Federal Circuit Splinters on the Topic of Patent Eligibility Criteria in CLS Bank Int'l v. Alice Corp.

May 21, 2013

By: N. Scott Pierce

Hamilton Brook Smith Reynolds Alert

  • All claims held invalid without an opinion by a majority of the court.
  • CLS Bank Int'l v. Alice Corp. is another "opportunity" for the Supreme Court to provide guidance.

On May 10, 2013, the en banc Court of Appeals for the Federal Circuit issued a "per curiam" opinion holding that all of the claims at issue were invalid for being directed to ineligible patent subject matter under Section 101 of the Patent Act, Title 35 of the United States Code.  The decision affirms the United States District Court for the District of Columbia's grant of summary  judgment against the patent holder, Alice Corp. ("Alice"), and in favor of CLS Bank International ("CLS"), and replaces an earlier decision by a panel of the Federal Circuit  holding that the claims at issue were all patent eligible.  No explanation was given by a majority.  Instead, five separate opinions, variously concurring and dissenting in-total or in-part, accompanied the decision.  As a result, there will be no precedential value outside the holding of invalidity.
 
Section 101 states that "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new or useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title."  In order to prevent exclusionary rights of patents from pre-empting the "fundamental tools of discovery, so that they remain 'free to all ... and reserved exclusively to none,'" laws of nature, naturally occurring phenomena and abstract ideas are held to be exempt from patent protection.

Relying on the Supreme Court's most recent decision on the scope of eligible subject matter in Mayo v. Prometheus, Judge Lourie (joined by Judges Dyk, Prost, Reyna, and Wallach) stated that the "animating concern is that ... a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add 'significantly more' to the basic principle," so that claims are not "coextensive with a natural law, natural phenomenon, or abstract idea."  To that end, Judge Lourie invoked a requirement, originating with the Supreme Court case of Parker v. Flook in 1978, of an "inventive concept" which he characterized as a "genuine human contribution to the claimed subject matter."  Further reiterating previous Supreme Court precedent, Judge Lourie stated that there is no "bright-line test" of patent eligibility.  Rather, "the § 101 standard will vary based on the balance of factors at play in each case."
 
The claims at issue would generally be considered "business methods" and were broken down into three categories:  methods of exchanging obligations between parties ("method claims"); data processing systems for directing an exchange of obligations ("system claims"); and computer-readable media containing a program code for directing an exchange of obligations ("computer-readable medium claims").  In finding the method claims invalid, Judge Lourie stated that "there is nothing in the asserted method claims that represents 'significantly more' than the underlying abstract idea for purposes of § 101" and, therefore, "Alice's claims to methods of financial intermediation 'would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.'"  Similarly, Judge Lourie found that the "computer-readable medium claims" were equivalent to the invalid method claims and also ineligible subject matter under Section 101, despite being in the generally-accepted "Beauregard" claim format (e.g. reciting a tangible storage means, such as a computer disk).  Lastly, Judge Lourie found that the "system claims," which were directed to a data processing system to enable the exchange of an obligation between parties, "did not support any meaningful distinction from the computer-based limitations that failed to supply an 'inventive concept' to the related method claims."  Judge Lourie concluded that, "merely adding the existing computer technology to abstract ideas -  mental steps - does not as a matter of substance convert an abstract idea into a machine," and that, therefore, "[a]bstract methods do not become patent-eligible machines by being clothed in computer language."

Chief Judge Rader, along with Judges Linn, Moore, and O'Malley, concurring-in-part and dissenting-in-part, stated that "any requirement for 'inventiveness' beyond sections 102 [novelty] and 103 [nonobviousness] is inconsistent with the language and intent of the Patent Act."  Therefore, "any analysis of subject matter eligibility for a patent must begin by acknowledging that any new and useful process, machine, composition of matter, or manufacture, or improvement thereof, is eligible for patent protection."  Judge Rader noted that Judge Lourie's "reference to an 'inventive concept' in Prometheus ... imbues it with a life that is neither consistent with the Patent Act's description of Section 101 nor with the totality of Supreme Court precedent regarding the narrow exceptions thereto."  He also disagreed with Judge Lourie's assessment that a computer, in Judge Rader's words, "must do something other than what a computer does before it may be considered to be a patent-eligible invention."  For Judge Rader, the "'abstract idea' present is not disembodied at all, but is instead integrated into a system utilizing machines," and, therefore, the "system claims" should not be held invalid as ineligible patent subject matter under Section 101.  Judge Rader, however, concurred with Judge Lourie regarding the ineligibility of the method claims and the computer-readable medium claims.
 
