Source: https://www.complexip.com/financial-patent-method-claims-held-invalid-as-covering-only-abstract-idea-no-transformation-of-data-or-ties-to-a-specific-computer/
Timestamp: 2019-04-26 02:17:44+00:00

Document:
The U.S. District Court for the District of Columbia invalidated patent claims directed to a method of exchanging financial obligations between parties in CLS Bank Int’l v. Alice Corp. Pty, Ltd., Case No. 07-974 (D.D.C. March 9, 2011) (available here). In summary, the District Court held that all of the claims at issue were directed to unpatentable subject matter under 35 U.S.C. § 101 because (a) the patent claims at issue did not involve any transformation of data and (b) the claims were not tied to a particular machine or computer. The patent specification described computer systems and methods employing the use of a computer with specific programming, but the claims at issue were independent of the broader trading platform disclosed in the specification. This trial court decision shows the uncertainties of litigation and the application of the “abstract idea” test under Section 101 of the Patent Statute.
As for the technology, the patents owned by Alice Corp. include computer aided processes and methods directed to a method of exchanging financial obligations between parties. The computer system claims, also invalidated by the trial court, cover data processing systems which implement steps for exchanging obligations. Computer product claims (non-transitory software stored in computer readable media) enable a computer to send a transaction to the system which further enables a user to view the exchange of financial obligations performed by the computer system. The broad based disclosure of Alice Corp’s prime parent patent, the ‘479 patent, is directed to a complex trading platform that facilitates a wide array of parties to participate, via the patented computer-based exchange, and enter into contracts to hedge against future risks of various types. See Alice Corp’s ‘479 patent (available here). The patents at issue include: U.S. Patent No. 5,970,479 (“’479 Patent”); U.S. Patent No. 6,912,510 (“’510 Patent”); U.S. Patent No. 7,149,720 (“’720 Patent”); and U.S. Patent No. 7,725,375 (“’375 Patent”). One key method patent claim from the ‘479 Patent is reproduced below.
Claim 33, U.S. Patent No. 5,970,479.
34. The method as in claim 33, wherein the end-of-day instructions represent credits and debits netted throughout the day for each party in respect of all the transactions of that day.Claim 34, ‘479 Patent.
Readers of this blog may note that an argument can be made that the reference to “credits and debits being irrevocable, time invariant obligations placed on the exchange institutions” seems to indicate that data representing money has changed hands. The contrary position, adapted by the U.S. District Court is that “instructing” the exchange of credits and debits (element d) is not the same as the exchange of a financial obligation between the parties.
Generally speaking, the patent portfolio is directed to a complex trading platform that facilitates a wide array of parties to come together and enter into contracts to hedge against future risks of all sorts.
“The Supreme Court has enunciated three exceptions to the Patent Act’s broad subject matter eligibility framework: ‘laws of nature, physical phenomena, and abstract ideas.’ Bilski II, 130 S. Ct. at 3225 (quoting Chakrabarty, 447 U.S. at 309). Thus, even if an invention appears to nominally claim subject matter that would be statutorily covered by the Patent Act, it will be denied patent protection if it falls into one of the ‘fundamental principles’ exceptions, i.e. a law of nature, natural phenomena, and/or an abstract idea, which have been expounded by the Supreme Court in Gottschalk v. Benson, 409 U.S. 63 (1972), Parker v. Flook, 437 U.S. 584 (1978), Diehr, 450 U.S. 175, and most recently Bilski II, 130 S. Ct. 3218. An underlying reason for these exceptions is that ‘[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work.’ Benson, 409 U.S. at 67; accord Diehr, 450 U.S. at 185 (‘A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.’) (citation omitted). Although the ‘fundamental principles’ exceptions are not statutory, the Supreme Court has found them to be consistent with the requirement that a patentable invention be ‘new and useful.’ Bilski II, 130 S. Ct. at 3225 (citing 35 U.S.C. § 101). The Supreme Court recently emphasized that a lower court should be attentive to the ‘guideposts’ of Benson, Flook, and Diehr when considering these exceptions to subject matter patentability. Id. at 3231.” Slip opinion pg. 14 (herein “P. 14″).
The trial court recognized that “There is no clear definition of what constitutes an abstract idea … [and] [t]he Federal Circuit declined to ‘presume to define ‘abstract’ beyond the recognition that this disqualifying characteristic should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and the statutory context that directs primary attention on the patentability criteria of the rest of the Patent Act.’” P. 17-18, quoting Research Corp. Techs. v. Microsoft Corp., 627 F.3d 859, 868 (Fed. Cir. 2010); see also Bilski II, 130 S. Ct. at 3238.
(a) the process claims did not pass the “machine-or-transformation” (“MOT”), wherein a process is patentable under Section 101 if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Bilski I, 545 F.3d at 954. The process claims must impose meaningful limits on the claim’s scope to impart patent-eligibility and the claimed use of the machine or transformation of data must not merely be an insignificant extra-solution activity. Id. at 961–62. See P. 20.
(b) legal obligations were not enough to qualify as transformations under the Patent Act. Bilski I, 545 F.3d at 962, notwithstanding Alice Corp’s arguments that the electronic transformation of data caused by the methods’ electronic adjustment of accounts satisfies the transformation prong of the test.
(c) the nominal recitation of a general-purpose computer in a method claim does not tie the claim to a particular machine or apparatus or save the claim from being found unpatentable under § 101. See, e.g., Fuzzysharp Techs., Inc. v. 3D Labs Inc., Ltd., No. 07-5948, 2009 U.S. Dist. LEXIS 115493, *12 (N.D. Cal. Dec. 11, 2009).
(d) the system and computer readable medium claims are invalid because “the system claims in the ’720 Patent would preempt the use of the abstract concept of employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk on any computer, which is, as a practical matter, how these processes are likely to be applied.” P. 51.
This decision and the others cited by the District Court highlight the importance of finding a clear annunciation of a data transformation in financial patent claims.

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