• Federal Circuit Continues to Struggle with Patent Eligible Subject Matter Disputes
  • May 16, 2013 | Authors: James Moore Bollinger; Timothy P. Heaton; Daniel A. Ladow
  • Law Firm: Troutman Sanders LLP - New York Office
  • In CLS Bank Int’l et al v. Alice Corp. Pty. Ltd (Slip Op. Fed. Cir. May 10, 2013), the full Federal Circuit issued perhaps its most divided resolution on the controversial patent eligibility issue. The potential impact of this ruling should not be underestimated. As Judge Moore opined in dissent:

    Holding that all of these claims are directed to no more
    than an abstract idea gives staggering breadth to what is
    meant to be a narrow judicial exception. And let’s be
    clear: if all of these claims, including the system claims,
    are not patent-eligible, this case is the death of hundred
    of thousands of patents, including all business method,
    financial system, and software patents as well as many
    computer implemented and telecommunications patents.

    (Moore Slip Op. at p. 2). But even on this the Court disagreed, as Chief Judge Rader found no precedential effect beyond the judgment (See infra).

    What is crystal clear is that - absent Supreme Court consideration - all four of Alice’s patents on a computer trading platform are now invalid as covering patent ineligible “abstract ideas.” However, as indicated by their six different opinions, there is no agreement in the Federal Circuit on the proper rationale for that result and how such issues should be determined.

    By leaving the boundaries of what is patentable largely unresolved, the Federal Circuit (compounding issues raised by the Supreme Court’s decision in Prometheus) has raised serious questions regarding the validity of thousands of issued patents in the software, Internet and financial area, and injected significant uncertainty regarding potential infringement liability in these fields.

    Indeed, the several fractured opinions couldn’t even agree whether the full Court was equally divided - or not - emblematic of an issue that continues to defy clear judicial guidance. In addition to eroding patent protection for software-based innovations and computerized business methods, the lack of a consensus as to how such analyses should be made will likely vex district courts, businesses and litigants seeking to address these questions.

    * * *

    The invention at issue here involved 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.”

    The Lower Court Proceedings

    CLS Bank sued, in District Court for the District of Columbia, Alice Corporation (Alice), seeking to have Alice’s patents declared invalid, not infringed and unenforceable. The dispute involved four patents of Alice, all stemming from the same original application filed over a decade ago.

    In response to CLS Bank’s motion for summary judgment of invalidity under Section 101, the District Court ruled that all of the asserted patent claims were invalid as improperly covering an “abstract idea.” Initially the Federal Circuit reversed, finding that the Alice claims were patent eligible; CLS Bank sought rehearing en banc, which the Federal Circuit granted.

    The Per Curiam Decision and Concurrences

    In affirming the District Court judgment of invalidity as patent ineligible, the ten federal circuit judges issued the Court’s ruling “per curiam” but then wrote six different opinions spanning 135 pages, including strong dissents by Judges Moore, Newman and Linn, and “Additional Reflections” by Judge Rader.

    Judge Lourie wrote the lead concurring opinion on behalf of five of the judges (Judges Lourie, Dyk, Prost, Reyna and Wallach), a narrative summarizing the seminal U.S. Supreme Court cases on patent eligibility, and in particular, last year’s Mayo v. Prometheus decision (132 S.Ct. 1289 (2012)) discussing the need for substantive limitations beyond the abstract idea or law of nature:

    The Supreme Court held that those claims failed the
    § 101 test for subject-matter eligibility. The Court began
    its analysis by noting that the claims “set forth laws of
    nature-namely, relationships between concentrations of
    certain metabolites in the blood and the likelihood that a
    dosage of a thiopurine drug will prove ineffective or cause
    harm.” Id. at 1296. Therefore, the question was “whether
    the claims do significantly more than simply describe
    these natural relations”; did they “add enough” to the
    natural law to render the claimed processes patent eligible?
    Id. at 1297.

    (Lourie Slip Op. at p. 14).

