Diehr, 450 U.S. 175,
(1981) at 184.
33 F.3d 1526 (Fed. Cir. 1994).
invention in this case, which is a computer program to create a smooth waveform in
a digital oscilloscope, to be patentable as it produced a concrete useful and
tangible result. The court looked at the programmed computer as a new machine,
because it believed that a general-purpose computer in effect would become a
special purpose computer once it was programmed to perform particular functions
pursuant to instructions from program software. E. State Street Bank v. Signature
Financial Group23 The case involved a fight between Signature Financial Group, Inc
(hereinafter called 'Signature') and State Street Bank and Trust Co. (hereinafter
called 'State Street'), over a patent directed to a data processing system for
implementing an investment structure, which was developed for use in Signature's
business as an administrator and accounting agent for mutual funds. As its
negotiations to get a license from Signature failed, State Street claimed patent
invalidity stating that the data processing system fell outside the scope of
patentable subject matter under section 101. The Federal Circuit reversed the
'patent invalidity' decision of District court of Massachusetts. In its decision,
the federal circuit clearly stated that a process patent should not be held invalid
merely on the ground that it involved a mathematical algorithm as long as it
produced a concrete, useful and tangible result. It also clarified that there was
no prohibition against business method patents under the US law. After the State
Street decision in 1998, the USPTO opened its gates for software and business
method patents. The standards for software patentability were easy to satisfy and
that resulted in grant of numerous software patents in USA. The trend continued
until the recent Bilski decision, which once again clarified the scope of software
and business method patentability. F. Bilski’s case24 The petitioners in the case
filed a patent application before the USPTO with respect to a process by which
commodities buyers and sellers in the energy market can protect, or hedge, against
the risk of price changes. The patent examiner rejected the application on the
grounds that the invention was not implemented on a specific apparatus, merely
manipulated an abstract idea, and solved a purely mathematical problem. The Board
of Patent Appeals and Interferences agreed and affirmed the decision of the
examiner. On appeal, the Federal Circuit affirmed the decision of the Board but
stated that the test for patentability of a process was not the concrete, useful
and tangible result test as laid down in State Street case but the machine or
transformation test, which provides that a process is patentable only if it is tied
to a particular machine or apparatus, or transforms a

23
24

149 F.3d 1368 (Fed. Cir. 1998).

BILSKI ET AL. v. KAPPOS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND
DIRECTOR, PATENT AND TRADEMARK OFFICE, No. 08–964. Argued November 9, 2009 and
Decided June 28, 2010/.
particular article into a different state or thing. The federal circuit rejected
the patent application because it did not meet the said test. After accepting the
writ of certiorari filed by the petitioners, the US Supreme Court upheld the non-
patentability of the invention that is the subject of the patent application. The
Court stated that the petitioners were seeking to patent both the concept of
hedging risk and the application of that concept to energy markets.25 As per the
Court, Benson, Flook, and Diehr cases mandate that the process claimed by the
petitioners were not patentable processes because they attempt to patent abstract
ideas. The Court stated that claims 1 and 4 of the patent application explain the
basic concept of hedging and reduce that concept to a mathematical formula, which
would be an unpatentable abstract idea, just like the algorithms at issue in Benson
andFlook. It further stated that the other claims deal with examples of how hedging
could be used in commodities and energy markets, which were mere abstract ideas and
therefore, not patentable. The Court in its opinion pointed out that the Federal
Circuit's interpretation that machine or transformation test is the sole test for
determining patentability of processes was not intended by the Supreme Court in any
of its decisions. It went on to state that the machine or transformation test was
one test that can help in determining patentability of a process but was not the
sole test.26 According to the Court, an invention might be patentable even if it
does not satisfy the machine or transformation test. As per the Court, the US
Patent Act and earlier Supreme Court decisions do not exclude business methods from
the scope of patentability.27 To the contrary, the statute provides explicitly that
business method patents were considered by legislators to be patentable. To
conclude, as it stands today, software inventions are patentable provided it can be
proved that they are not abstract ideas and involve specific application to a
particular purpose. Machine or transformation test and other tests coined by the
Federal Circuit are valid and will act as guideposts towards determining whether a
software invention is an abstract idea or not. USPTO in its recent guidelines
stated that it would continue to follow the machine or transformation test for
assessing patentability of process inventions.28 As per the USPTO, a process
invention would be rejected if it does not meet the machine or transformation test
unless it can be proved that it is not an abstract idea. Patentability of software
inventions in Europe Article 52 of the European Patent Convention (EPC) provides in
paragraph 1 that any invention is patentable. However, Paragraphs 2 and 3 provides
a list of non-patentable inventions, which includes computer programs as such.29
The EPO and the Boards have held that a computer program having a technical
character would not be a computer program as such and therefore, would be
patentable subject matter. The meaning of
25 26

