Last Friday, May 10, 2013, in CLS Bank v. Alice Corp., No. 2011-1301, the Federal Circuit (en banc) issued a very divided decision in which a majority of the court affirmed that method, computer-readable medium and system patent claims on a computer-implemented invention were not patent eligible under § 101, but there was no majority consensus on the rationale as to why those claims were not patentable subject matter. As a result, this en banc decision has no precedential value beyond the specific determination of patent eligibility for the particular claims at issue. The fractured nature of the decision—and even intimations by judges on the court—indicate that this case may be primed for Supreme Court review.
This 135-page decision has seven separate opinions, summarized below. A few top-level points may be gleaned from them:
Bancorp. The Bancorp decision on patent eligibility of computer-implemented inventions remains on the books, and was originally authored and cited here by Judge Lourie (as well as Judges Prost and Wallach, who join Judge Lourie’s concurrence). The Bancorp decision has a more restrictive view of patent eligibility, as described in our prior summary of the Bancorp decision. With the prior permissive CLS panel decision now vacated and replaced by this en banc decision that the claims are not patent eligible, the scales appear to currently tip toward Judge Lourie’s more restrictive view of patent eligibility. But at the same time, one cannot read too much into this, as Bancorp is but one of many decisions on the issue. None of the other opinions from the CLS en banc court in this case cite to Bancorp.
Broad Statutory Categories. All opinions in this case acknowledge that there are four broad statutory categories of patent-eligible subject matter under Section 101: “a process, machine, manufacture, or composition of matter.”
Judicially-Created Exceptions. All opinions in this case acknowledge that there are three judicially-created exceptions to patent-eligible subject matter—laws of nature, natural phenomena and abstract ideas—that should not be patented because they represent “the basic tools of scientific and technological work.” The opinions, however, treat differently the issue of how narrowly these judicial exceptions should be applied.
Form of the Claim. The opinions differ on what role is played by the form of the claim and the claim language. Judge Lourie’s concurrence and Judge Newman’s dissent view the form of the claim—e.g., whether phrased as a method, computer-readable medium or system claim—as not being controlling on the issue. Judge Rader’s dissent, Judge Moore’s concurrence and Judge Linn’s dissent view the claim language as a whole important and counsel against the Judge Lourie approach of distilling a claim to a paraphrased essence—which they claim will ignore limitations and preordain a conclusion that the claim is directed to an abstract idea.
Patent Claims At Issue
The patent claims at issue concern a way to manage “settlement risks” in financial transactions where there is a risk that, after entering a financial agreement, one of the parties may not be able to perform by the time of the agreed upon exchange of obligations. This settlement risk is obviated by having a trusted third-party (e.g., escrow agent) exchange the parties’ respective obligations at the designated time upon determining that both can perform their obligations at that time.
The patent is directed to using such a third party for an exchange using a computer. The patent claims are drafted in three different forms:
– Method claims directed to a process for performing the exchange.
– Computer-readable media claims directed to a computer medium that has software to perform that process.
– System claims directed to a computer system to perform that process.
At the district court level, both parties filed cross-motions for summary judgment on whether the claims were patent eligible under Section 101. The claims were not construed, but the parties agreed that all claims should be interpreted to require computer implementation. The district court held that the claims were not directed to patent-eligible subject matter, but to “an abstract idea” of using a third-party intermediary to exchange obligations in a financial transaction.
Per Curiam Opinion.
The decision of the court is summarized in a two-sentence per curiam opinion that holds that none of the patent claims are patent eligible based on cobbling together a majority of judges on each issue (though they reached results for different reasons).
Judge Lourie Concurrence
Judge Lourie’s concurrence (joined by Dyk, Prost, Reyna and Wallach) would affirm that all claims are not patent eligible. Judge Lourie applied a two-step patent-eligibility inquiry. First, the claimed invention must be directed to one of the four broad statutory categories of Section 101: “a process, machine, manufacture, or composition of matter.” Second, the claimed invention must not fall within three judicially-created exceptions—“law of nature, natural phenomenon, or abstract idea”—because they represent “the basic tools of scientific and technological work.”
