Federal Circuit looks to “underlying invention” to further limit software patents

Cybersource v. Retail Decisions, No. 2009-1358 (Fed. Cir. August 16, 2011)

A panel of the Federal Circuit in Cybersource appears to have curtailed one common technique for obtaining patent protection for software. So called Beauregard claims are computer software claims couched in terms of the computer readable medium on which the software is stored. (see In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)). The U.S. Patent and Trademark Office (“PTO”) viewed these claims to be patentable subject matter under the theory that a computer program embodied in a computer readable medium defined structural and functional interrelationships between the computer and the program, and was thus statutory, even when the program claimed as a method would not be. (MPEP § 2106.01). A unanimous three-judge panel of the Federal Circuit, however, found in Cybersource that a claim to a computer readable medium storing a program for detecting credit card fraud was non-patentable subject matter, because the “underlying invention” was the program, and the program itself was not patentable subject matter. Thus, despite applicant having claimed the invention as an article of manufacture, the Federal Circuit looked past the claimed statutory class to the essence of the invention for purposes of determining subject matter eligibility.  

At issue in Cybersource was whether method and recording medium claims of U.S. Patent No. 6,029,154, recited patentable subject matter. Claim 3 recited “a method for verifying the validity of a credit card transaction over the Internet comprising the steps of: a) obtaining information about other transactions that have utilized an Internet address that is identified with the credit card information; b) constructing a map of credit card numbers based upon the other transactions and; c) utilizing the map of credit card numbers to determine if the credit card transaction is valid.” Claim 2, a so-called Beauregard claim, recited a computer readable medium containing program instructions for detecting fraud in a credit card transaction, and specifically, program instructions that cause a computer processor to obtain and verify credit card information and to perform the steps recited in claim 3.  

Addressing claim 3 first, the Federal Circuit found the claim to be so broad that all of the steps could be performed in the human mind, and thus fell within a recognized class of non-patentable subject matter. For instance, the obtaining step could be performed by simply reading records of Internet credit card transactions from a database, the construction step could be done by making a list of credit card transactions from an IP address, and the utilizing step could be done by simply observing that multiple transactions from the same IP address used different credit cards. Cybersource argued that claim 3 met the machine or transformation test because it would be impossible, and unnecessary, to perform the method of claim 3 without using the Internet. The Federal Circuit disagreed, finding that nothing in claim 3 actually required an infringer to use the Internet to obtain the data regarding Internet credit card transactions, nor did the Internet actually perform the fraud detection steps recited in claim 3.  

The Federal Circuit then addressed claim 2, the so-called Beauregard claim, and specifically whether claiming the recording medium made it patentable subject matter under 35 U.S.C. § 101. The Federal Circuit first dismissed any reliance on In re Beauregard, noting that the case was not decided on the merits, and thus did not stand for the proposition that a claim to a computer readable medium storing a program was patentable subject matter under 35 U.S.C. § 101 – simply because the claim was couched as an article of manufacture. On the contrary, the Federal Circuit stated that regardless “of what statutory category…a claim’s language is crafted to literally invoke, we look to the underlying invention for patent-eligibility purposes.” (slip op. at 17). The Federal Circuit relied on In re Abele, 684 F.2d 902 (C.C.P.A. 1982), decided nearly 30 years ago, in which an apparatus claim was treated as a method claim for patent eligibility purposes. In that case, the Court of Customs and Patent Appeals reasoned that due to the broad and functionally defined nature of the apparatus claim, it would exalt form over substance to treat it as an apparatus since the claim was really directed to the method and a series of functions itself.

The Federal Circuit found the present case to be similar to In re Abele, and concluded that “claim 2 recites nothing more than a computer readable medium containing program instructions for executing the method of claim 3.” (slip op. at 16). The Federal Circuit concluded that the “underlying invention” of claim 2 merely recited a software implementation of a purely mental process that could otherwise be performed without the use of a computer. Accordingly, the Federal Circuit held that claim 2 did not recite patentable subject matter under 35 U.S.C. § 101.

It is worth noting that less than a month after Cybersource was decided, a different three-judge panel of the Federal Circuit unanimously held that a method claim directed to distributing copyrighted content over the Internet was patentable subject matter under 35 U.S.C. § 101. Ultramercial v. Hulu, LLC., No. 2010-1544 (Fed. Cir. September 15, 2011). The Ultramercial panel found that an eleven step method claim directed to monetizing copyrighted products was patentable subject matter because it required the use of the Internet and therefore was not directed to an abstract idea. (slip op. at 10). The panel relied upon the required use of the Internet to distinguish its decision from Cybersource, pointing out that the required interaction with the consumer via the Internet is “something far removed from purely mental steps.” (emphasis in original).

The Ultramercial panel states, in dicta, its disagreement with the notion that software is undeserving of patent protection or is in and of itself abstract subject matter. Citing to In re Alappat, 33 F. 3d 1526 (Fed Cir. 1994), the Ultramercial panel stated that the Federal Circuit and the PTO have long recognized that software enhancements which allow a general purpose computer to perform specialized functions are deserving of patent protection. (slip op. at 11-12). This conclusion could be viewed as contradicting the analysis in Cybersource, and might hint at a possible division within the Federal Circuit.  

Nevertheless, the PTO Board of Appeals and Interferences has so far followed, and arguably expanded upon, the holding in Cybersource. Recently, the Board applied the “underlying invention” analysis to not only computer readable medium and method claims – but also to system and article of manufacture claims. (see Ex parte Shaffer, Appeal No. 2009-009455, Ex parte Vilalta, Appeal No. 2009-010862, and Ex parte Chan, Appeal No. 2009-010907). Thus, the PTO appears to be following Cybersource and will look only to the “underlying invention” to determine if the claim recites patentable subject matter and will require that the software be more than an implementation of a mental process. Practitioners must therefore draft claims which are sufficiently tied to physical and non-abstract steps to comply with Cybersource.