On May 10, 2013, a sharply divided en banc Federal Circuit held that computerimplemented methods, computer-readable media and computer systems for exchanging a financial obligation between parties do not recite patent-eligible subject matter under 35 U.S.C. § 101. Seven of the ten participating judges found invalid the method and media claims, and five found invalid the system claims, thereby affirming per curiam the district court’s judgment. The en banc decision came to the opposite result from the previously-vacated panel decision finding the same claims to be patent eligible.
Besides the Per Curiam Judgment, the en banc Court generated five opinions and “additional reflections” from Chief Judge Rader, none of which garnered a majority. Other than the Per Curiam Judgment, this decision cannot serve as precedent, resulting in what Judge Newman described as “judicial deadlock.”
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, computer-readable media and computer systems for reducing settlement risk when financial obligations were exchanged between trading parties by use of a third-party intermediary. 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 a neutral intermediary.
The district court found 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 patent 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 panel majority faulted the district court for improperly “look[ing] past the details of the claims,” so as to “treat the claims as encompassing nothing more than fundamental truths . . . .”. Id. at 1353. The claim limitations relating to shadow records, transactions, and electronic adjustments, said the panel majority, 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. As discussed below, both Judges Linn and O’Malley dissented from the en banc judgment and would have found the method, media and system claims patent eligible.
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 decision and ordered rehearing en banc, with the parties requested to brief “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 En Banc Decision
In a brief Per Curiam Judgment, the Federal Circuit affirmed the district court’s holding that the method, system, and media claims are not directed to patenteligible subject matter under 35 U.S.C. § 101.
Judge Lourie, joined by Judges Dyk, Prost, Reyna, and Wallach, concurred, endorsing a flexible § 101 inquiry that considers: (1) whether the claims recite an abstract idea; (2) whether additional limitations confine the claims to a particular application of that idea; and (3) whether those additional limitations are a “product of human ingenuity” or a mere “trivial appendix” to the abstract idea. Treating the method, system, and media claims at hand similarly, Judge Lourie concluded that the addition of “generic computer functionality” did not confer patent eligibility to the abstract idea of escrow-based risk management.
Chief Judge Rader, joined by Judges Linn, Moore, and O’Malley, disagreed with Judge Lourie’s “ingenuity” requirement and issued a split decision. All four would have found the systems claims patent eligible, thereby dissenting-in-part. Chief Judge Rader and Judge Moore would have found the method claims patent ineligible, thereby concurring-in-part, but Judges Linn and O’Malley (as per their panel decision and dissent) would have found the method claims patent eligible.
According to Chief Judge Rader, a computer could render a claim eligible if “the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea.” This may require as little as the computer performing the steps faster than a human could. Here, he argues, the system claims are patent eligible because the claimed computer is coupled to a communications controller and a data storage unit and driven by specific algorithms, which confine the invention to a specific application of the abstract idea and are integral to its performance.
The same four judges joined a dissent-in-part authored by Judge Moore, who further criticizes Judge Lourie’s opinion for “erroneously apply[ing] Prometheus’s ‘inventive concept’ language by stripping away all known elements from the asserted system claims and analyzing only whether what remains, as opposed to the claim as a whole, is an abstract idea.” According to Judge Moore, the “inventive concept” language was a “reminder of the long-understood principle that adding insignificant pre- or post-solution activity to an abstract idea does not make the claim any less abstract,” rather than an invitation to parse the claims for the “heart of the invention.”
Judges Linn and O’Malley wrote a separate dissent, asserting that the method and media claims, like the system claims, require specific, non-abstract computer implementation through the use of shadow records, conditioning the performance of the transactions on the nature of credit/debit balance, requiring transactions to be made in time order, and exchanging the credits and debits as per the claimed transactional adjustments. Because of such specificity, they argue all of the claims should be patent eligible under § 101.
Judge Newman’s opinion endorses the broad language of § 101, under which “any new and useful process, machine, manufacture, or composition of matter” is patenteligible. She rejects tests involving “preemption,” “abstraction,” “meaningful limitations,” and other terms not found in the statute. In her view, all of the claims are patent eligible. In addition, siding with Judges Lourie, Dyk, Prost, Reyna, Wallach, Linn and O’Malley, Judge Newman argued that the patent eligibility of all of the claims should stand and fall together, regardless of whether the invention was claimed in the form of a method, media or system.
The “additional reflections” by Judge Rader focus on the statute itself rather than the “empty and subjective” case law interpreting it. He too supports a broad application of § 101, emphasizing that it is not a “condition of patentability” like § 102 (novelty) and § 103 (nonobviousness).
In summary, the en banc decision in CLS Bank does not set forth a clear test for the patent-eligibility of computer-implemented processes. Instead, the separate opinions suggest that there will continue to be considerable uncertainty confronting litigants when patent eligibility issues arise.