Source: http://swipreport.com/business-method-claims-not-patent-eligible-in-cls-bank-deeply-divided-federal-circuit-holds/
Timestamp: 2014-10-02 06:23:16
Document Index: 86649086

Matched Legal Cases: ['§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101', '§ 101']

Business Method Claims Not Patent-Eligible in CLS Bank, Deeply Divided Federal Circuit Holds | The Software Intellectual Property Report
Business Method Claims Not Patent-Eligible in CLS Bank, Deeply Divided Federal Circuit HoldsBy Charles Bieneman on May 12, 2013 in Patentable Subject Matter, Software Patents The Federal Circuit has held that patent claims directed to using an intermediary in financial transactions to eliminate settlement risk are not patent-eligible. CLS Bank International v. Alice Corp., No. 2011-1301 (May 10, 2013). Sitting en banc, a majority of the Court, albeit not all on the same grounds, found that “the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101.” However, the Court was equally divided in affirming “the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.” Further, a majority of the court agreed that “the particular method, medium, and system claims at issue in this case should rise or fall together in the § 101 analysis.”
In July, 2012, a three judge panel (Judges Linn and O’Malley were in the majority, and Judge Prost wrote in dissent) had found the claims at issue to be patent-eligible. The panel had reversed the district court’s holding that the claims were not patent-eligible. The present case follows the Federal Circuit’s decision to grant a rehearing en banc following the panel’s decision.
Judge Lourie, joined by the plurality of Judges Dyk, Prost, Reyna, and Wallach, began by explaining that the four patents at issue “all derive from the same family and share substantially the same specification, concern “the management of risk relating to specified, yet unknown, future events.” After briefly discussing the subject matter of the patents, and the district court’s grant of summary judgment of invalidity under Section 101, Judge Lourie’s opinion turned to its analysis.
After reviewing some of the usual suspects (Diamond v. Chakrabarty, Bilski v. Kappos, Diamond v. Diehr, and Mayo Collaborative Servs. v. Prometheus Labs., Inc.), Judge Lourie summarized the current analysis for determining patent eligibility under Section 101:
We must first ask whether the claimed invention is a process, machine, manufacture, or composition of matter. If not, the claim is ineligible under § 101. If the invention falls within one of the statutory categories, we must then determine whether any of the three judicial exceptions nonetheless bars such a claim—is the claim drawn to a patent ineligible law of nature, natural phenomenon, or abstract idea? If so, the claim is not patent eligible. Only claims that pass both inquiries satisfy § 101.
Then, with extreme understatement, Judge Lourie noted that, “[w]hile simple enough to state, the patent-eligibility test has proven quite difficult to apply.” The reason for this difficulty, Judge Lourie explained, “lies in consistently and predictably differentiating between, on the one hand, claims that would tie up laws of nature, natural phenomena, or abstract ideas, and, on the other, claims that merely ‘embody, use, reflect, rest upon, or apply’ those fundamental tools.” (Quoting Mayo v. Prometheus.)
Judge Lourie then turned back to the review of familiar Section 101 precedent: Gottschalk v. Benson (method for converting binary coded decimals not patent eligible), Parker v. Flook (use of alarm when mathematical formula indicated a threshold was reached not patent eligible), Diamond v. Diehr (process for curing rubber that used a programmed algorithm was patent eligible), Bilski v. Kappos (method for hedging risk in commodities transactions not patent eligible), and Mayo v. Prometheus (method for administering a drug and determining a resulting metabolite concentration not patent eligible).
Following this summary of Section 101 precedent, Judge Lourie identified “common themes that run through the Supreme Court’s decisions” and that “should frame our analysis in this and other § 101 cases.” Those themes included:
“[A]n abiding concern that patents should not be allowed to preempt the fundamental tools of discovery.”
“[C]aution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants.”
“Finally, the cases urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing.”
Turning to the claims at issue, Judge Lourie explained that the “concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a ‘disembodied’ concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application.” Therefore, “[s]tanding alone, that abstract idea is not patent-eligible subject matter.” The question, then, was “whether the balance of the claim adds ‘significantly more.'” The answer to this question was that:
[a]part from the idea of third-party intermediation, the claim’s substantive limitations 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. None of those limitations adds anything of substance to the claim.
Accordingly, the plurality found the method claims not patent-eligible. The plurality reached the same result with respect to computer-readable medium claims because they were merely “merely method claims in the guise of a device.” Claims drafting techniques should not be allowed to endow a claim with patent-eligible status. The computer-readable medium claims were “equivalent to the methods they recite for § 101 purposes.”
Likewise, the system claims here did not “deserve to be evaluated differently under the abstract ideas exception from the accompanying method claims.” The abstract ideas exception could be “plainly inapplicable” to some system claims. Here, however, the system claims did not “support any meaningful distinction from the computer-based limitations that failed to supply an ‘inventive concept’ to the related method claims.”
