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Intellectual Property Law in Cloud Computing | @CloudExpo [#Cloud]

Part I: Letting the sun shine: getting IP rights despite challenges

You would have to be living under a rock not to notice that everything's going to the clouds, not the dogs. The cloud industry has continued to demonstrate its "sky-high" potential as intellectual property (IP) rights are becoming important in preserving competitive edges, and sky is the only limit. Is it?

While intellectual property rights remain important to protect many hard-earned innovations, the news from the patent lawyers has not been as cheery. The Supreme Court's June 2014 decision in Alice Corp. v. CLS Bank and its aftershocks rocked the tech community with the fear of declaring permanent death of patents for all things computer-related. In two other cases also decided in June, the Supreme Court dealt further blows to patent holders by making it harder to prove induced or joint infringement in Limelight Networks, Inc. v. Akamai Technologies, Inc., and by making it easier to find a patent indefinite (and therefore invalid) in Nautilus, Inc. v. Biosig Instruments. All three decisions make it harder to get patents and easier for someone to invalidate the ones you already have.

What does this mean for the cloud computing industry? Is it worth trying to patent new cloud computing technologies? The answer is yes, but with increased preparedness and strategies. The days of filing quantity over quality (in terms of patent applications) are over. Filing a carefully drafted, detail-packed application will be money well spent, while filing many loosely defined, abstract, or conceptual patent applications are becoming exercises in vain. Technologies and applications developed for the cloud must still be novel and nonobvious over prior systems and what may have been implemented on earlier-vintage networks. So what are the keys to success?

1. Targeting Right Products and Services
While software-based cloud applications may be leading the growth, cloud infrastructure, systems and platforms are not far behind. Companies like Google, HP, Cisco, and Microsoft have pledged to spend billions on globally distributed data centers, networks, applications, and cloud-based services. The value of patents may well depend on where the market is heading and what applications, hardware, and services are driving the revenue, and profits.

From methods for authentication and secure data access to ways of handling and optimizing "Big Data" and managing virtual operating and file management systems, cloud technologies that are truly inventive and deserving patent protection are being developed every day. And their novelty is being recognized by the USPTO; over 120 patents having "cloud" in the titled issued in the first three months of 2015.

One key to success is planning ahead and putting careful thought into what to patent and how to patent it. The claims of a patent define the "invention" and what the patent holder can exclude others from making, selling, offering for sale, using, or importing. Claims that are too broad are not allowable whereas claims that are too narrow have limited application and are easy to design around by others. Because today's claims face higher hurdles, the descriptive portion of patent applications ("specification") must describe as many technical features as possible, and the claims must be more narrowly tailored, and preferably drafted from a single-actor perspective. The first two features helps with patentability and validity, and the last one helps with the ability to enforce the claims and seek damages.

In Akamai, the Supreme Court held that for a claim to be infringed, a single actor must perform all of the steps of a method. Given the inherent nature of cloud computing, the application may reside on one server, but some actions may be performed on another server, a client, or a mobile device. When brainstorming about what makes a claimed invention innovative, think from the perspective of each component. Is there anything novel about what happens on the mobile device? Or does novelty stem from how the data or instructions are received or handled at the server? When reviewing claims before filing, ask yourself which device in the cloud infrastructure must perform that step (which is what infringes), and whether an accused infringer could avoid infringement by having that step performed by another entity or on another component in the cloud infrastructure. Even if a claim should capture the interaction between two components in a system, a skilled patent practitioner should be able to word the claims so that each is performed by only one actor.

2. Follow the Money - Who Is Likely to Infringe and Where Are They Located?
As mentioned above, the claims are the only part of the patent that describe what the patent holder can prevent others from doing. In addition, patents are territorial, so a U.S. patent holder can only exclude entities from performing the method or making or using the product in or importing a product into the United States. When considering what aspects of your cloud inventions to patent, think about who might infringe the claim should you seek to enforce it? Claims to methods that will performed entirely by the server may be difficult to enforce if competitors host the applications outside the United States. Claims drawn to methods performed by, or devices bought by, individual users, especially customers, may be difficult or inopportune to enforce, making them consequently of less value to maintain. Such claims, however, may still be useful in preventing a competitor from offering a cloud service to U.S.-based user from a foreign location. In such cases, the U.S.-based user would be a direct infringer and the cloud services provider could be found to be an indirect infringer, as in Akamai. Enforcing such claims on entities without a U.S. presence, however, can be challenging.