Attacking Judge Lourie's finding that the system claims of Alice's patents were ineligible patent subject matter, Judge Moore, with Chief Judge Rader and Judges Linn and O'Malley, dissenting-in-part, inquired why, if a general-purpose computer would satisfy Section 101, "would claiming the same computer with specific programming (thus creating a special-purpose computer), transform a patent eligible machine into a patent ineligible abstract idea?"  Judge Moore proposed that a "machine ceases to be a general purpose computer when it is running software.  It does not, however, by virtue of the software it is running, become an abstract idea."  Judge Moore further stated that the "Federal Circuit is irreconcilably fractured over these system claims" and saw the result to be a "free fall of our patent system."  She charged that, "if all of these claims, including system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business methods, financial system, and software patents as well as many computer implemented and telecommunications patents."  According to Judge Moore, "there has never been a case which can do more damage to the patent system than this one" and "[i]f the reasoning of Judge Lourie's opinion were adopted, it would decimate the electronics and software industries."   She concluded:  "This case presents an opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter."

Judge Newman, concurring-in-part and dissenting-in-part, lamented the "judicial deadlock" consequent to the Federal Circuit's "failed" efforts to "remedy distortions flowing from inconsistent precedent on Section 101."  For her part, Judge Newman believed that the concern of courts over preempting laws of nature, natural phenomena and abstract ideas stems from a general misunderstanding about the "public's right to study the scientific and technologic knowledge contained in patents."  The "misunderstanding" is that experimental use of patented subject matter is not permissible if there is any kind of commercial intent which, according to Judge Newman, is supported by "neither the statute nor any past Supreme Court precedent."  According to Judge Newman, "patents do not prevent experimentation with patented subject matter, whether the purpose is scientific knowledge or commercial potential.  To hold otherwise would be to deny a foundation of the system of patents."  Judge Newman would hold that the method, computer-readable medium, and system claims are all eligible under Section 101.
 
Separately, Judges Linn and O'Malley dissented from the court's judgment and from Chief Judge Rader's and Judge Moore's portion of their collective opinion.  According to Judges Linn and O'Malley, the method claims were construed far more broadly than had been stipulated by the parties before the district court.  All of the claims, whether directed to a method, system, or computer-readable media, were limited to "electronic implementation," at the district court level, and were, for Judges Linn and O'Malley, drawn to patent eligible subject matter. 
 
Finally, Judge Rader, in "Additional Reflections," considered his early experience as a Federal Circuit Judge and implored, as he did then:  "When all else fails, consult the statute!"  In other words, assessments of eligibility should be dictated by the language of Section 101, and not by "undefined and unproven judicial abstractions like 'abstractness' or 'preemption.'"

With the splintering of the Federal Circuit's en banc effort to resolve the issue of statutory patent subject matter eligibility of the system, method, and computer-readable medium claims at issue in CLS Bank International v. Alice Corporation, it seems likely that, once again, the Supreme Court will be called upon to provide guidance under the seemingly straightforward threshold requirement of patent eligibility under Section 101. 
 

Overview

May 21, 2013

By: N. Scott Pierce

Hamilton Brook Smith Reynolds Alert

  • All claims held invalid without an opinion by a majority of the court.
  • CLS Bank Int'l v. Alice Corp. is another "opportunity" for the Supreme Court to provide guidance.

On May 10, 2013, the en banc Court of Appeals for the Federal Circuit issued a "per curiam" opinion holding that all of the claims at issue were invalid for being directed to ineligible patent subject matter under Section 101 of the Patent Act, Title 35 of the United States Code.  The decision affirms the United States District Court for the District of Columbia's grant of summary  judgment against the patent holder, Alice Corp. ("Alice"), and in favor of CLS Bank International ("CLS"), and replaces an earlier decision by a panel of the Federal Circuit  holding that the claims at issue were all patent eligible.  No explanation was given by a majority.  Instead, five separate opinions, variously concurring and dissenting in-total or in-part, accompanied the decision.  As a result, there will be no precedential value outside the holding of invalidity.
 
Section 101 states that "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new or useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title."  In order to prevent exclusionary rights of patents from pre-empting the "fundamental tools of discovery, so that they remain 'free to all ... and reserved exclusively to none,'" laws of nature, naturally occurring phenomena and abstract ideas are held to be exempt from patent protection.

Relying on the Supreme Court's most recent decision on the scope of eligible subject matter in Mayo v. Prometheus, Judge Lourie (joined by Judges Dyk, Prost, Reyna, and Wallach) stated that the "animating concern is that ... a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add 'significantly more' to the basic principle," so that claims are not "coextensive with a natural law, natural phenomenon, or abstract idea."  To that end, Judge Lourie invoked a requirement, originating with the Supreme Court case of Parker v. Flook in 1978, of an "inventive concept" which he characterized as a "genuine human contribution to the claimed subject matter."  Further reiterating previous Supreme Court precedent, Judge Lourie stated that there is no "bright-line test" of patent eligibility.  Rather, "the § 101 standard will vary based on the balance of factors at play in each case."
 
