On October 18, the CAFC Circuit Court delivered a verdict in Smart Sys. Innov. v Chicago Trans. Auth. that adds an interesting new wrinkle for determining the question of patent subject matter eligibility. In a split decision, the court ruled that several contested patents held by SSI were directed to an abstract idea following the Mayo/Alice test for determining patent eligibility, and were therefore invalid. The dissenting opinion, penned by Judge Linn, offered an interesting, and in our opinion, reasonable, new interpretation for the Mayo/Alice test for determining patent eligibility.

In dispute were four patents held by Smart System Innovations (SSI) relating to a system and method for enabling subway or bus passengers to pay fares using credit/debit cards in lieu of the typical token or paper ticket. Critically, the innovations described in these patents greatly reduce the amount of time required to approve bank card transactions, enabling transit riders to pay turnstile fares without slowing down the flow of people. SSI brought suit against the Chicago Transit Authority (CTA), alleging infringement of these patents and CTA responded by claiming that the patents were invalid as they were directed towards an abstract idea, an ineligible subject matter according to U.S.C § 101. SSI refuted this argument, reasoning that the patents in question could not be directed towards an abstract idea given their focus on solving very tangible problems in transit systems. Moreover, they argued that the patents offer real and significant improvements over previous methods for collecting fares.

Upon examining the claims, the court for the northern district of Illinois ruled that “[s]tripped of the technical jargon… the patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card.” While the district court agreed with SSI that their patents do improve the efficiency of bankcard transactions, the court countered that, “claims directed to the performance of certain financial transactions – and paying a fare is a financial transaction – must be categorized as involving abstract ideas.” With both of elements of SSI’s defense knocked down, the court ruled in favor of CTA, declaring the patents to be invalid.

In the CAFC majority opinion, penned by Judge Wallach and joined by Judge Reyna, the court examined the patents’ eligibility using the standard Alice two-step test process, starting with whether the patents in question are ‘directed’ towards an abstract idea. Interestingly, the court emphasizes this is not the same as determining the “thrust, heart or focus” of a patent (internal quotes omitted). Examining the patents, the court found that, “the claims are directed to the collection, storage and recognition of data. We have determined that claims directed to the collection, storage and recognition of data are directed to an abstract idea.” Moreover, “merely limiting the field of use of the abstract idea to a particular environment … does not render the claims any less abstract” (quoting Affinity Labs). Just because the steps are performed, “in the physical, rather than purely conceptual, realm … is beside the point” (quoting Alice). Moving on to SSI’s second argument, the court noted that while the claimed invention does undoubtedly improve a process, this is not sufficient by itself to render it non-abstract. To be non-abstract, an invention must either improve “computer capabilities,” rather than simply using computers as a tool (quoting Enfish), or it must detail a specific set of rules for improving a technological process (citing McRO) SSI never argued that their invention improves computing abilities, and the court could not find specific rules in the patent claims, leading the court to concur with the district court with regards to step one of Alice, that the claimed invention is directed towards an abstract idea.

Moving on to the second step of the Mayo/Alice test, the circuit court next examined the patent claims for evidence of any inventive concepts, where an inventive concept contains features “that are more than ‘well-understood, routine, conventional activities.’” Previously, the district court had found that the claims lacked said concepts due to their use of terms that refer to generic computer and software components. The circuit court agreed with this argument, finding that the claims merely “recite the abstract idea of collecting financial data using generic computer component.”

The CAFC concluded by addressing several other arguments put forward by SSI. First, SSI argued that because their claimed invention “do[es] not preempt any field or allegedly abstract idea,” this makes the claims immune to the abstract idea argument. Citing Ariosa, the court found that “when a patent’s claims “disclose patent[-]ineligible subject matter[,]… preemption concerns are fully addressed and made moot.” In regards to the machine or transformation test, the circuit court asserts that this “‘is not the sole test governing §101 analyses’” (quoting Ultramercial), and even if it were, the test would only be relevant if the process was tied to some specific “‘machine or apparatus,’” which is not the case here. Having determined that the claimed invention fails the Mayo/Alice test, and having knocked down the remainder of SSI’s arguments, the court affirmed the district court ruling, holding that all four patents fall in the realm of ineligible subject matter and are therefore invalid.

In his dissent, Judge Linn partially agreed with the majority, holding that due to prior court rulings he was also bound to conclude that two of the four patents were invalid. With regard to the remaining two patents, however, Linn disagreed with his colleagues on several fronts. Specifically, Linn found fault in their overly rigid application of the Alice test, as well as their over abstractification of the claimed invention.

Before applying the Alice test, Linn contends that in its creation the patent system was intended to be as lenient as possible in terms of subjects that can be patented. The three judicial exceptions, laws of nature, natural phenomena, and abstract ideas, are only excluded from patent coverage because of their potential to restrict innovation. “[T]he abstract idea exception – if it is to be applied at all – must be applied narrowly, consistent with its genesis.” Judge Linn, referring to the Alice test:

“The problem with this test, however, is that it is indeterminate and often leads to arbitrary results… [I]f applied in a legal vacuum divorced from its genesis and treated differently from the other two exceptions, it can strike down claims covering meritorious inventions not because they attempt to appropriate a basic building block of scientific or technological work, but simply because they seemingly fail the Supreme Court’s test.”

Step one of the Alice test should be to determine whether an invention is directed towards a “basic building blocks of scientific or technological activity” rather than simply any abstract idea.

With this in mind, J. Linn turned to examining the patents in question. Linn disapproved of the approach used by both his colleagues and the district court, and emphasized that it is essential, “to look at the actual language of the claims.” Moreover, courts should look beyond claims and also examine the limitations and specification of a patent for context clues when determining what an invention is directed towards.

Using this more holistic approach, Linn finds that transit systems do not relate to the patents as “merely a generic environment,” but rather they are “at the heart of the invention.” Moreover, the inventions offer specific instructions on achieving their aims that do not preempt other means of achieving the same goal. Examining the claims, Linn also finds that the method in question does not simply use generic components, but instead incorporates elements that differentiates itself from previous inventions. Based on these conclusions, Linn posits that the patents in question do not preempt future innovation and are not directed towards abstract ideas, and therefore fall under eligible subject matter. Perhaps other judges on the CAFC and the district courts should take a lead from this reasonable approach being offered by J. Linn.