This inquiry is guided by the Supreme Court guidepost for patent eligibility. “First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery”—e.g., laws of nature, natural phenomena and abstract ideas. If a claim threatens to subsume the full scope of a fundamental concept, then the court must look for “meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application.”
Second, patent eligibility should avoid “overly formalistic approaches” that would encourage claim drafting strategies to avoid the basic exceptions to patent eligibility.
Third, patent eligibility should “urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing” that will account for “unanticipated technological advancements” while still remaining true to core patent eligibility principles.
A preliminary question is “Does the claim pose any risk of preempting an abstract idea?”—which requires identifying the abstract idea at risk and then whether additional substantive limitations “narrow, confine, or otherwise tide down the claim so that, in practical terms, it does not cover the full abstract idea itself. The search for limitations beyond the abstract idea has been referred to identifying the “inventive concept,” but this should not be confused with statutory patentability concepts such as anticipation or obviousness. Rather, the “inventive concept” for patent eligibility “refers to a genuine human contribution to the claimed subject matter” that is more than trivial, tangential, routine, well-understood or conventional applications of the underlying abstract idea “that effectively covers the natural law or abstract idea itself.”
In this case, the method claims are drawn to a form of escrow that reduces financial trade settlement risks by using a third-party intermediary. The remaining balance of the method claims simply adds generic computer functionality that does not add significantly more to this idea of third-party mediation. To uphold these claims’ patent eligibility “would effectively grant a monopoly over an abstract idea.”
The computer-readable medium claims fall for the same reason, because they are simply method claims in disguise. The same holds true for the system claims, which appear to be a straightforward translation of the method claims, and the courts should not reward “clever claim drafting.” Rather than a “significant ‘inventive concept’,” the system claims are “akin to stating the abstract idea of third-party intermediation and adding the words: ‘apply it’ on a computer.” “Abstract methods do not become patent-eligible machines by being clothed in computer language.”
Judge Rader Concurrence/Dissent In-Part
Judge Rader concurs-in-part and dissents-in-part, joined by Judge Moore and joined in part by Judges Linn and O’Malley. Judge Rader and Moore rule that the system claims are patent eligible, but not the method or medium claims; Judges Linn and O’Malley would hold all claims patent eligible. Given the disparate views of the court, at the outset, Judge Rader notes that there is no majority on the rationale for holding the claims patent ineligible, so “nothing said today beyond our judgment has the weight of precedent.”
Judge Rader views broadly the Section 101 categories of patentable subject matter: “any new and useful process, machine, manufacture, or composition of matter, or … improvement thereof.” This is bolstered by the addition of Section 100(b) to expand “process” to include a new use of a known machine and to cover something that is “discovered” as well as invented.
This broad scope of patent eligibility is tempered by three narrow judicially-created exceptions—laws of nature, natural phenomena and abstract ideas—in order to prevent monopolization of the “basic tools of scientific and technological work” that could “impede innovation more than it would tend to promote it.” These three narrow exceptions must be applied by considering the claims “as a whole” without ignoring limitations in a search for abstractions (as Judge Lourie did in his concurrence). The inquiry is whether the claim “seeks to patent an idea itself, rather than an application of that idea.” These judicial exceptions must be construed narrowly and established by clear and convincing evidence.
A claim is not “meaningfully limited” if it (i) merely describes an abstract idea or simply adds “apply it”, (ii) covers “all practical applications of an abstract idea,” (iii) contains “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,” or (iv) “provide[s] no real direction, cover all possible ways to achieve the provided result, or [is] overly-generalized.”
In contrast, a claim may be “meaningfully limited” if (i) it requires a particular machine to implement a process or (ii) in addition to abstract idea there are limitations “essential to the invention.” The fact that a claim is tied to a computer is not dispositive, but indicative of patent eligibility. The key is whether claims tie the abstract idea to a specific way of doing something or to a specific computer.
