In the wake of the US Supreme Court’s decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010), the Court of Appeals for the Federal Circuit has provided incremental guidance regarding the patent-eligibility of software-related business method patents. CyberSource Corp. v. Retail Decisions, Inc., Case. No. 2009-1358 (Fed. Cir. Aug. 16, 2011). A unanimous panel affirmed the Northern District of California’s grant of summary judgment of invalidity under 35 U.S.C. § 101 for failure to recite patent-eligible subject matter. In doing so, the court clarified how courts should address process claims involving methods “which can be performed entirely in the human mind.”

The patent at issue, US Patent No. 6,029,154, is directed to the detection of fraud in certain online transactions. The patent discloses that known fraud detection systems that rely on the matching of billing and shipping addresses are insufficient for transactions involving downloadable content. The patent addresses this problem by “determin[ing] whether an Internet address relating to a particular transaction ‘is consistent with other Internet addresses [that have been] used in transactions utilizing [the same] credit card.’”

Retail Decisions challenged claims 2 and 3 of CyberSource’s patent. Claim 3 recites a “method for verifying the validity of a credit card transaction” including steps of “obtaining information about other transactions that have utilized an Internet address that is identified with the … credit card transaction,” “constructing a map of credit card numbers based on other transactions,” and “utilizing the map … to determine if the credit card transaction is valid.” Claim 2 is a so-called Beauregard claim—a claim to a computer readable medium reciting program instructions for a computer to perform the process of claim 3. The Federal Circuit affirmed the invalidity of both claims under 35 U.S.C. § 101.

Section 101 of the patent statute states that “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.” In Bilski, the Supreme Court held that the Federal Circuit’s “machine or transformation” test is a “useful and important clue” for determining patent-eligibility, but “is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” The Supreme Court left the door open for the Federal Circuit to develop additional “limiting criteria that further the purposes of the Patent Act.”

In CyberSource, the Federal Circuit held that “one could mentally perform the fraud detection method that underlies both claims 2 and 3 of the [patent-at-issue], as the method consists of only the general approach of obtaining information about credit card transactions utilizing an Internet address and then using that information in some undefined manner to determine if the credit card transaction is valid.” The court noted that the claims were not limited to (and the specification did not disclose) “any specific fraud detection formula or mathematical algorithm,” but, rather, encompassed any means for “utilizing the map of credit card numbers to determine if the credit card transaction is valid.” Thus, the court found that the claims were not patent-eligible:

Such a method that can be performed by human thought alone is merely an abstract idea and is not patent-eligible under § 101. Methods which can be performed entirely in the human mind are unpatentable not because there is anything wrong with claiming mental method steps as part of a process containing non-mental steps, but rather because computational methods which can be performed entirely in the human mind are the types of methods that embody the ‘basic tools of scientific and technological work’ that are free to all men and reserved exclusively to none.

With respect to claim 2, the Federal Circuit rejected CyberSource’s argument that the claim was patent-eligible per se because it recites a “manufacture,” and instead “look[ed] to the underlying invention.” The court held that it is insufficient to “simply recit[e] the use of a computer to execute an algorithm that can be performed entirely in the human mind.” As such, claim 2 was not patent-eligible because it claimed only the “mere manipulation or reorganization of data.” The court reasoned:

As we stated in Bilski, to impart patent-eligibility to an otherwise unpatentable process under the theory that the process is linked to a machine, the use of the machine ‘must impose meaningful limits on the claim’s scope.’… Thus, merely claiming a software implementation of a purely mental process that could otherwise be performed without the use of a computer does not satisfy the machine prong of the machine-or-transform test.

CyberSource is the first post-Bilski Federal Circuit case addressing the patentability of software business-method claims. Its impact will be closely monitored, as it provides important guidance to lower courts, patent drafters, and litigants. The decision may render method and Beauregard claims reciting broad software methods that can be performed by the human mind more susceptible to invalidity challenges under 35 U.S.C. § 101. Additionally, the case should serve as a roadmap to patent applicants looking to include computer-based elements in software claims to better guard against such challenges.