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Legally speaking

Updates on the Intellectual Property Front


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Supreme Court Justice Breyer announcing an opinion, illustration

Supreme Court Justice Breyer announces the majority opinion in the ABC v. Aereo case.

Credit: Arthur Lien

When intellectual property lawsuits will have important implications for computing professionals, my Legally Speaking columns often assess the merits of the claims, sometimes before appellate courts have completely resolved the issues. This column discusses three significant rulings rendered in June 2014 in cases discussed in previous columns and provides an update on the state of play for each.

Two were U.S. Supreme Court decisions. First, a unanimous U.S. Supreme Court ruled against a computer-implemented invention in the Alice v. CLS Bank case. (My November 2013 column predicted this result.)

In a second, the Court ruled that Aereo infringed copyrights in ABC's broadcast television programs because of Aereo's role in transmitting programs to customers to watch on Internet-connected devices. (My July 2014 column said the case was too close to call, and the Court split 6–3 on it.)

Earlier in June, an appellate court ruled that mass-digitizing books to create a full-text searchable database that enhances public access to information without harming the market for the books is fair use. (My March 2013 column predicted this result.)

For those whose thirst for news on the intellectual property front has not been sated by this quick roundup, I offer below a recap and some commentary on the decisions.

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Alice v. CLS Bank

Alice Corp. owned a set of patents directed to a computer-implemented means of mitigating losses in settlements of financial transactions so that money would only flow in appropriate directions when both parties to each transaction had completed their obligations.

Alice asserted that a CLS computer program infringed these patents. CLS challenged the validity of these patents, relying on recent Supreme Court opinions.

The Court of Appeals for the Federal Circuit (CAFC) initially ruled that Alice's computer-implemented claims were valid. But after rehearing the case with all 10 sitting judges, a divided CAFC ruled that the method and the medium claims were unpatentable under Supreme Court precedents.

However, the court split 5-5 on the system claims. Some judges thought all three types of claims were invalid; some thought the system claims were patentable because they were more technological than the method or medium claims.

The issue before the Supreme Court was whether Alice's claim were eligible subject matter for patenting. In the U.S., only "machines, manufactures, compositions of matter, and processes" can be patented.

Alice asserted that its system claims were for "machines," its method claims were "processes," and its software-stored-on-a-medium claims were "manufactures" within the meaning of the statute.

Supreme Court precedents state that abstract ideas, mental processes, and scientific principles are ineligible for patenting. In 2010 in Bilski v. Kappos, for example, the Court ruled that a method of hedging risks of loss due to price fluctuations for commodities ran afoul of the "abstract idea" exclusion from patenting.

CLS analogized Alice's claims to those in Bilski, saying that claims are still too abstract even if they call for implementing a risk management strategy on a general-purpose computer. Alice mainly argued that its claims were not abstract because they were detailed.

The Supreme Court held that implementing an abstract idea on a general-purpose computer does not make it patentable and that when the claimed invention is for an abstract idea, it makes no difference whether the claim is stated in system, method, or medium terminology.

Unfortunately, the Court gave very little guidance about what makes a claim too "abstract" to be eligible for patenting. It only reinvoked its prior software-related decisions, such as the 1972 Gottschalk v. Benson decision, which rejected patent claims for a method of transforming binary coded decimals into pure binary form.

Even though several briefs urged the Court to say something about the patentability of computer program innovations, the Court did not directly address this question. However, it suggested that software innovations that improved the functioning of computers or of other technologies would likely be eligible for patents. The Court pointed to the patent at issue in Diamond v. Diehr, which claimed an improved rubber curing process that utilized a computer program.


Supreme Court precedents state that abstract ideas, mental processes, and scientific principles are ineligible for patenting.


Some of the worst software patents out there—those that claim carrying out specific functions on computers or on the Internet—are likely to be invalid after Alice. This may discourage some patent-trolling activities.

But U.S. courts have yet to develop workable criteria for sorting out which software innovations are patentable and which are not. Because of this, Alice has cast a shadow over the validity of patents on even highly novel and nonobvious innovations embodied in software.

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ABC v. Aereo

Aereo developed a system allowing its customers to select broadcast television programs to watch on Internet-connected devices. ABC and other broadcasters claimed this infringed their public performance rights in the programs.

The public performance right is defined in the statute to include "transmit[ting] or otherwise communicat[ing] a performance ... to the public, by means of any device or process, whether the members of the public capable of receiving the performance ... receive it in the same place or in separate places and at the same time or different times."

ABC likened Aereo's service to cable television retransmissions of broadcast programming, which clearly fall within the public performance right. Cable companies pay for the privilege of retransmitting programs, and these revenues are an important source of income to broadcasters these days. ABC claimed the entire broadcast television enterprise was in jeopardy if Aereo won the lawsuit.