Patent applications for cloud computing inventions should have at least two types of claims: 1) method claims reciting the steps of computer performs, whether in software or hardware; 2) computer system claims listing the hardware and software components of an inventive component; and 3) "computer-readable media" (CRM) claims which recite a storage medium (such as a hard drive) storing inventive software. Method claims are used to exclude others from performing actions in the same way (think the combination of steps performed by a software application) while system claims exclude be used to exclude others from selling devices that configured in the inventive way. CRM claims are useful in excluding others from selling copies of software pre-installed in a device's memory or, in the cloud context, from downloading and storing software on a device's memory.

When drafting method claims, it is wise to describe the steps as performed from one perspective, that is, in the eyes of either the client or the server. Claims may still be drafted to operations performed across multiple servers or data centers, but such claims will be more difficult - or impossible - to enforce and therefore have limited utility. If steps are performed on two separate, physical processors, if one entity would be likely to operate a virtual machine across multiple devices, consider claiming a system operating a virtual machine comprising one or more processors.

Usually, however, claims to systems that perform the novel method will be easier to enforce. Even if the system is not made in the U.S., the claims may block importation of the systems into the United States. This may provide an advantage, particularly in today's security-conscious age, where consumers are worried if their confidential data is being stored in a country without tight data privacy regulations.

3. Race to File, but Being Complete Wins the Race
There are two factors at play now that may seem inconsistent when providing patent guidance. On the one hand, since the United States became a "first-inventor-to-file" country with passing the America Invents Act (AIA) in 2012, patent applicants need to rush to file patent applications to get the earliest priority date to beat, for the purpose of getting a patent, all later filers for very similar inventions.

However, being the first to a party but arriving empty-handed wins no award. Patent applicants, especially those seeking cloud computing patents, need to provide many details and different embodiments of the inventions in a utility application. While it's tempting to keep the details away from your competitors, describing inventions generically when keeping relevant details secret invites validity attacks down the road. Last year's Nautilus, Inc. v. Biosig Instruments, Inc. decision by the Supreme Court invalidated a patent for being indefinite because it claims two electrodes having a "spaced relationship" with each other, when the patent supplied no parameters for determining the appropriate spacing. The patent owner can no longer enforce nor maintain its patent covering a heart-rate monitor for use with exercise equipment, in part because an infringer cannot determine with reasonable certainty what "spaced relationship" between two electrodes is infringing and what is not.

Because many cloud computing technologies tend to be abstract or less definite, cloud computing patents are suspects for similar challenges for indefiniteness. After Nautilus case, the history of rarely finding patents indefinite is long gone, because Nautilus mandated the shift from a high "insolubly ambiguous" standard to the standard of lacking "reasonable certainty," meaning that patents can be more easily invalidated for indefiniteness to ensure that the claims inform the public of the boundaries of what constitutes infringement of the patent.

Post-Nautilus, patentees need to explain the inner workings of any systems, particularly its implementation, and more details about the methods performed in software and how they are performed by the machines on which they are operated. State specifically which component of a cloud infrastructure is performing each step. If a step can be performed by more than one component, fully describe multiple embodiments, either in one omnibus application or in multiple applications, each targeted toward a particular cloud network component. If sufficient detail is not yet known, consider filing a provisional application with the high-level description, and additional provisional applications as the details become known. But full details should be included in the utility application claiming the benefit of the earlier provisional applications. As we will see below, providing more detail will also be useful in avoiding and overcoming rejections for lack of patent-eligible subject matter in view of Alice.

Since cloud technologies are constantly involving, it is prudent to define non-standard terms in the specification. While claims are given their "ordinary and customary meaning" as understood by a person of ordinary skill in the art per Phillips v. AWH Corp., 415 F.3d 1303, 1312-13 (Fed. Cir. 2005), claims may still be interpreted in the context of the entire patent. In one recent Federal Circuit appeal, Cardsoft, LLC v. VeriFone, Inc., the case rested on what constituted a "virtual machine," a term was not explicitly defined in the specification. The Federal Circuit looked to the specification, prosecution history, and extrinsic evidence of the state of the art when the application was filed, to reach a definition that differed from that proposed by the patentee, ultimately resulting in a finding of noninfringement.

