The Federal Circuit en banc heard oral argument on February 8, 2013 in CLS Bank v. Alice Corp., No. 2011-1301. The appeal presents two issues relating to the patentability of claims involving computer implemented methods pursuant to 35 U.S.C. § 101. The first issue presented was “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?”1 The second issue presented was “in assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, 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 § 101 purposes?”2

In recent opinions, the Supreme Court has cast doubt on the patent eligibility standard as applied by the Federal Circuit.3 Under this backdrop of uncertainty, Alice sued CLS Bank for patent infringement of method, system, and computer program product patents covering “a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk’.”4 The district court granted summary judgment of invalidity for failure to claim patent eligible subject matter. First, the district court held that “nominal recitation of a general-purpose computer” was not sufficient to meet the machine-or-transformation test with respect to the method claims.5 The district court next held that the method, system, and computer program product claims at issue were all directed to abstract ideas, and thus were invalid.6

In Alice’s subsequent appeal, a Federal Circuit panel reversed, proclaiming new guidance for determining patent eligibility for computer-specific claims, while at the same time admitting that “great uncertainty” still exists in the area.7. Under this new rule, a claim “drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.”8 The Court found that “unless 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, it is inappropriate to hold that the claim is directed to a patent ineligible ‘abstract idea’ under 35 U.S.C. §101.”9 In view of CLS Bank’s request and various amicus briefs, the Federal Circuit then decided to hear this case en banc.

Throughout the oral arguments to the en banc Federal Circuit, CLS Bank’s counsel asserted that all of the claims at issue originated as method claims covering ineligible abstract ideas that were modified slightly as both system and computer claims. According to CLS Bank, this type of modification was not enough to transform the claims into patent eligible subject matter. But CLS Bank’s assertions were challenged by the Court on two fronts. First, the Court challenged whether the process at issue was really an abstract idea. Second, the Court struggled with how system and computer claims with detailed embodiments listed in the specification and specific structural limitations could be characterized as abstract ideas.

The abstract idea test, while only explicitly referred to by Judge Newman, was the focal point of much of the Court’s questioning. When asked how the Court was to decide what an abstract idea was, CLS Bank cited numerous cases and the Manual of Patent Examining Procedure, which define an abstract idea as a method that can be performed entirely in the human mind or with a pencil and paper.10 Counsel further explained that these claims amount to no more than double ledger accounting with end of the day netting, an accounting practice done with a pencil and paper for years, and thus, the claims were directed to an abstract idea.

Judge Moore expressed her confusion with the abstract idea test as characterized by CLS Bank by reciting one of the disputed claims that contains four different tangible devices, including a data processor, a communication controller, data storage, and a computer. It seemed impossible to her that, when evaluated separately from the method claims, such a claim could be deemed abstract. CLS Bank argued that the patent described merely that the method was performed by an off the shelf computer, and that the Supreme Court confirmed in its Mayo decision that the abstract idea test does not rest on the tangibility of claim elements.11

The Court also assessed steps that could transform an abstract idea into patentable subject matter. First, Judge Linn questioned the difference between implementation in a hard-wired circuit or a software instructed computer, to which CLS Bank responded by citing In re Alappat, as holding that such a distinction makes no difference.12 CLS Bank clarified that the question is not whether software patents are invalid in general, only whether dressing a method claim up with a general purpose computer without anything further adds any indicia of patentability. CLS Bank again noted that the Supreme Court has indicated that adding a general purpose computer does not transform an abstract idea into patentable subject matter.13 Citing the prosecution history of the patents-in-suit, CLS Bank noted that the claims were initially rejected as abstract ideas, and then improperly allowed after being amended to recite a general purpose computer. CLS Bank addressed the pre-emptive nature of the claims, taking Judge Linn’s panel opinion that claimed “many other ways to do that” (i.e., keep accounts and debit them) head-on by citing to a dissertation quoted in Alice’s own brief that claimed only two known ways to perform these transactions, only one of which is viable for global transactions, and was completely pre-empted by Alice’s claims. In response, some members of the Federal Circuit noted that §101 was a low bar, and this issue was better left for a §102 or §103 analysis, a point that was previously raised in the Bilski argument as well. CLS Bank urged that a §101 analysis should be conducted as a threshold legal question to weed out claims with exactly these issues because it does not require the expensive machinery for other factual issues.

Counsel for the U.S. Patent and Trademark Office (“PTO”) noted the history of unsuccessful bright line rules in this area demonstrates that a bright line test is simply not workable. The PTO directed the Court to the Mayo decision as controlling authority. The PTO acknowledged that the Supreme Court already held in Mayo that a concrete step of administering something to a patient did not lend eligibility to the claim.14 Counsel then explained that no matter the significance of the step, whether administering to a patient or computing with a processor, if the system is only added to a separable idea to make it eligible, then the Supreme Court has stated that is not enough.

The Court next questioned Alice’s counsel about the connectedness of the claims. In response to what Alice described as CLS Bank’s overly generalized description of the claims, Alice contended that the system claims should not rise or fall with the method claims because machines are explicitly eligible under § 101. Alice then defended the eligibility of the method claims by explaining there is no difference between a free standing machine claim and a system attached to a method claim in terms of patent eligibility under the theory that further limiting a patent eligible general purpose computer should also be patent eligible. Alice contended that even claims that don’t explicitly recite a computer are still computer implemented because they recite a shadow record, which is an electronic file that is only capable of being implemented by a computer.

Alice’s Counsel was also questioned about whether their patents covered abstract ideas. Judge Reyna questioned Alice’s counsel as to whether ledgers kept by accountants wearing prototypical green eye-shades constitute a shadow record. Alice’s counsel explained that the law for eligibility does not focus on whether a human can perform “something like” the claimed steps of the method, and argued that the claimed steps could not be performed without a computer.

The Court also asked whether any alternative methods to perform end-of-the-day netting exist that would not infringe. Counsel for Alice would not concede a viable alternative to the claimed methods, but still maintained that Alice had not claimed all methods of performing end-of-the-day netting in the abstract and that the absence of a viable alternative is not relevant to patent eligibility. In accordance with this line of questioning, the Court seemed to tip their hand in formulating possible criteria for patent eligibility that would include assessing whether a claim is so broad that it excludes all other alternative applications.

In view of the above comments, it is unclear whether the Court will provide a bright line rule for determining whether a computer implemented software claim is patent eligible. However, the Court will need to consider multiple factors, such as whether the computer is inseparable from the method, whether the claim is unreasonably broad so as to exclude all alternative applications, and the like, in determining patent eligibility.