On February 8, 2013, the Court of Appeals for the Federal Circuit heard en banc oral argument in CLS Bank v. Alice Corporation. This case concerns whether claims covering computer-implemented methods, systems, and products for exchanging a financial obligation recite patent-eligible subject matter under 35 U.S.C. § 101.
Background
On March 9, 2011, the U.S. District Court for the District of Columbia granted CLS Bank’s motion for summary judgment and held invalid under 35 U.S.C. § 101 the claims of four patents asserted by Alice Corporation. CLS Bank Int'l v. Alice Corp., 768 F. Supp. 2d 221 (D.D.C. 2011). The patents claimed computer-implemented methods, systems, and products for reducing settlement risk in computerized trading platforms. In particular, the patented methodology permitted the exchange of financial obligations between trading parties only if there was an adequate end-of-day balance in so-called “shadow” debit and credit records that were created and adjusted by a computer maintained by an independent intermediary.
The district court held the patent claims to be directed to patent-ineligible abstract ideas, not unlike the abstract, risk-reducing hedging method previously invalidated in Bilski v Kappos, 130 S. Ct. 3218, 3225 (2010). The district court stated that a method “directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk” is a “basic business or financial concept,” and that a “computer system merely ‘configured’ to implement an abstract method is no more patentable than an abstract method that is simply ‘electronically’ implemented.” CLS Bank, 768 F.Supp. 2d at 242-255.
On appeal, a split Federal Circuit panel reversed. Judge Linn, joined by Judge O’Malley, held that a computer-implemented invention is not ineligible under 35 U.S.C. § 101 unless it is “manifestly evident” that the claims cover an abstract idea; that is, “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.” CLS Bank Int'l v. Alice Corp., 685 F.3d 1341, 1352 (Fed. Cir. 2012).
The majority faulted the district court for improperly “look[ing] past the details of the claims,” and by doing so, “treat[ing] the claims as encompassing nothing more than fundamental truths . . . .”. Id. at 1353. A district court, said the majority, cannot “ignor[e] claim limitations in order to abstract a process down to a fundamental truth,” but must instead “consider the scope and content of the claims.” Id. Claim limitations relating to shadow records, transactions, and electronic adjustments, were deemed to be “integral” to the method, and to “play a significant part in permitting the method to be performed,” and were not “token post-solution activity.” Further, claim limitations that required the use of specific shadow records “leave broad room for other methods of using intermediaries to help consummate exchanges,” and “do not appear to preempt much in the way of innovation.” Id. at 1355-56.
Judge Prost dissented, indicating that the recently decided Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), required that to be patent-eligible under § 101, patent claims must include an “inventive concept”; she therefore criticized the new “manifestly evident” standard (see above) as “more of an escape hatch than a yardstick.” Id. at 1357 (Prost, J., dissenting). She particularly questioned the method claims, which she said could be distilled into “plain English” to be nothing more than an abstract and ancient method of credit intermediation. Id.
On October 9, 2012, the Federal Circuit vacated the panel and ordered rehearing en banc, with the parties requested to brief these matters: “what test should the court adopt” to determine whether a computer-implemented invention is a patent-ineligible “abstract idea;” whether the presence of a computer in a claim could ever make patent-ineligible subject matter patentable; and whether method, system, and media claims should be considered equivalent under § 101.
The Oral Argument
Judge Newman opened the questioning, asking for a definition of “abstract idea.” CLS Bank’s attorney maintained that any “purely mental” process is abstract and thus patent-ineligible, and argued that Alice Corp.’s claims fit this definition because the claimed computer merely performs the mental steps more efficiently.
Judge Moore disagreed. She reviewed a claim-at-issue, found it to contain four distinct hardware components that were described in detail in over two columns of the specification, and concluded that this was “so far from just a computer doing an abstract idea.” Judge Moore reasoned that software should be patent-eligible because it limits the functionality of patent-eligible computers. Judge Linn, who authored the panel decision, likewise focused on the actual limitations of the claims and emphasized that they could not be distilled to a simple accounting function or other “essential summary” for § 101 purposes.
The distinction between method, system, and media claims was raised by Judge Lourie, the author of the panel decision in Bancorp Services., L.L.C. v. Sun Life Assurance Co., which had held invalid under § 101 a computer-implemented financial services process – just seventeen days after the panel decision in CLS Bank. 687 F.3d 1266, 1281 (Fed. Cir. 2012). CLS Bank’s attorney insisted that the differences were immaterial in this case, because Alice Corp. conceded during prosecution that the system and media inventions were not “patentably distinct” by filing terminal disclaimers over the first method patent.
The Patent and Trademark office, arguing for the United States as amicus curiae, did not offer a bright-line § 101 rule but rather proposed a series of factors in light of Bilski and Mayo. Under this approach, the fact-finder would consider whether the process improved computing technology, and whether the computer was inseparable from the process or merely a stand-alone add on.
Judge Dyk, reiterating the Supreme Court’s concern in Mayo, asked whether there were ways of adjusting these transactions that did not infringe, or whether the entire field was preempted by the patent. This prompted a discussion of how to define the field; proposals included “minimizing risk in international exchange transactions,” “settling trades,” and “settlement, transaction-by-transaction, using shadow records.” Alice Corp.’s attorney argued that the detailed, particularized claims permit numerous non-infringing methods and are patent-eligible, even if, as Judge O’Malley suggested, they were construed to not require a machine. He added that the significant or essential role of the computer in Alice Corp.’s claims distinguished them from the claims invalidated in Bancorp.
The oral argument revealed a variety of approaches to § 101; and a divided opinion seems likely. Past en banc opinions have issued approximately four months after the oral argument, and the CLS Bank decision will be awaited with interest.
