IP protection for computer software in the United States


Financier Worldwide Magazine

January 2017 Issue

January 2017 Issue

Following the 1998 decision of the Court of Appeals for the Federal Circuit in the case of State Street Bank v. Signature Financial, which had held that anything resulting in a useful concrete and tangible result (such as allocation of costs between trading funds) was patentable, it became common for financial services organisations and others to file patent applications on computer-implemented business methods and novel financial instruments.

This practice came to a grinding halt 2014 when the Supreme Court in Alice v. CLS Bank reaffirmed the traditional view that patents could not be granted for abstract ideas and, without giving any precise definition as to what was an abstract idea, held that claims directed to methods of reducing risk in exchanging obligations in stock and currency trades were not patent eligible because the concept of intermediated settlement [claimed in the present case] is “a fundamental economic practice long prevalent in our system of commerce” and so should be considered an unpatentable abstract idea unless the patent was restricted to an inventive way of implementing that idea, which was not the case.

Some computer-related inventions remain patentable, but only if they meet tough conditions discussed below. Interest has therefore grown in other forms of protection, more specifically copyright and trade secret law.

Patent law

Patent law is federal and since all appeals on patent matters lie with the same appeal court, the Court of Appeals for the Federal Circuit is uniform across the country.

Although Judge Meyer of the Federal Circuit has expressed the view that software should not be patentable, the case law has recognised that sometimes software inventions are patentable. Thus in DDR Holdings LLC v. Hotels.com, the Federal Circuit upheld a patent for an invention related to an e-commerce outsourcing system in which a potential customer was exposed to a page that was a composite of the page on which he or she was browsing and a page containing content of a third party merchant.

After noting that such a system did not fall within one of the types of invention clearly stated by the Supreme Court to be abstract ideas (mathematical algorithms and fundamental economic or longstanding commercial practices), the court concluded that the invention was not merely performance on the internet of some business practice known from the pre-internet but was necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.

In Enfish LLC v. Microsoft Corp., the invention was a model for a computer database which, contrary to conventional models, included all data entities in a single table, with column definitions provided by rows in that same table, effectively making the database ‘self-referential’. The Court of Appeal for the Federal Circuit found that the claimed invention was not an abstract idea as this term had been used by the Supreme Court, but rather a specific improvement to the way computers operate. This being the case, the invention’s ability to run on a general-purpose computer did not doom it.

The court noted: “Much of the advancement made in computer technology consists of improvements to software that, by their very nature, may not be defined by particular physical features but rather by logical structures and processes. We do not see [in the case law] an exclusion to patenting this large field of technological progress”.

In BASCOM Global Internet Services Inc. v. AT&T Mobility LLC, the Court of Appeals for the Federal Circuit found that the invention related to an abstract idea, but that the way in which it was implemented was sufficiently inventive to make the invention patentable. The claimed invention was directed to a content filtering system to enable employers to limit internet services accessed by employees using a plurality of logical filtering elements and a remote ISP server to associate network accounts with specific filtering elements.

After noting that “an inventive concept can be found in the non-conventional and non-generic arrangement of known conventional pieces”, the court found that the arrangement gave the filtering tool both the benefits of a filter on a local computer and the benefits of a filter on the ISP server and that the patent did not pre-empt the use of the abstract idea of filtering content on the internet or on generic computer components performing conventional activities.

The Federal Circuit also upheld the patent eligibility of a computer-related invention in McRO Inc. v. Bandai Namco Games America Inc., where the claims were directed to a multi-step method for automatically animating lip synchronisation and facial expression of three dimensional animated characters for display on a screen. Use of the specified steps enabled animators to reduce or eliminate manual ‘clean-up’ that had been required with older techniques.

This was not simply a patent for the abstract idea of use of automated rules-based targets for lip-synchronised animation but rather an ordered combination of specific rules that rendered information into a specific format that is then used and applied to create desired results. The specific structure of the rules required to implement the invention meant that there were many other approaches to implement the abstract idea of automating lip synchronisation using rules, and so the patent did not monopolise all ways of implementing that abstract idea.

