Since 2010, when the U.S. Supreme Court issued its landmark opinion in Bilski v. Kappos,1 holding that Bilski's claims were unpatentable "abstract ideas" under U.S. patent law, the lower courts have grappled with the patent-eligibility question for software and business method claims. In the United States, under 35 U.S.C. § 101, inventors can obtain a patent for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof . . . ." Neither this statutory language nor Supreme Court decisions interpreting the statute as excluding "laws of nature", "physical phenomena", and "abstract ideas" from eligibility, however, articulate a clear test for determining patent-eligible subject matter. Many hoped that an en banc decision in CLS Bank International v. Alice Corp., No. 11-1301 (Fed. Cir. 2012) would provide much needed clarity.
Alice Bank's patent claims are directed to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and second party to eliminated settlement risk. After waiting for the Supreme Court Bilski decision, the district court granted summary judgment, finding all of Alice's claims ineligible under 35 U.S.C. § 101. Alice appealed, and a three-judge panel at the Court of Appeals of the Federal Circuit (CAFC) reversed in July 2012. Thereafter, the CAFC granted rehearing en banc to answer two questions: (1) "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?;" and (2) "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 § 101 purposes?"
This March, in a per curiam decision, the CAFC affirmed the district court's holding that all of the claims-at-issue were invalid under 35 U.S.C. § 101. A majority (seven of ten members) agreed that the method and computer-readable medium claims were invalid, but the court was equally divided (five to five) on the validity of the system claims. Since an eight-judge majority agreed that all claims should rise or fall together, however, all claims were affirmed as invalid. Accompanying the per curiam decision are five concurring, dissenting, and "reflecting" opinions, which provide insight into the leanings of the individual judges, but which also leave the two questions taken for review largely unanswered.
The Five Opinions
The Lourie Opinion: Preemption and Inventive Concept
Judge Lourie, joined by Judges Dyk, Prost, Reyna, and Wallach began their substantive analysis with a review of 35 U.S.C. § 101 jurisprudence, and with an observation that 35 U.S.C. § 101 itself is "deceptively simple on its face, yet its proper application to computer-implemented inventions and in various other fields of technology has long vexed this and other courts." The Lourie opinion sets out a patent-eligibility analysis having two basic steps: (1) asking whether the claimed invention is a process, machine, manufacture, or composition of matter—and if not, the claim is ineligible under § 101, and then (2) if the invention falls within one of those statutory categories, determining whether any of the three judicially-created exceptions nonetheless bars the claim—is it drawn to a law of nature, natural phenomenon, or abstract idea? The Lourie opinion warns that applying these judicial exceptions too aggressively may obstruct, rather than catalyze innovation.
In reviewing the Supreme Court precedent, the Lourie opinion found three common themes: 1) patents should not preempt the fundamental tools of discovery, 2) the form of a claim should not control over substance, and 3) categorical rules should be avoided. To avoid preemption, the claims should not be coextensive with a natural law, natural phenomenon, or abstract idea. To ensure that the form does not control over substance, the opinion cautions that overly formalistic approaches should be avoided as they invite manipulation by patent applicants through highly-stylized language, hollow field-of-use limitations, or recitation of token post-solution activity. Finally, to avoid categorical rules, there should be a flexible, claim-by-claim approach that avoids rigid line drawing—as such tests would risk becoming outdated in the face of continual advances in technology. A categorical rule prohibiting business method patents for example would be improper, as would exclusive reliance on a "machine-or-transformation" test (the requirement that a process be tied to a particular machine or apparatus, or transform a particular article into a different state or thing).
The Lourie opinion proposed preemption analysis begins with unambiguously identifying the idea that is at risk of preemption, and then evaluating the balance of the claim to find additional substantive limitations that tie down the claim so that, in practical terms, the claim does not cover the full abstract idea itself. The Lourie opinion suggests looking for an "inventive concept" or "human contribution", and cautions that limitations that are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility.
Following this framework, the Lourie opinion found that the Alice claims recite the abstract idea of "reducing settlement risk by effecting trades through a third-party intermediary . . . empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow." According to the Lourie opinion, the substantive limitations in the claims that require "creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions," do not to add anything to the substance of the claim. Using a computer to perform such operations only adds the capability of performing mental steps faster than a human could, and fails to supply an "inventive concept." The computer-readable medium and system claim parallel the method claims and therefore are similarly ineligible.
The Rader Opinion: Meaningful Limitations and Inherency
Judge Rader, joined by Judges Linn, Moore, and O'Malley, agreed in methodology, but were divided when it came time to applying the methodology to the claims. All four judges agreed that the system claims are patent eligible, but Judges Rader and Moore concluded the method claims were ineligible.
The Rader opinion proffered that the relevant inquiry is whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea. Limitations that are only insignificant or token pre- or post-solution activity, such as identifying a relevant audience, a category of use, field of use, or technological environment; and limitations that provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized. Stated differently, a claim is meaningfully limited if it requires a particular machine implementing a process or a particular transformation of matter; or when the added limitations are central to the solution itself.