The claims at issue would generally be considered "business methods" and were broken down into three categories:  methods of exchanging obligations between parties ("method claims"); data processing systems for directing an exchange of obligations ("system claims"); and computer-readable media containing a program code for directing an exchange of obligations ("computer-readable medium claims").  In finding the method claims invalid, Judge Lourie stated that "there is nothing in the asserted method claims that represents 'significantly more' than the underlying abstract idea for purposes of § 101" and, therefore, "Alice's claims to methods of financial intermediation 'would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.'"  Similarly, Judge Lourie found that the "computer-readable medium claims" were equivalent to the invalid method claims and also ineligible subject matter under Section 101, despite being in the generally-accepted "Beauregard" claim format (e.g. reciting a tangible storage means, such as a computer disk).  Lastly, Judge Lourie found that the "system claims," which were directed to a data processing system to enable the exchange of an obligation between parties, "did not support any meaningful distinction from the computer-based limitations that failed to supply an 'inventive concept' to the related method claims."  Judge Lourie concluded that, "merely adding the existing computer technology to abstract ideas -  mental steps - does not as a matter of substance convert an abstract idea into a machine," and that, therefore, "[a]bstract methods do not become patent-eligible machines by being clothed in computer language."

Chief Judge Rader, along with Judges Linn, Moore, and O'Malley, concurring-in-part and dissenting-in-part, stated that "any requirement for 'inventiveness' beyond sections 102 [novelty] and 103 [nonobviousness] is inconsistent with the language and intent of the Patent Act."  Therefore, "any analysis of subject matter eligibility for a patent must begin by acknowledging that any new and useful process, machine, composition of matter, or manufacture, or improvement thereof, is eligible for patent protection."  Judge Rader noted that Judge Lourie's "reference to an 'inventive concept' in Prometheus ... imbues it with a life that is neither consistent with the Patent Act's description of Section 101 nor with the totality of Supreme Court precedent regarding the narrow exceptions thereto."  He also disagreed with Judge Lourie's assessment that a computer, in Judge Rader's words, "must do something other than what a computer does before it may be considered to be a patent-eligible invention."  For Judge Rader, the "'abstract idea' present is not disembodied at all, but is instead integrated into a system utilizing machines," and, therefore, the "system claims" should not be held invalid as ineligible patent subject matter under Section 101.  Judge Rader, however, concurred with Judge Lourie regarding the ineligibility of the method claims and the computer-readable medium claims.
 
Attacking Judge Lourie's finding that the system claims of Alice's patents were ineligible patent subject matter, Judge Moore, with Chief Judge Rader and Judges Linn and O'Malley, dissenting-in-part, inquired why, if a general-purpose computer would satisfy Section 101, "would claiming the same computer with specific programming (thus creating a special-purpose computer), transform a patent eligible machine into a patent ineligible abstract idea?"  Judge Moore proposed that a "machine ceases to be a general purpose computer when it is running software.  It does not, however, by virtue of the software it is running, become an abstract idea."  Judge Moore further stated that the "Federal Circuit is irreconcilably fractured over these system claims" and saw the result to be a "free fall of our patent system."  She charged that, "if all of these claims, including system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business methods, financial system, and software patents as well as many computer implemented and telecommunications patents."  According to Judge Moore, "there has never been a case which can do more damage to the patent system than this one" and "[i]f the reasoning of Judge Lourie's opinion were adopted, it would decimate the electronics and software industries."   She concluded:  "This case presents an opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter."

Judge Newman, concurring-in-part and dissenting-in-part, lamented the "judicial deadlock" consequent to the Federal Circuit's "failed" efforts to "remedy distortions flowing from inconsistent precedent on Section 101."  For her part, Judge Newman believed that the concern of courts over preempting laws of nature, natural phenomena and abstract ideas stems from a general misunderstanding about the "public's right to study the scientific and technologic knowledge contained in patents."  The "misunderstanding" is that experimental use of patented subject matter is not permissible if there is any kind of commercial intent which, according to Judge Newman, is supported by "neither the statute nor any past Supreme Court precedent."  According to Judge Newman, "patents do not prevent experimentation with patented subject matter, whether the purpose is scientific knowledge or commercial potential.  To hold otherwise would be to deny a foundation of the system of patents."  Judge Newman would hold that the method, computer-readable medium, and system claims are all eligible under Section 101.
 
Separately, Judges Linn and O'Malley dissented from the court's judgment and from Chief Judge Rader's and Judge Moore's portion of their collective opinion.  According to Judges Linn and O'Malley, the method claims were construed far more broadly than had been stipulated by the parties before the district court.  All of the claims, whether directed to a method, system, or computer-readable media, were limited to "electronic implementation," at the district court level, and were, for Judges Linn and O'Malley, drawn to patent eligible subject matter. 
 
Finally, Judge Rader, in "Additional Reflections," considered his early experience as a Federal Circuit Judge and implored, as he did then:  "When all else fails, consult the statute!"  In other words, assessments of eligibility should be dictated by the language of Section 101, and not by "undefined and unproven judicial abstractions like 'abstractness' or 'preemption.'"

With the splintering of the Federal Circuit's en banc effort to resolve the issue of statutory patent subject matter eligibility of the system, method, and computer-readable medium claims at issue in CLS Bank International v. Alice Corporation, it seems likely that, once again, the Supreme Court will be called upon to provide guidance under the seemingly straightforward threshold requirement of patent eligibility under Section 101. 
 

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