By James Heracklis
Blockchain Patentability Background
Since blockchain technology was created in 2008 by the founder of Bitcoin, Satoshi Nakamoto, it has been difficult for the patent community to understand how to best handle blockchain innovations. The algorithms and processes required to implement blockchain technology can often fall under the USPTO’s abstract idea exception, which will prompt a 35 U.S.C. 101 rejection when the blockchain application is examined. These issues were only exacerbated in 2014 when the U.S. Supreme Court heard the Alice Corp. v CLS Bank case. In Alice, the Supreme Court created a two-prong subject matter eligibility test that required Patent Examiners to determine whether the claims at issue were directed to a patent-ineligible judicial exception. If the claimed invention was directed to a patent-ineligible judicial exception, the Examiner was required to review the claim elements to determine whether the claimed language contained an inventive concept that could transform the claimed abstract idea into a patent-eligible application. This test was highly controversial, because it is difficult to determine what “transforming an abstract idea” entails. Patent examination deals with legal issues on a case-by-case basis, so having the same case reviewed by different Examiners could result in conflicting outcomes.
New USPTO Guidance
Because of these issues, the USPTO has released a new three-step analysis to clarify the Alice decision confusion[1]. In the new analysis, Step 1 focuses on the claim language and requires the Examiner to determine what statutory category the patent application is attempting to claim (i.e. whether the invention is a process, machine, article of manufacture, or a composition of matter). Typically, inventions that utilize blockchain technology are classified as either method or systems claims.
Once Step 1’s statutory category has been established, the Examiner would continue to Step 2A, which has two prongs. The first prong of Step 2A determines whether a judicial exception is present in the claim language. If the claim language does not have a judicial exception, the claim is deemed to be patent-eligible and the test is concluded. If the Examiner determines that there is a judicial exception, the Examiner would proceed to Step 2A’s second prong, which determines if the judicial exception is integrated into the invention. In order to aid the Examining Corps, the new guidance provides examples for the different types of judicial exceptions. Based on the October guidance, blockchain claims commonly appear to fall into the abstract idea mental processes group, but could also be considered part of the mathematical concepts as well, since these groups are not mutually exclusive.
In the second prong of Step 2A, the Examiner evaluates the claim language to determine if the judicial exception is integrated into a practical application of that exception.[2] The second prong’s integration requirement is deemed to have been met if the claim language allows an abstract idea to improve the technology, to cause a particular treatment, or to implement the abstract idea into a particular machine. However, this prong is not fulfilled by merely stating the step of “applying [the abstract idea].”[3] Step 2A’s second prong is difficult to pass for blockchain claims, since most claims will recite blockchain technology in a cursory manner, making it difficult to fulfill this part of the analysis. In order to overcome this part of the analysis, blockchain claims will need to provide explicit details and claim features explaining why blockchain elements are being incorporated to improve the existing technology.
If the Examiner decides that the other elements of the claim do not integrate the judicial exception into a practical application, the analysis continues on to the final step, Step 2B. This step requires the Examiner to evaluate whether the claim is directed to a judicial exception without providing an inventive concept or if the claim language is transforming the invention into something significantly more than the exception itself. Essentially, this step of the evaluation requires the Examiner to review the claim elements individually and in combination to ensure that the inventor is not merely relying on the judicial exception alone to be the only reason for patentability. While this rationale may seem obvious, but the courts have made it clear that they do not want to inhibit technical innovation and research due to the overarching concept being patented.[4]
Conclusion
With the USPTO, one of the Examining Corps’ biggest strengths is that the Examiners are trained to treat each case individually and respond to issues on a case-by-case basis. This policy allows for the Examiner to tailor their examination style to meet the needs of the case before them, providing a comprehensive and thorough evaluation of the case based on its merits. However, as a result of this practice, controversial decisions like Alice can create bottlenecks in the patent system as Examiners do not apply the established standards in a consistent manner. In a recent Bloomberg article, blockchain practitioners have noted that the technology center (TC 3600) that is dedicated to financial services has become a graveyard for blockchain patent applications, and some attorneys are trying to avoid those related art units at all costs.[5]
As a former Patent Examiner, I understand that the Alice case created difficulties in the way blockchain applications were handled by the Examining Corps at the USPTO. However, I feel the new October Patent Eligibility Guidance has taken a large step in the right direction with its way of addressing judicial exceptions, particularly for abstract ideas. If blockchain applications are going to move forward, the claim language will need to provide specifics about the novel features that are being utilized in the invention, rather than broadly attempting to claim the entire theory, thus halting research and innovation. While no legal test can withstand the advance of technology and time, I believe that the new guidance from the USPTO will allow for Examiners to adequately review new applications and provide stronger blockchain patents moving forward. Starting with the examination process, improving the quality of patent protection in this new and evolving field will help blockchain to develop further credibility, thus allowing for new opportunities in government, business, and other emerging markets.
[1] USPTO Patent Eligibility Guidance (October 2019) https://www.uspto.gov/sites/default/files/documents/peg_oct_2019_update.pdf
[2] Id.
[3] Id.
[4] Alice Corp. v CLS Bank; USPTO 2019 Revised Patent Subject Matter Eligibility Guidance
[5] “Blockchain Patent Race Is on, but Hurdles Await” by Malathi Nayak https://biglawbusiness.com/blockchain-patent-race-is-on-but-hurdles-await
