On June 21, 2013, the US Court of Appeals for the Federal Circuit, for the second time, reversed and remanded a District Court Judge's finding that the patent claims were invalid for being directed to an abstract idea. The Federal Circuit was unsuccessful in its first such reversal when the Supreme Court stepped in and overruled the attempt.  This time, the Federal Circuit relied on the computer-implementation of the claimed invention when it reversed and remanded the District Court Judge’s decision.

The claims of the US Patent No. 7,346,545 (the '545 patent) are directed to a method for distributing copyrighted products over the Internet where a consumer receives a copyrighted product for free in exchange for viewing an advertisement, and the advertiser pays for the copyrighted content.

The Federal Circuit stated that it should be rare that a patent infringement suit will be dismissed at the pleading stage for lack of patent-eligible subject matter because such a conclusion must overcome a clear and convincing standard, and the § 101 analysis is often a factual inquiry that is not appropriate at the pleading stage. The Federal Circuit also declared that claim construction is not always required to decide § 101 decisions, but it may be helpful in determining "the basic character of the subject matter of the invention."

Based upon the legislative history of § 101 and Supreme Court precedent, the Federal Circuit concluded that the patent laws should be given wide scope, and only narrow exceptions should be applied to the broad patent-eligible categories (i.e., process, machine, manufacture, and composition of matter). Here, the issue turned on whether the claimed invention was an abstract idea, a judicial exception to these statutory categories of patent-eligible subject matter. "[A] claim may be premised on an abstract idea and, indeed, the abstract idea may be of central importance to the invention—the question for patent eligibility is whether the claim contains limitations that meaningfully tie that abstract idea to an actual application of that idea through meaningful limitations."

The Federal Circuit also discussed Supreme Court guideposts specific to computer-implemented inventions, specifying that "the abstract idea inquiry for computer-related methods focuses on 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." The Federal Circuit further states that if a claim is a specific way of doing something or a specific computer for doing something, then "the claims likely will be patent-eligible."

Ultimately, the Federal Circuit found that the district court erred in finding the '545 patent's claims were directed to ineligible subject matter. The Federal Circuit relied heavily on the machine-or-transformation test in finding that the claims were clearly performed by a specially-programmed computer, as shown in the ‘545 patent’s specification and figures. The Federal Circuit also held that the claims pose no risk to preempting all forms of advertisement or advertising on the Internet, nor did the court find the claims overly generalized. Despite all these findings, the Federal Circuit did not provide further guidance for the level of programming complexity required before a computer-implemented method can be patent-eligible.

The majority opinion was written by Chief Judge Rader, who wrote a dissenting opinion in CLS Bank v. Alice Corp, an en banc decision of the Federal Circuit where some judges found claims to be directed to an abstract idea despite reciting computer limitations. See Dentons' recent Alert of May 14, 2013, US Federal Circuit Deals Blow to Software Patents, But Fails to Provide Cohesive Rationale. Judge O’Malley joined Chief Judge Rader’s opinion here and also opined in CLS Bank that those computer-implemented claims are patent eligible. Judge Lourie, who wrote the leading five-member opinion of CLS Bank, wrote a concurring opinion in this case. He agreed that the '545 patent was directed to patent-eligible subject matter, but he believed that the decision should track more with the leading five-member opinion of CLS Bank. He also opined that the majority's discussion about a computer performing the steps of claims should not be the focus of the analysis.