Aereo argued it was merely supplying equipment to enable fair use copying by its customers, akin to the Sony Betamax video recording device the Supreme Court found non-infringing in 1984. Aereo and some amicus curiae briefs expressed concern that adopting ABC's theory of the public performance right would jeopardize many other technologies such as cloud computing services (for example, for backup copying purposes).

Justice Breyer wrote the majority opinion in Aereo that reversed an appellate court decision and ruled in ABC's favor. The Court found Aereo's service to be too similar to cable television retransmissions to be legally distinguishable. Cable television had once been outside that right, but in 1976 Congress redefined the public performance right to encompass cable and cable-like system transmissions.

Because Aereo transmitted the same program to multiple people at the same time, the Court thought the performance was "to the public" within the meaning of the statute. The Breyer opinion asserted the holding against Aereo was sufficiently limited in scope that it would not put other technologies, such as cloud computing services, at risk of infringement claims.

Justice Scalia's dissent asserted that Aereo did not perform the programs at issue because it did not select the programs to be viewed. Aereo merely provided a technology through which users could select programs to watch.

This dissent expressed concern about the implications of the ruling for innovation in the technology sector. Virtually all other copyright cases have rejected direct liability claims against technology developers, focusing instead on whether the developer induced its users to infringe or materially contributed to user infringements. The dissent said that courts should not fill holes in the statute through "makeshift" reasoning that would lead to many other challenges.

Communications readers can only hope that Justice Breyer's confidence in the limited scope of the ruling is borne out over time. Unfortunately, Justice Scalia may be right that the Court's interpretation of the public performance right may give rise to more litigation and to chilling effects on the development of beneficial new technologies.

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Authors Guild v. HathiTrust

HathiTrust is a consortium of academic and research institutions. It hosts a digital library of 10 million books digitized from libraries around the world. Many are copies of books that Google scanned from research library collections for its Book Search Project. HathiTrust makes public domain books available for viewing and downloads, but restricts usage of in-copyright books.

The Authors Guild sued HathiTrust and several university partners for copyright infringement. HathiTrust asserted it made fair uses of the books: first, to enable data-mining so researchers can discover books in physical library collections that are responsive to their search queries, second, to preserve copies of the works for future generations, and third, to make books more accessible to print-disabled persons.


Unfortunately, the Court gave very little guidance about what makes a claim too "abstract" to be eligible for patenting.


A trial judge ruled in HathiTrust's favor. The Guild appealed, arguing the digitization of millions of books could not possibly be fair use because it did not result in the creation of a new work of authorship (such as a biography quoting from a writer's letters), because the books copied were highly creative, because whole works were systematically copied, and because HathiTrust had preempted the development of licensing markets for these uses.

The Second Circuit Court of Appeals rejected the Guild's argument. It found the creation of a full-text searchable database of books to be "quintessentially transformative" because of the different purpose it served from the originals. Making books more findable and enabling data-mining research are consistent with the purposes of copyright law, which are to "promote the progress of Science and useful Arts." (The court had similarly positive reactions to the preservation and enhanced access for the print-disabled purposes of HathiTrust, although it sent the case back to the lower court for fact-finding on one issue.)

Because it was necessary to copy whole works to create such a database, this did not weigh much against fair use. The HathiTrust digital library did not supplant demand for the purchase of books, which is the main interest that copyrights protect. The Guild's theories of harm were too speculative to matter.

Still pending before the Second Circuit is the Guild's separate appeal from a fair use ruling in Google's favor in a case challenging the latter's scanning of books from research library collections. (Although the Guild sued Google first, some procedural complications resulted in the HathiTrust case being appealed first.)

There are two principal differences between the Google and HathiTrust cases. One is that Google is a for-profit company whereas HathiTrust is a nonprofit organization. The other is that Google provides snippets of text in response to search queries whereas HathiTrust serves up only identifying information and page numbers of books containing relevant information.

The commerciality distinction is unlikely to be determinative, but snippets do display some expression from in-copyright works. The Guild must pin its hopes of winning the appeal on the snippet difference. Google will argue that snippets, like the data-mining in HathiTrust, makes books more findable and is more likely to enhance than decrease the market for books, especially since Google provides links to libraries and online stores from which the books can be obtained.

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Conclusion

Although the game is over for Alice's patents and Aereo's service, the implications of the Alice and Aereo decisions for other software-related patents and other digital technologies are as yet unclear.

Given the HathiTrust decision, it seems likely Google will prevail in its fair use defense. It may, however, take another year or so before the Supreme Court decides whether to review the fair use rulings in the HathiTrust or Google cases. The legality of mass-digitization of in-copyright works is closer to being resolved in the U.S., but we are not quite there yet.

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Author

Pamela Samuelson (pam@law.berkeley.edu) is the Richard M. Sherman Distinguished Professor of Law and Information at the University of California, Berkeley.

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Figures

UF1Figure. Attorney Mark A. Perry represented CLS Bank in the Alice v. CLS Bank case.

UF2Figure. Supreme Court Justice Breyer announces the majority opinion in the ABC v. Aereo case.

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