On May 10 2013 the US Court of Appeals for the Federal Circuit issued its en banc decision in CLS Bank Int'l v Alice Corp. The decision included seven separate opinions spanning 135 pages, but the only precedential portion appears to be the one-page per curiam opinion affirming the district court's holding that the asserted method, computer-readable medium and system claims are not directed to eligible subject matter under 35 USC § 101.
Although none of the seven issued opinions commanded a majority, seven out of 10 members(1) of the en banc court concluded that the asserted method and computer-readable medium claims were patent ineligible under Section 101, and five of those seven members(2) also concluded that the system claims were patent ineligible. Adding to the confusion, the non-precedential opinions create three different tests for evaluating patent eligibility under Section 101.
The five most important questions on which the Federal Circuit was unable to decide were as follows:
- What is an 'abstract idea'?
- What is the test for determining whether a computer-implemented invention is a patent-ineligible abstract idea?
- When assessing patent eligibility under Section 101, does the court consider the entire claim or only the portion of the claim that goes beyond a mere abstract idea?
- Can the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible abstract idea?
- Does the type of claim (eg, method, computer-readable medium or system) affect patent eligibility under Section 101?
However, CLS Bank did provide answers to two questions:
- Does the presumption of validity apply to challenges to patent eligibility under Section 101? Most likely. A majority of the judges, albeit in separate concurring opinions, agreed that a presumption of validity applies when analysing patent eligibility under Section 101.
- Is it better practice to keep system claims separate from applications containing method and computer-readable medium claims? Probably. After concluding that Alice Corp's method claims recited merely an abstract idea, Judge Lourie proceeded to look at the differences between the method and system claims to determine the patent eligibility for the system claims, concluding that the recited hardware in the non-method claims offered no meaningful limitations beyond the implementation of the abstract idea via computers. Accordingly, it may be better practice to keep system and method claims separate, to avoid infection of system claims by infirmities in method claims.
In CLS Bank the Federal Circuit granted rehearing en banc to decide two questions under Section 101:
- What test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea, and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?
- In assessing patent eligibility, should it matter whether the invention is claimed as a method, system or storage medium, and should such claims at times be considered equivalent for Section 101 purposes?
The claimed subject matter in CLS Bank related to a computerised trading platform for exchanging obligations by way of a trusted third party to eliminate settlement risk for the exchanging parties. The US District Court for the District of Columbia held that Alice Corp's method, computer-readable medium and system claims were invalid for being directed to an abstract idea that was patent-ineligible subject matter under Section 101.(3) Before rehearing en banc, a three-judge panel of the Federal Circuit reversed the district court's decision and held that Alice Corp's patent claims were directed to patent-eligible subject matter under Section 101.(4)
The Federal Circuit issued a per curiam opinion on May 10 2013, affirming the district court's holding that the asserted method, computer-readable medium and system claims recited patent-ineligible subject matter under Section 101.(5)
The per curiam opinion was accompanied by five opinions concurring, concurring in part and dissenting in part, or dissenting. Along with authoring one of the concurring-in-part and dissenting-in-part opinions, Chief Judge Rader also issued a separate statement entitled "Additional reflections of Chief Judge Rader".
While none of the seven opinions reflected a majority for precedential purposes, there was some underlying agreement on the issues. At least nine members of the en banc court(6) agreed that a presumption of validity applies when "§ 101 is raised as a basis for invalidity in district court proceedings".(7)
Further, the same nine members confirmed the basic structure for assessing whether a claim recites patent-eligible subject matter under Section 101. The first step asks whether the "claimed invention fits within one of the four statutory classes (i.e., processes, machines, manufactures, and compositions of matter) set out in § 101".(8) If the answer is yes, then the next question is whether the claims are subject to one of the three judicial exceptions to subject-matter eligibility (ie, laws of nature, natural phenomena or abstract ideas).(9)
However, the judges differed on how to apply the judicial exception for an abstract idea.