    These five judges found all claims at issue - method, software and system claims - invalid as “abstract.” In discussing what more is needed in the claim - beyond the abstract idea - the court (or at least five of its members) clarified its view on the “inventive concept” as an indication of patent eligibility, one that did not turn on traditional notions of inventiveness:

    The requirement for substantive claim limitations beyond
    the mere recitation of a disembodied fundamental
    concept has “sometimes” been referred to as an “inventive
    concept.” See Mayo, 132 S. Ct. at 1294 (citing Flook, 437
    U.S. at 594).We do not read the Court’s occasional use of
    that language in the § 101 context as imposing a requirement
    that such limitations must necessarily exhibit
    “inventiveness” in the same sense as that term more
    commonly applies to two of the statutory requirements for
    patentability, i.e., novelty and nonobviousness. See 35
    U.S.C. §§ 102, 103.

    (Lourie Slip Op. at p. 19).

    In ruling that the mere use by a computer that was “routinely” adapted by software did not save a system claim on an abstract idea, the Lourie opinion states:

    A particular computer system, composed of wires, plastic, and
    silicon, is no doubt a tangible machine. But that is not the question.
    The question we must consider is whether a patent claim that
    ostensibly describes such a system on its face represents something
    more than an abstract idea in legal substance. Claims to computers
    were, and still are, eligible for patent. No question should have
    arisen concerning the eligibility of claims to basic computer
    hardware under § 101 when such devices were first invented. But
    we are living and judging now (or at least as of the patents’ priority
    dates), and have before us not the patent eligibility of specific types
    of computers or computer components, but computers that have
    routinely been adapted by software consisting of abstract ideas, and
    claimed as such, to do all sorts of tasks that formerly were performed
    by humans. And the Supreme Court has told us that, while avoiding
    confusion between §101 and §§102 and 103, merely adding existing
    computer technology to abstract ideas-mental steps-does not as a
    matter of substance convert an abstract idea into a machine.

    (Lourie Slip Op. at p. 37).

    Judge Rader issued an opinion concurring that the method and software claims are not patentable, but stating that he would find the “system” claims patentable. He noted that the Court was divided on the patent eligibility of the system claims; and that as to the method claims, while a majority agreed they were invalid, there was no majority on the reasoning to reach this conclusion - thus resulting in “nothing said today beyond our judgment has the weight of precedent.” (Rader Slip. Op. at n.1).

    In addressing the need for “meaningful” limitations beyond the law of nature or abstract idea, the Chief Judge applied the “concrete” terminology from the Court’s controversial State Street decision, stating:

    The relevant inquiry must be whether a claim includes
    meaningful limitations restricting it to an application,
    rather than merely an abstract idea. See
    Prometheus
    , 132 S. Ct. at 1297 (“[D]o the patent claims
    add enough to their statements of the correlations to allow
    the processes they describe to qualify as patent-eligible
    processes that apply natural laws ... An abstract idea is one
    that has no reference to material objects or specific
    examples-i.e., it is not concrete. See Merriam-Webster’s
    Collegiate Dictionary 5 (11th ed.2003) (defining abstract
    as “disassociated from any specific instance . . . expressing
    a quality apart from an objectpoem is concrete,
    poetry is [abstract]>”). A claim may be premised on an
    abstract idea-the question for patent eligibility is whether
    the claim contains limitations that meaningfully tie that idea
    to a concrete reality or actual application of that idea.

    (Rader Slip. Op. at p. 16; State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368, 1373 (Fed. Cir. 1998)).

    In assessing computer related claims, Judge Rader focused on the specific qualities of the claimed computer implementation:

    The key to this inquiry is whether the claims tie the
    otherwise abstract idea to a specific way of doing something
    with a computer, or a specific computer for doing
    something; if so, they likely will be patent eligible, unlike
    claims directed to nothing more than the idea of doing
    that thing on a computer

    (Rader Slip Op. at p. 21).

    Next Steps - the Supreme Court’s Upcoming Myriad Decision

    The patent eligibility issue is now before the Supreme Court on the specific issue of whether isolated DNA can be patented. Arguments were held in April 2013 and a decision may issue as early as next month. While a completely different area of technology, some of the issues unresolved by CLS Bank may be addressed by Myriad.