|OVERVIEW OF THE OPINION

In a much-awaited decision, a divided Federal Circuit attempted to clarify the limits of computer software patentability in CLS Bank International v. Alice Corporation Pty. Ltd. [Click here.] Sitting en banc, the court split 5-5 to affirm the district court’s holding that several asserted method, computer-readable media, and system claims relating to methods for reducing risk in financial transactions were not directed to patent eligible subject matter under 35 U.S.C. § 101.

Section 101 has been a hot-button topic in the patent area in recent years. It has been repeatedly asserted to disqualify and thus invalidate patents that are not specifically limited to some tangible medium, like a computer, or that fall within the categories of an abstract idea, natural phenomenon, or natural law. Most patents facing a Section 101 challenge are software and business-method patents which are alleged to claim only abstract ideas that should not be patented for fear of preempting the use of such ideas by all. However, courts have been increasingly inconsistent in defining what renders patent claims too “abstract” to survive Section 101 scrutiny.

The 135-page CLS Bank decision is yet another model of confusion on the question of whether software patent claims are too “abstract” to survive a challenge under Section 101. The accused infringer, CLS Bank, alleged that the patents at issue were patent ineligible because they merely claimed the abstract idea of reducing risk in financial transactions by using a third-party intermediary. The district court agreed. The appellate decision, however, boasts differing opinions by seven of the 10 judges sitting on the panel, demonstrating the deep divide of the court regarding Section 101 patent eligibility and the Section’s application.

While there was no majority opinion, eight of the 10 judges on the panel believed that all the patent claims should rise and fall together, regardless of their type, because they all related to the same purpose of reducing financial risk in the manner claimed. In the lead opinion, five of the judges agreed that all the claims were ineligible because the subject matter was too abstract. On the other hand, seven of the 10 agreed that the method and computer-readable media claims at issue were not patent eligible, but for different reasons. (See chart below and accompanying text for further analysis of the split decision.)

Two of the judges “split the baby,” finding that the system claims (which were specifically directed to computer devices implementing the risk-reduction methods) recited patent-eligible subject matter, but that the method and computer-readable media claims (which lacked such a tangible tie) did not. Finally, three judges would hold all the claims patent eligible.

LACK OF CLARITY CONTINUES

In the end, patentees are still without a solid answer as to how far Section 101 reaches to disqualify software or business-method patents as “abstract ideas.” Though each opinion clearly invites the Supreme Court to sweep away the Section 101 “fog,” it is unclear whether the case will be appealed and, even then, whether the high court will grant certiorari to once again address this hot-button topic.

SUMMARY REVIEW OF THE OPINION

The Lead Opinion

The lead opinion, written by Judge Alan Lourie and joined by Judges Timothy Dyk, Sharon Prost, Jimmie Reyna, and Evan Wallach, affirmed the district court’s decision striking down several patents related to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party in a way that eliminates risk. The opinion seeks to develop “a consistent, cohesive, and accessible approach to the Section 101 analysis—a framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts ... that turns primarily on the practical likelihood of a claim preempting a fundamental concept.”

In setting forth such a framework, the opinion revisits past Supreme Court precedent involving Section 101, including the Mayo v. Prometheus decision decided in 2012. Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). Prometheus involved method claims related to the dosing of a particular medication in patients, a method the court ultimately held fell under natural law and was thus patent ineligible. In making this determination, the Supreme Court arguably interpreted Section 101’s requirement that inventions be “new and useful” (see 35 U.S.C. § 101) as requiring inventions to have an “inventive concept.”

Judge Lourie’s opinion thus first attempts to quash any confusion between the Supreme Court’s “inventive concept” directive for Section 101 patent eligibility and the requirements for patentability set forth in Section 102 (anticipation/novelty), Section 103 (obviousness), and Section 112 (written description, enablement, and indefiniteness) of the current United States patent statute. To ensure each section retains its separate application, the opinion ultimately concludes that “inventive concept” must refer to a “genuine human contribution to the claimed subject matter.”

Following this concept, the lead opinion sets forth a three-step analysis for determining patent eligibility under Section 101:

  1. Does the claimed invention fit within one of the four statutory classes set out in Section 101 (i.e., process, machine, manufacture, or composition of matter)?
  2. Does the claimed invention fall within one of the judicially created exceptions (i.e., law of nature, natural phenomena, or abstract idea) that represent the basic tools of scientific and technological work, which might preempt all use of such a fundamental concept?
  3. Do the claims involve some genuine human contribution—that is, some added step or steps that amount to more than well-understood, routine, conventional activity previously engaged in by researchers in the field?

The lead opinion reviewed each type of asserted claim separately and determined that while all of these claims passed Step 1 of the opinion’s analysis structure, because each encompass either processes, computers (machine), or computer-readable storage media (machine/device), the claims ultimately failed Step 2. Specifically, the opinion holds that all the claims fall within the “abstract idea” exception because they “draw on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary … [that is] empowered to verify that both parties can fulfill their obligations before allowing the exchange, i.e., a form of escrow” typically used in the applicable field of trade.

That the claims require computer implementation or even specific computer devices was not enough, since “a computer itself does not confer patent eligibility.” The underlying method nevertheless remains an abstract concept of “reducing settlement risk by facilitating a trade through third-party intermediation … because it is a ‘disembodied’ concept … a basic building block of human ingenuity, untethered from any real-world application.” The computer limitations, the opinion states, simply do not add “enough” beyond the abstract idea to limit the claim to a narrower, patent-eligible application of the idea. According to the opinion, the claims do not possess any “inventive concept.”

Accordingly, the lead opinion effectively affirms the district court’s finding that all the claims are “patent ineligible,” i.e., not eligible for patent protection.