4. The Devil Is In The (Technical) Details
The two-step test to patent-eligibility comprises two steps: 1) does a patent claim an abstract idea?; and 2) if so, does the claim contain additional elements that transform the claim into patent-eligible matter? In Alice Corp. v. CLS Bank, the Supreme Court invalidated a patent that claimed a computer-implemented method for mitigating settlement risk by using a third-party intermediary, because it merely claimed an "abstract idea". Although the invention was a computerized trading platform, the Court did explained that claims to "well-understood, routine and conventional activities previously known to the industry" performed using a generic computer system would not be patent-eligible unless the invention "improve[s] the functioning of the computer itself," or "effect[s] an improvement in any other technology or technical field."

The fear raised by Alice is not all hype. Immediately following the June 2014 decision, the Patent Office ceased granting patents on computer-implemented inventions, and district courts found such patents invalid under § 101 at an alarming rate. While the exact contours of patent eligible subject matter are still being refined by the Patent Office and the courts, the pall has lifted somewhat. Applications that claim pure business methods still face a hostile atmosphere, but patents on cloud computing inventions, however, have been issuing at an ever-increasing rate.

The USPTO's guidelines, the December 2014 "Interim Guidance on Patent Subject Matter Eligibility," include a flow chart for performing the two-step test and provide four fact patterns with claims that the USPTO considers patent eligible, and four it considers ineligible. Specifically, claims that offer improvements to another technical field or the functioning of the computer itself, or which claim a "particular machine" should be patent-eligible. Also favored are claims to methods that transform data to a different state, or which are more than conventional, known steps.

Applying these changes to cloud computing inventions, it's important to recite elements that can be described as improve the functioning of the computer, such as by improving speed of processing or the transaction itself, the amount of data that can be stored, or the security of the data or functions. On the other hand, there is little hope in seeking the allowance of claims that recite methods resembling pure business methods, or methods that can be performed solely by humans, or which have only limitations that could be characterized as "insignificant pre- or post-solution activity," like displaying, accessing, updating, or transmitting.

5. The Sky Is Still the Limit If You Keep Doing It Right
The best strategy for getting (and keeping) patents on cloud technologies is to think and act strategically and with a purpose. The purpose is to obtain rights that are patentable, to cover what your competition will need to use, to make your patents as marketable as your products, and make them defendable in the future. Therefore, one starts with a detail-packed, well-written specification that fully describes multiple embodiments, and the technical advantages that the inventions provide to one or more fields, especially those in which you and your competition compete. Consider making the first claim a very specific system claim rather than a broad method claim, because the first claim will affect which examination group is assigned, thereby affecting who examines the application. A more specific, narrow first claim may assist the examiner is more accurately defining the scope of the claim, and prevent an Alice-based rejection that may be difficult to overcome. Broader claims can be pursued in continuation applications over a period time, which gives the patentee the flexibility to adapt to future changes or refinements of the law.

What happened in the last twelve months reflects fundamental, unprecedented changes that create new hurdles and challenges for software or computer-based inventions, a domain that where most of cloud computing-related innovations fall squarely within. Patent law will continue to change as we develop new technologies. The cloud computing industry adapts quickly to technological changes and challenges, so should our strategies in protecting our intellectual property rights. Patentees will be challenged to stay current and adapt with the times, which is as easy as patenting your rights with the right products and markets in mind, packaging your patents with technical details, and racing to file with completeness that are necessary for future enforcement. After all, the sky's the limit.

More Stories By Linda Thayer

Linda Thayer focuses her practice on patent litigation and administrative trial procedures before the Patent Trial and Appeal Board (PTAB) to request review of the patentability of issued patents outside of litigation, including post-grant review, inter partes review, and review of covered business method (CBM) patents. She also advises clients on worldwide patent portfolio development, management, licensing, and sales.

More Stories By Ming-Tao Yang

Ming-Tao Yang focuses on litigating and defending against patent infringement actions in various forums, including the U.S. International Trade Commission; the federal district courts for the Northern, Central, and Southern Districts of California, the Eastern District of Texas, and the Western District of Washington; and the Court of Appeals for the Federal Circuit. He counsels clients frequently on issues relating to patent enforcement, pre-litigation investigations, patent prosecution, and license negotiations.

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