'Significantly more' test
In his concurring opinion for five members of the court,(10) Lourie reviewed Supreme Court precedent and concluded that the following considerations should frame any analysis under Section 101:
- "an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery";(11)
- "caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants";(12) and
- preference for a "flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing".(13)
Applying these principles, Lourie articulated a 'significantly more' test. First, the court must identify the "abstract idea" that is at risk of pre-emption.(14) Once identified, the next step is to remove the "abstract idea" from the claim and determine whether the balance of the claim "contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself".(15)
Put another way, in order to be patent eligible under Section 101, a claim must include one or more additional substantive limitations that add significantly more to the basic abstract idea.(16) This requirement for 'significantly more' has been referred to as an "inventive concept", which requires a "genuine human contribution to the claimed subject matter".(17) Human contributions that are "merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principles therein, cannot confer patent eligibility".(18)
Regarding computer claims, Lourie explained that a computer does not itself confer patent eligibility "[u]nless the claims require a computer to perform operations that are not merely accelerated calculations".(19) Further, "simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept does not meaningfully limit claim scope for purposes of patent eligibility".(20)
Under the 'significantly more' test, Lourie explained that the asserted claims recited patent-ineligible subject matter. Lourie stated that the relevant portion of the claim was an abstract idea because it was "a 'disembodied' concept, a basic building block of human ingenuity, untethered from any real-world application".(21)
After removing the abstract idea from the claim, Lourie concluded that the remaining limitations did not add significantly more to the abstract idea.(22) Lourie also clarified that the system claims recited subject matter that was not patent eligible and were "akin to stating the abstract idea of third-party intermediation and adding the words: 'apply it' on a computer".(23)
'Meaningful limitations' test
In his opinion for four members of the court,(24) Rader described Lourie's 'significantly more' test as too narrow and in tension with the 1952 Patent Act. The chief judge instead proposed a 'meaningful limitations' test for determining the patent eligibility of claims involving abstract ideas. The main inquiry asks "whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea".(25)
Unlike the 'significantly more' test, Rader's test requires a court to "consider the asserted claim as a whole when assessing eligibility", as opposed to removing the abstract idea from the claim and then considering the remaining limitations.(26) For computer-related claims, the question in Rader's view was "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".(27) Indeed, "where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not preempt virtually all uses of an underlying abstract idea, the claim is patent eligible".(28) However, "[i]f, to implement the abstract concept, one must perform the additional step, then the step merely separately restates an element of the abstract idea, and thus does not further limit the abstract concept to a practical application".(29) Applying these principles, Rader explained that Alice's system claims were patent eligible because "the number and specificity of the structural limitations" would result in a narrow pre-emptive effect, and the use of a computer was not inherent in the abstract idea.(30) Rader further clarified that "whether the additional steps were routine in some other context is not the inquiry… the question is whether these steps are inherent in [the abstract idea]".(31)
Rader also disagreed with Lourie's requirement that a computer "perform operations that are not merely accelerated calculations" to confer eligibility,(32) noting that "[e]verything done by a computer can be done by a human [and r]equiring a computer to do something that a human could not would mean that computer implementation could never produce patent eligibility".(33) According to Rader, "[i]f tying a method to a machine can be an important indication of patent eligibility, it would seem that a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea".(34) Regarding the method and computer-readable medium claims, Rader and Judge Moore agreed that the "recited elements only recite the steps inherent in [the abstract idea] and implement those steps according to methods long used [in that field]".(35) Therefore, Rader and Moore would still affirm the district court's holding that the method and computer-readable medium claims were patent ineligible, albeit applying a different test from Lourie's concurring opinion. Judges Linn and O'Malley disagreed with Rader and Moore's proposed holding on the method and computer-readable medium claims, and filed a separate dissenting opinion.(36)