The system claims have at least four separate structural computer components with a specific structural configuration. This goes beyond simply claiming an abstract idea of using an escrow. The system claims, therefore, are patent-eligible.
Because the method claims fall within the Section 101 “process” category, they are patent eligible unless they fall within a narrow judicial exception. But the method claim limitations beyond the abstract escrow idea are “inherent” to the escrow idea—e.g., when applying the escrow idea an escrow agent inherently would establish its own “shadow” records of the parties’ records, obtaining account values, etc. The method claims, therefore, are not patent eligible. Judge Rader further states that the media claims also are not patent eligible, but does not explain why.
Judge Moore Dissent-In-Part
Judge Moore (joined by Judge Rader) dissents-in-part from the ruling that the system claims are not patent eligible. Judge Moore expresses concern that holding otherwise would jeopardize thousands of already-issued patents, “including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents”—for example, “nearly 20% of all the patents that actually issued in 2011.”
The system claims are directed to “tangible machine components with limited specialized functions programmed consistent with detailed algorithms disclosed in the patent.” As such, “How can this system, with its first party device, data storage unit, second party device, computer, and communications controller, be an ‘abstract idea’?” Rather, the claims’ being tied to a computer machine is a “useful and important clue” of patent eligibility.
The “key question” is whether the claim “recites sufficiently concrete and practical application of an abstract idea” to be patent eligible. For example, “adding insignificant, pre- or post-solution activity to an abstract idea does not make the claim any less abstract.” But Lourie’s concurrence improperly strips away all limitations, rather than analyzing the claim as a whole. The system claims have structural limitations that restrict the claim by requiring certain physical components. The structurally-defined machine is more than a method claim, because it “is a practical application of the underlying idea, limited to the specific hardware recited and the algorithms disclosed to perform the recited functions.” Judge Moore would hold the system claims patent eligible (though that does not mean they otherwise are patentable under other statutory provisions such as Section 102 anticipation or Section 103 obviousness).
Judge Newman Concurrence/Dissent-In-Part
Judge Newman dissents-in-part and would hold all claims patent eligible. She expresses concern that the uncertainty provided by the divided en banc decision will harm innovators and competitors alike. She indicates that the concern of patent eligibility has been much greater than necessary out of the erroneous concern that saying something is eligible for a patent will remove that patented information from further study or experimentation. She suggests confirming that (1) Section 101 patent eligibility is broad and inclusive, (2) Section 101 patent eligibility is not determined by the form of the claim (e.g., method, medium or system) and (3) use of patented information is not barred by a patent (e.g., that “study and experimentation are not infringement” whether for commercial purpose or otherwise).
Judge Linn and O’Malley Dissent
Judges Linn and O’Malley dissent and would hold all claims patent-eligible based on the record and the agreed-upon claim construction presented that incorporated computer implementation limitations into both the method and system claims. They are concerned by Judge Lourie’s concurrence, which they argue ignores the limitations of the claim as a whole and focuses on a paraphrased abstraction of the claims that “preordains the method claims ineligible.”
In this case and based on record below, the claims are not unduly pre-emptive given the presence of the computer-based limitations in all the claims—including the method claims. The claims thus are directed to a specific way of doing an abstract idea. Because the judicial abstract idea exception is a narrow judge-made exception to a broad statute, and given the record in the case, they would hold all claims patent-eligible.
Judges Linn and O’Malley also acknowledge that amici expressed concern about questionable software patents, but argue that the solution to any problem lies with Congress, such as by limiting the term of software-based patents.
Judge Rader Additional Reflections
Judge Rader submitted some “additional reflections,” where he counsels consulting the patent statute language and avoid injecting statutory invalidity issues—such as Section 102 anticipation or Section 103 obviousness—into the broad statutory language of Section 101 patent eligibility.