Many other cases have, however, been rejected as being simply routine computerisation of abstract ideas or procedures that were previously carried out manually. Practically, therefore, patent protection is now limited to inventions which improve the operation of a computer or use novel software to produce a new or improved technical result.

Copyright law

Copyright law is again a matter of federal law and, at first sight, copyright law might seem the most logical means for protection of software. There is, however, a difficulty. The statute provides that copyright protection does not extend to any idea, procedure, process, system, method of operation, concept, principle or discovery, only to particular expressions of such ideas, etc. Copyright protection exists for original works fixed in a tangible medium of expression and is infringed by unauthorised reproduction, preparation of derivative works, distribution and public performance and display of the copyrighted work and distribution of a computer program (including any tape, disk or other medium embodying such a program) for direct or indirect commercial advantage by way of rental, lease or lending.

The main issue that arises with respect to use of copyright to protect software lies in determining whether what is claimed to be protected is simply an unprotectable idea or a protectable expression of an idea. Early case law (which may still be relevant in the Third Circuit) took the view that the “look and feel” of a program was protectable. Subsequently, however, many courts took the view that this test was too broad and the abstraction-filtration-comparison test was adopted in which in the first step a determination was made as to whether the program was in effect simply an idea.

The second step involved filtering out elements dictated by efficiency, elements dictated by external factors, and elements taken from the public domain, and finally a comparison made between what remained of the program after filtration and the alleged infringement. For many years following the decision of the First Circuit Court of Appeals in Lotus Development v. Borland, there was considerable doubt as to whether the structure of a computer program (as opposed to the actual code itself) could be protected by copyright.

However, interest in the use of copyright for this purpose revived after the Federal Circuit Court of Appeals 2014 decision in Oracle America Inc. v. Google Inc., where the court held that notwithstanding the fact that Google had written its own implementing code for application programming interfaces (APIs) for use with Java, the fact that it had copied the structure, sequence and organisation (SSO) of part of its program from Oracle could result in there being copyright infringements.

The decision is controversial in the software industry and its effect in this particular dispute was severely dampened by a May 2016 jury determination that Google had a valid defence of fair use in view of the role of APIs in providing for interoperability between programs, but the basic holding that a program’s structure if it is sufficiently creative may be protected by copyright has not been overruled.

Trade secrets laws

Until 11 May 2016, trade secrets law in the United States was essentially a matter of state law. However, on that date, the president signed the federal Defend Trade Secrets Act, which came into effect immediately. Among other things, the new law created a civil right of action in the federal district courts for those who have suffered misappropriation of a trade secret related to a product or service used in or intended for use in interstate or foreign commerce, and creates a

new right of civil seizure whereby, in extraordinary circumstances, a court may grant an ex parte application providing for seizure of property necessary to prevent the propagation or dissemination of a trade secret.

In order to qualify for protection, the owner of the trade secret must have taken reasonable measures to keep such information secret; and the information in question must derive independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable through proper means by another person who can obtain economic value from the disclosure or use of the information. This means that to preserve the right to bring an action for misappropriation of a trade secret, the owner should make sure that all relevant personnel are bound by confidentiality agreements, probably including provisions allowing the owner of the secret to check their computers and require assurances when the employee changes jobs.

It also means that the owner of the secret must have taken reasonable steps to maintain the physical security of the secret, for example maintenance of source code in password-protected computers having effective passwords, with periodic changes of password, or if in tangible form maintained in a safe. The new law also provides some immunity for employees who disclose trade secrets as ‘whistleblowers’ and limits remedies against employees who disclose trade secrets unless they have been advised of such immunity should they in fact act as whistleblowers.


John Richards is of counsel at Ladas & Parry LLP. He can be contacted on +1 (212) 708 1915 or by email: jrichards@ladas.com.

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