Three basic principles
Judge Newman suggested that the court's deadlock demonstrated that "an all-purpose bright-line rule for the threshold portal of § 101 is as unavailable as it is unnecessary".(37) Instead, Newman proposed "three basic principles":
- "[S]ection 101 is an inclusive statement of patent-eligible subject matter";(38)
- "[Th]e form of the claim does not determine section 101 eligibility";(39) and
- "[E]xperimental use of patented information is not barred".(40)
According to Newman, "a clarification of the right to experiment with information disclosed in the patents" will make it unnecessary to use the judicial exception of 'abstraction' to "liberate the subject matter for experimentation".(41) Applying these principles, Newman would have reversed the district court's holding that the method, computer-readable medium and system claims were patent ineligible under Section 101.(42)
The Federal Circuit's one paragraph per curiam opinion leaves more questions than answers. The chief judge's opinion makes clear that "nothing said today beyond our judgment has the weight of precedent".(43) Newman took a more pessimistic view, stating that "we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation".(44) Moore was concerned with the negative impact on a whole field of patents:
"if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents."(45)
Without a precedential opinion, it appears that district courts may have to employ all three tests when assessing patent eligibility under Section 101, although a consensus may form in the district courts regarding which test is most convincing or useful. The lack of a majority opinion may also increase the chances that the Supreme Court grants certiorari to provide guidance on these issues. As Moore suggested, the Supreme Court could take this case as an opportunity to "distinguish between claims that are and are not directed to patentable subject matter".(46) While the odds of Supreme Court review in any particular case are low, the court has shown increasing interest in Section 101, although none of its recent decisions (Bilski, Mayo and the soon-to-be-decided Myriad) have directly involved computer-related claims. Last term, the court remanded Ultramercial, a case presenting similar issues to CLS Bank, for reconsideration by the Federal Circuit in light of Mayo.(47) The Supreme Court could do the same in light of Myriad with any certiorari petition in CLS Bank, or the court could decide that it is time to weigh in. However, the opinions of Linn and O'Malley emphasised their belief that only Congress can make industry or technology-specific patent rules, stating that "Congress can, and perhaps should, develop special rules for software patents".(48) By contrast, according to them, courts "may not change the law to address one technological field or the concerns of a single industry".(49) Accordingly, comprehensive resolution of the issues presented by CLS Bank may require Congressional action, even if that currently seems unlikely in the near future.
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(5) Lourie filed a concurring opinion and was joined by Dyk, Prost, Reyna and Wallach. Rader filed a concurring-in-part and dissenting-in-part opinion and was joined by Linn, Moore and O'Malley for all but part VI of that opinion; Moore also joined as to part VI. Moore filed a dissenting-in-part opinion and was joined by Linn and O'Malley. Judge Newman filed a concurring-in-part and dissenting-in-part opinion. Linn and O'Malley jointly filed a dissenting opinion.
(8) Id at 18; Rader concurring-in-part and dissenting-in-part opinion at 11 ("any analysis of subject matter eligibility for patenting must begin by acknowledging that any new and useful process, machine, composition of matter, or manufacture… is eligible for patent protection").
(9) Lourie opinion at 18; Rader opinion at 39 ("the inquiry shifts to seek clear and convincing evidence that the claim, nonetheless, is ineligible for patenting because it falls within one of the judicial exceptions").
(20) Id at 27; id at 21 ("bare field-of-use limitations cannot rescue a claim from patent ineligibility where the claim as written still effectively preempts all uses of a fundamental concept within the stated field").
(25) Rader opinion at 16; Moore's Concurring-In-Part and dissenting-in-part opinion at 5 ("The key question is thus whether a claim recites a sufficiently concrete and practical application of an abstract idea to quality as patent-eligible").
(36) According to Linn and O'Malley, the method, media and system claims were all patent eligible. Linn and O'Malley dissenting opinion at 14. Linn and O'Malley signed on to Rader's opinion that would find the system claims patent eligible under Section 101. Taking that opinion one step further, Linn and O'Malley claimed that their colleagues "ignore the record of the lower court proceedings and the stipulations by which CLS agrees it must be bound" that require the method, media, and system claims to rise and fall together. Id at 6.
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