Alice Corporation: Federal Circuit Sets High Bar for Defendants Challenging Patentability

The issue of whether particular inventions include “patent eligible” subject matter under § 101 of the patent statute has become highly controversial in recent years, raising questions with high economic stakes and profound legal and philosophical implications. Twice the Supreme Court has entered the fray, first in Bilski v. Kappos in 2010, and earlier this year in Mayo Collaborative Services v. Prometheus Laboratories, Inc. Those cases seek to find the appropriate balance between fostering innovation through the constitutional mandate “(t)o promote the Progress of Science and Useful Arts...”, U.S. Const. art I, § 8, cl. 8, and declining patent protection to applications that claim laws of nature, physical phenomenon and abstract ideas.

Last week, in the wake of Prometheus, a Federal Circuit panel majority set that balance point way out on the “fostering innovation” end. CLS Bank International v. Alice Corporation PTY. LTD., 2012 WL 2708400 at *1 (Fed Cir. July 9, 2012). The patents at issue in Alice Corp. cover “a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk’.” Id. at 2. The majority of the panel (Judges Linn and O’Malley) held that the claims of the patents sufficiently tied the “trusted third party” concept to a specific application to constitute patentable subject matter. That holding was based on a new test created by the majority:

“[W]hen - after taking all of the claim recitations into consideration - it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.... Unless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible “abstract idea” under 35 U.S.C. § 101.”

Id. at 20-21 (emphasis supplied). The majority opinion’s holding and test is based on two articulated viewpoints: (1) the “abstract idea” and other exceptions to patent eligible subject matter are intended to be very narrow - otherwise those exceptions “could eviscerate patent law”; and (2) it is appropriate to limit challenges under § 101, as § 101 is but one of the four statutory sections available to defendants to attack patent validity.

In dissent, Judge Prost agreed with the district court’s holding that the patents in question reflect abstract ideas not subject to patent protection. She criticizes the majority for ignoring the guidance provided by the Supreme Court in Prometheus and Bilski, and for failing to analyze whether the patents contain an “inventive step.” Judge Prost characterizes the majority’s “manifestly evident” test as unsupported by the patent statute or recent Supreme Court decisions and as “more of an escape hatch than a yardstick.”

It remains to be seen whether future federal circuit panels will use the majority’s “manifestly evident” and “single most reasonable understanding” language as yardsticks to evaluate the patent eligibility of claims, close the escape hatch (perhaps with help from the Supreme Court), or create another ad hoc approach. For now, patent defendants face a very high threshold in challenging patents under § 101.