Id. at Page 12. Id. at Pages 5-8. 27 d. at Pages 11-12. 28

http://www.uspto.gov/patents/law/exam/bilski_guidance_28jun2010.pdf visited on
August 12, 2010. 29 Article 52 (2) and (3), European Patent Convention, 1973 as
last amended.
‘technical character is not clear and has been the subject of interpretation in
various Board decisions. A. VICOM Case30 This was the first case to formally lay
down the requirement of technical character for computer programs to be patentable
subject matter. The case involved an invention concerning the method of digitally
processing images in the form of a two-dimensional data array' by an operator
matrix. The Examining Division rejected the application on the ground that it was
for a mathematical method and/or computer program as such. On appeal, the Technical
Board reversed the decision of the Examining Division and held that the invention
was patentable subject matter. The Board pointed out that the invention at hand did
not claim a mathematical method as such but its application in a technical process,
which would be patentable. It stated that the method claimed by the inventor was
applied to an image stored in the form of an electrical signal, which was a
physical entity and produced a change in the entity, which would lend technical
character to the invention. Though the invention involved a mathematical method,
the Board said that it would be patentable because it claimed a technical process
in which the method was used rather than the mathematical method itself. The Board
went on to state that a computer program would be patentable subject matter if it
implements a technical process. In the present case,, as the computer program for
processing images involved a technical process, the Board said that it would be
patentable subject matter. B. IBM Case31 The patent application in the case related
to resource recovery in a computer system. After reviewing the application, the
Examining Division rejected claims that related to a computer program product
directly loadable into the internal memory of a digital computer and directed to a
computer program product stored on a computer usable medium. The Board rejected the
Examining Division's opinion and held that the computer program as a product would
be patentable. It stated that computer programs would not be considered as having
technical character merely because they operate computers. However, as per the
Board, the technical character might be found in the further effects (i.e. further
to normal computer operations) resulting from the execution by the hardware of the
instructions given by the program. Where the further effects have a technical
character or where they cause the software to solve a technical problem, the Board
stated that an invention which brought about such an effect might be considered a
patentable invention. As per the Board, a patent may thus be granted not only in
the case of an
30

VICOM/Computer-Related Invention T208/84, [1987] E.P.O.R. 74. 31 IBM/Computer

programs T1173/97, [2000] E.P.O.R. 219.
invention where a piece of software manages an industrial process, but in every
case where a computer program is the only means or one of the necessary means of
obtaining a technical effect. The Board reiterated in the case that a claim
directed to the use of a computer program for the solution of a technical problem
could not be regarded as seeking protection for the program as such, even if the
basic idea underlying the invention might be considered to reside in the computer
program itself. It also stated that if the computer program has the potential of
producing a technical effect, it would be patentable subject matter. C. Microsoft
Case32 The application in suit was concerned with a clipboard format which enabled
non-file data to be transferred for encapsulation into a file at a receiving
application program (data sink). The Examining Division rejected the application
based on the ground that it was not patentable subject matter. On appeal, the Board
rejected the Examining Division's opinion and held that the invention was
patentable subject matter. The Board stated that the claimed method steps in the
patent application contributed to the technical character of the invention by
solving a technical problem by technical means, specifically because functional
data structures (clipboard formats) were used independently of any cognitive
content to enhance the internal operation of a computer system, thereby
facilitating the exchange of data among various application programs. It observed
that the fact that the computer program has a computer readable medium lends
technical character to the program. The Board also stated that the computer
executable instructions in the case had the potential of achieving the further
technical effect of enhancing the internal operation of the computer beyond the
elementary interaction of hardware and software of data processing, which made it
patentable subject matter. D. HITACHI Case33 The Examining Division rejected the
application in the present case, which related to a method, an apparatus and a
computer program for conducting a Dutch auction on the grounds that it was not
patentable subject matter and lacked inventive step. On appeal, the Board upheld
the non-patentability on the invention and clarified the law with respect to
subject matter. The Board stated that determining whether an invention is
patentable subject matter must not include comparison of prior art with the
invention. It then observed that a claim to a mixture of technical and non-
technical features (whether as a method or an apparatus claim) could be patentable
subject matter. With respect to technical character, the Board stated that it could
be implied by the physical features of an entity or the nature of activity
performed by the invention. A non-technical activity
32 33

MICROSOFT/Clipboard formats I (T424/03), [2006] E.P.O.R. 39. HITACHI/Auction method