The Rader opinion cautions that patent eligibility should not be conflated with the principles of validity, and that the eligibility inquiry is not an inquiry into obviousness, novelty, enablement, or other concepts. Instead, the key question is 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. When the computer plays a meaningful role in the performance of the claimed invention, and the claim doesn't preempt virtually all uses of an underlying abstract idea, the claim is patent eligible.
Turning to the claims-at-issue, the Rader opinion concluded that the claimed "data processing system" in the Alice claims involved a computer and other hardware specifically programmed to solve a complex problem, and that there was sufficient support in the specification for the functions recited in the claims; therefore the system claims do not claim only an abstract concept. As the recited steps were not inherent in the process of using an escrow, and there was no evidence that as of the critical time, the recited steps were commonly implemented on a computer, the opinion found the "abstract idea" is not disembodied, but is instead integrated into a system utilizing machines.
The Moore Opinion: System claims are Patent Eligible
Judge Moore, joined by Judges Rader, Linn, and O'Malley, expressed a concern that the "abstract idea exception" is causing a "free fall in the patent system." The Moore opinion cautions that invalidating the claims-at-issue in CLS Bank would mean "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" and would decimate the software and electronics industries. Judge Moore appeals to the Supreme Court to use the CLS Bank case to "distinguish between claims that are and are not directed to patentable subject matter" and focuses her analysis on whether the claims recite a sufficiently concrete and practical application of an abstract idea.
In the Moore opinion, programming a general purpose computer creates a new machine, a special purpose computer, which is patent eligible even if the individual components themselves are not new or innovative. In the provided example, an improved calculator would be patent eligible if it discovered that re-wiring it could cause it to perform additional functions (even if the functions are abstract mathematical concepts). Alice Bank's system claim, under this reasoning, comprising "a first party device," "a data storage unit" and "a computer . . . configured to . . . receive a transaction from said first party device . . . electronically adjust said first account and said third account . . . and generate an instruction . . . ." is patent eligible. The Moore opinion recognizes that claims that are patent eligible may fail to meet the other requirements for patent protection (novelty or non-obviousness).
The Newman Opinion: All Claims are Patent Eligible
Judge Newman wrote her own opinion, concurring-in-part and dissenting-in-part, holding all of the claims-at-issue to be patent eligible. She expressed regret that the en banc Court's "judicial deadlock" did not resolve any uncertainties surrounding section 101 and proposed an affirmance of three basic principles: (1) section 101 is an inclusive statement of patent-eligible subject matter; (2) the form of the claim does not determine section 101 eligibility; and (3) that experimental use of patented information is not infringement and therefore not barred [whether the purpose is scientific knowledge or commercial potential]. Following this reasoning, more claims would be deemed patent-eligible and abstract or preemptive claims would be eliminated via the requirements of novelty, utility, obviousness, description, enablement, and specificity.
The Linn and O'Malley Opinion: All
Judges Linn and O'Malley filed a separate dissenting opinion to point out that all the claims must raise or fall together based on the record created before the lower court and on stipulations made by CLS Bank at the CAFC. They criticized the other opinions for ignoring the record, and concluded that, although the claims may be directed to an abstract idea, they recite a very specific way of using an intermediary to facilitate financial transactions. While the claims may have been obvious over the prior art, they do not preempt all commercial uses or applications of the idea.
Judges Linn and O'Malley encouraged Congress to develop special rules for software patents, citing concern expressed by several Amici about the plethora of "low quality software patents," but declining to re-write 35 U.S.C. § 101 by broadening the exceptions in a judicial opinion, especially if doing so would require the court to ignore the record.
Judge Rader wrote "additional reflections" in which he proposes a simple remedy: "When all else fails, consult the statute!" Judge Rader suggests that the statute offers a patent to both inventions and discoveries, including simply an improvement on a known process or product. He cautions that "Section 101 is not a 'condition of patentability', that would be a defense to infringement under 35 U.S.C. § 282. Thus, one might conclude that Judge Rader's reflection is a suggestion that the courts should not be looking into 35 U.S.C. § 101 at all, when it has been raised as a defense to infringement.
The USPTO's Interpretation of CLS Bank
The USPTO, recognizing that the Federal Circuit's CLS Bank decision did not articulate any clear changes in 35 U.S.C. § 101 jurisprudence, issued a memorandum to its Examiners on May 13, 2013,2 instructing them that there should be "no change in the examination procedure for evaluating subject matter eligibility," currently detailed in the Manual of Patent Examining Procedure § 2106. The USPTO's memo proffered its own view on three points that it considered "important themes" from CLS Bank, while noting that the USPTO is continuing to study the decision and would issue further detailed guidance if necessary. First, the USPTO noted that the judges agreed that "the test for eligibility is not a rigid, bright-line test and must be made by evaluating a claim as a whole, on a case-by-case basis, using a flexible approach." Second, it noted that "[m]any of the judges explicitly noted that the test for eligibility is a separate and distinct inquiry from other patentability concerns, particularly novelty and nonobviousness. And, third, the USPTO noted that the judges generally agreed that "when evaluating the claim as a whole, the claim must be analyzed to determine whether the additional limitations add significantly more, or in other words add meaningful limits, to the abstract idea or law of nature."
Originally printed in CIPA Journal.