The Other Opinions

In a 42-page opinion concurring in part and dissenting in part, Chief Judge Randall Rader, joined by Judges Richard Linn, Kimberly Moore, and Kathleen O’Malley, states that the district court’s determination that the system claims at issue are not patent eligible should be reversed (hereinafter, “Rader opinion”).

After many pages of statutory interpretation and analysis with respect to Sections 101, 102, 103, and 112 of the Patent Act, the Rader opinion attacks the lead opinion’s analysis of the Supreme Court’s “inventive concept” phrase. While agreeing with the lead opinion that “[s]uch language should not be read to conflate principles of patent eligibility with those of validity,” the Rader opinion further asserts that “[n]or should it be read to instill an ‘inventiveness’ or ‘ingenuity’ component into the inquiry [of Section 101].”

Rather, the Rader opinion views the "inventive concept" language “as shorthand for [the Supreme Court’s inquiry into whether implementing the abstract idea in the context of the claimed invention inherently requires the recited steps … that anyone wanting to use the natural law [or abstract idea] would necessarily use.” Interestingly enough, this statement seemingly conflates the Section 101 issue with Section 103 obviousness, since it references what one might necessarily—and thus obviously—use.

Turning to the patent claims themselves, the Rader opinion states that it would hold the system claims (that is, those that specifically claim computer elements) patent eligible. In so doing, the Rader opinion focuses on the various algorithms disclosed in the specification for performing the claimed functions. The algorithms, the Rader opinion posits, import the requisite “structural and functional limitations that show even more clearly that the claims are directed to a concrete and practical application of any underlying idea.” However, such analysis seems to conflate Section 101 issues with validity concerns, specifically Section 112 written-description and indefiniteness parameters. The question as raised by the alleged infringer was not whether the specification discloses the requisite algorithms, but whether the functions the algorithms are to perform (that is, the underlying methods for reducing settlement risk) are themselves abstract.

The Rader opinion ultimately agrees that the method and computer-readable medium claims are directed to abstract concepts, which demonstrates an odd disconnect with respect to the system claims requiring the same functionality. In effect then, the conclusion of the Rader opinion is that sufficient disclosure of computer elements and their algorithms should allow claims to survive Section 101 scrutiny, regardless of the abstract nature of the underlying functions performed.

Indeed, the Rader opinion states that “labeling [the disclosed computer] system an ‘abstract concept’ wrenches all meaning from those words, and turns a narrow exception into one which may swallow the expansive rule (and with it much of the investment and innovation in software).”

Judge Moore also authored a dissenting-in-part opinion in which Judges Rader, Linn, and O’Malley joined. Judge Moore fears that the "abstract idea" exception of Section 101 is “causing a free fall in the patent system” that could result in the “death of hundreds of thousands of patents, including all business method, financial system, and software patents.” Judge Moore thus takes issue with the lead opinion’s “stripping away of 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.” Ultimately, Moore’s opinion also concludes that the system claims are directed to eligible subject matter, but not the others.

Judge Pauline Newman, on the other hand, wrote separately to argue that the threshold issue of Section 101 eligibility has been improperly emphasized such that it has itself become a test of patentability. Judge Newman would thus hold that all the claims are patent eligible under a strict reading of the statute because they are process and machine claims (“when the subject matter is within the statutory classes in [S]ection 101, eligibility is established”).

Lastly, Judges Linn and O’Malley wrote a dissenting opinion arguing that all the claims are patent eligible because they either specifically or inherently require computer implementation of risk-reducing methods set forth by the disclosed algorithms and flow charts provided in the specification.

DISSECTING CLS BANK V. ALICE CORP.

The chart below summarizes the judges’ positions and opinions in the case.

Click here to view charts.

Many of the CLS Bank opinions explicitly asked the Supreme Court to weigh in and clarify the Section 101 issues. In the meantime, while patent lawyers are still parsing the CLS Bank decision, the precedential effect of this case may be nonexistent. As stated by Rader,

No portion of any opinion issued today other than our Per Curiam Judgment garners a majority. The court is evenly split on the patent eligibility of the system claims. Although a majority of the judges on the court agree that the method claims do not recite patent eligible subject matter, no majority of those judges agrees as to the legal rationale for that conclusion. Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.

Additionally, the Patent Office has since issued a memorandum to the Patent Examining Corps stating that no change in examination procedure for evaluating subject matter eligibility will occur at this time due to the “multiple divergent opinions” of the Federal Circuit Court panel.

APPLYING SECTION 101: A FEW LAST THOUGHTS

Though the impact of the CLS Bank case is unclear, entities seeking to patent computer software or business methods should carefully consider the three questions presented by the Lead Opinion, which are set forth above, before submitting claims that are not specifically tied to a particular process or machine/computer. Even if an entity’s claims are tied to computer implementation, however, it should internally discuss and determine whether there is a true “inventive concept” underlying the subject matter it seeks to patent and perhaps should be prepared to identify the “genuine human contribution” to the invention.

Additionally, system or computer claims should still be drafted with an eye toward the computer providing some meaningful limitation to the claims, rather than simply claiming conventional computer devices running routine operations. At a minimum, computer-implemented claims should be well supported in the specification, including algorithms disclosing the particular claimed functionality. This is particularly critical if means-plus-function claim drafting is employed.

Lastly, accused infringers should look to invalidate software or business-method patents as patent ineligible under Section 101 where the claims fail to recite computer implementation limitations. For claims that do recite some computer implementation, accused infringers may succeed by determining and focusing on whether the invention is truly directed to an abstract idea or concept central to the field of science or technology at issue, which otherwise might be wholly preempted if the patent were enforced.