T258/03, [2004] E.P.O.R. 55.
might be patentable subject matter according to the Board, if the means to perform
the activity is technical. The Board then stated that method steps consisting of
modifications to a business scheme to circumvent a technical problem rather than
solving it by technical means would not confer a technical character on the claimed
subject matter. Despite the elaboration of the meaning of technical character by
the Board, there has been ambiguity with respect to the same. Different countries
have been following different standards to assess technical character. While some
countries required physical elements to be part of a computer program in order to
satisfy the technical character requirement, others stated that physical elements
were not required. To resolve the ambiguity, the President of the European Patent
Office (EPO) referred the issue to the Enlarged Board of Appeals. E. President's
Referral The President of the EPO, mindful of continuing difficulties as to the
scope of the exclusion in Article 52(2) and (3) EPC insofar as it relates to
patentability of computer programs, referred a series of questions to the Enlarged
Board of Appeal, which are now pending. The questions referred are: 1. Can a
computer program only be excluded as a computer program as such if it is explicitly
claimed as a computer program? 2.(a) Can a claim in the area of computer programs
avoid exclusion under Article 52(2)(c) and (3) merely by explicitly mentioning the
use of a computer or a computer readable storage medium? (b) If question 2(a) is
answered in the negative, is a further technical effect necessary to avoid
exclusion, said effect going beyond those effects inherent in the use of a computer
or data storage medium to respectively execute or store a computer program? 3.(a)
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? (b) If
question 3(a) is answered in the positive, is it sufficient that the physical
entity be an unspecified computer? (c) If question 3(a) is answered in the
negative, can features contribute to the technical character of the claim if the
only effects to which they contribute are independent of any particular hardware
that may be used? 4.(a) Does the activity of programming a computer necessarily
involve technical considerations?
(b) If question 4(a) is answered in the positive, do all features resulting from
programming thus contribute to the technical character of a claim? (c) If question
4(a) is answered in the negative, can features resulting from programming
contribute to the technical character of a claim only when they contribute to a
further technical effect when the program is executed? To summarize, in Europe,
computer programs as such are not patentable. In order for a computer program to be
eligible for patentability, it must have a technical character. Technical character
means existence of technical process in the program. However, the scope and meaning
of technical character is still ambiguous and has been referred for clarification
to the Enlarged Board of Appeals. Patentability of Software Inventions in India In
India, unlike in USA and like in Europe, there is a provision proscribing the
patentability of computer programs. Section 3 of The Patents Act, which lists
exclusions to patentable subject matter provides under clause (k) that a
mathematical or business method or a computer program per se or algorithm is not a
patentable invention.34 Indian Government made an attempt to change this in 2004
through the patent amendment ordinance by providing under section 3 (k) that a
computer program producing a technical application to industry or a computer
program in combination with hardware is patentable. But the attempt was short lived
as the government-repealed the ordinance through an amendment Act in March 2005.
Though the section lays down a blanket prohibition on the patentability of computer
programs, it extends to only computer programs ‘per se'. The clause can be and
would most probably be interpreted to mean that an invention would be patentable
despite the presence of a computer program as one of its elements, if the invention
as a whole includes something more than the computer program that is eligible for
patent protection. The Manual of Patent Practice and Procedure (MPPP), which lays
down guidelines for patent examiners and practitioners throws light on the meaning
of computer programs per se.35 As per the Manual, software inventions may broadly
be classified as follows: i. Method/process; ii. Apparatus/system; and iii.
Computer program product. As per the Manual, a software invention, which is claimed
as a process or method must have a technical character (solve a technical problem)
in order to be patentable. An invention is said to have a technical character if it
has a hardware or a machine limitation. For example, a method for processing
seismic data, comprising the steps of collecting the

34 35

Section 3, Indian Patent Act, 1970 as amended in 2002. Manual of Patent Practice
and Procedure, 2008 at pages 73-74.
time varying seismic detector output signals for a plurality of seismic sensors
placed in a cable would be patentable because it has a structural limitation. The
Manual provides that a computer program that forms part of an apparatus would be
patentable if the computer program is applied to a specific apparatus and the claim
is not general. If the computer program enables an apparatus to function in a
particular way, then it would be patentable. A computer program that is used for
internal operations of a computer would be patentable subject matter. However, a
computer program as a product on a storage medium would be considered as a computer
program per se and therefore, would not be patentable. Summary To summarize,
computer programs are patentable in USA as long as they are not abstract ideas.
Machine or Transformation test is not the only test for determining whether a
program is patentable subject matter but a very useful test for the assessment.
However, USPTO follows the said test for determining patentable subject matter.
Computer programs as such are not patentable under the European Patent Convention.
A computer program will be patentable if it has a technical character. The meaning
of technical character is not clear. In India also, computer programs per se are
not patentable. As per the manual, a computer program claimed as an apparatus or
method would be patentable if it has specific application to an apparatus or
structural elements.