Chief Judge Rader began his opinion concurring and dissenting in part by noting that even though a majority of judges agreed that the method claims were not patent-eligible, no single line of reasoning commanded a majority, and no opinion had the weight of precedent. (Judge Rader was joined entirely by Judge Moore; Judges Linn and O’Malley joined Judge Rader only with respect to Judge Rader’s conclusion that the district court’s determination that system claims were not patent-eligible should be reversed.)
Judge Rader then turned to the history of Section 101. The statue was intended to be broad. The 1952 patent act intended that “inventiveness” analysis be replaced with “an objective test for obviousness.”
In determining exceptions to patent eligibility under the abstract idea test, precedent commands looking at the claim as a whole. Going back to the 1854 case of O’Reilly v. Morse (use of magnetism to transmit messages was not patent-eligible), it is clear that “the inquiry under the abstract ideas exception deals not merely with breadth.” Instead, the concern “is whether the claim seeks to patent an idea itself, rather than an application of that idea.”
After a long discussion of the abstract idea test, Judge Rader specifically discussed computer implemented inventions, concluding that “where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea, the claim is patent eligible.” Further, an analysis of the systems claimed here “demonstrates that each does not claim anything abstract in its machine embodiments.” The specifications described computer-implemented algorithms, which were illustrated in detailed flow charts. The claimed system was not abstract because it had definite structural elements. Judge Rader “would therefore reverse the summary judgment of invalidity for ineligibility of the system claims and remand them for further consideration.”
The method claims, on the other hand, recited “merely . . . general step[s] inherent within the concept of an escrow, using a third party intermediary.” The method claims did not mention a computer. In sum, “the claim as a whole embraces using an escrow to avoid risk of one party’s inability to pay—an abstract concept.” The claim was “indistinguishable from the claim in Bilski.”
Judge Moore, joined by Judges Rader, Linn, and O’Malley, wrote separately to express her concern that “current interpretation of § 101, and in particular the abstract idea exception, is causing a free fall in the patent system.” Judge Moore noted that if the claims here were “not patent-eligible, this case is 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.” The rest of the court was wrong that “the trajectory the Supreme Court has set for § 101 requires us to conclude that all of the claims at issue here are directed to unpatentable subject matter.” In this case, the “system claims at issue are directed to patent eligible subject matter.”
Judge Moore placed emphasis on In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc). There, the court held that “although many of the means-plus-function elements recited in the only asserted independent claim represent circuitry elements that perform mathematical calculations, ‘the claimed invention as a whole is directed to a combination of interrelated elements which combine to form a machine’ for performing the invention’s anti-aliasing technique.”
Here, “[l]ooking at [the disclosed hardware and software elements, it is impossible to conclude that this claim is merely an abstract idea.” The claims here did not simply recite “insignificant pre- or post-solution activity.” Further, holding the claims patent-eligible was not mere exaltation of form over substance, or allowing the draftsman’s art to hold sway.
Judge Newman, concurring in part and dissenting in part, began by noting the irony that the Court’s hope in granting a rehearing en banc had been to reduce the uncertainty surround Section 101 patent-eligibility questions. Instead, the Court “propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation.” The Court’s impasse “demonstrates that an all-purpose bright-line rule for the threshold portal of section 101 is as unavailable as it is unnecessary.”
Accordingly, Judge Newman proposed three basic principles for Section 101 analysis:
1. The court should hold that section 101 is an inclusive statement of patent-eligible subject matter.
2. The court should hold that the form of the claim does not determine section 101 eligibility.
3. The court should confirm that experimental use of patented information is not barred.
After expounding on these principles, Judge Newman concluded that she “share[d] the majority view that all of the claims stand or fall together.” However, in contrast to her colleagues, Judge Newman would have held “that the system, the method, and the media claims are eligible under section 101.” Judge Newman “would remand to the district court for determination of patentability under the substantive provisions of the statute.”
Judges Linn’s and O’Malley’s Opinion
Judges Linn and O’Malley, the majority of the panel that had held the claims patent-eligible, dissented from the Court’s judgment. The dissent agreed that the method, medium, and system claims all should rise and fall together. However, the dissenters argued that the claims were all “grounded by the same meaningful limitations that render them patent eligible.”
Even the method claims required a computer to be performed. Indeed, CLS’s counsel agreed at oral argument that “every limitation and electronic process that appears in the system claims must be read into the method claims.” CLS had to be bound by lower court proceedings and stipulations to which it had agreed. Judge Rader’s analysis of the method claims, which he found not patent-eligible, was inconsistent with the analysis of the system claims that Judges Linn and O’Malley joined him in finding patent-eligible.
Chief Judge Rader’s “Reflections”
Finally, Chief Judge Rader added some “Additional Reflections.” One of the first cases that Judge Rader helped decide when he came on to the Federal Circuit was Arrythmia Research Tech. v. Corazonix Corp., 958 F.2d 1053 (Fed. Cir. 1992). He thought that finding patent eligibility of the algorithm claimed there was easy, and was surprised when Judges Lourie and Newman struggled with the question. Yet the panel in that case was unanimous. However, twenty years later, “[t]he intervening commotion leaves us with little, if any, agreement amongst us even though the statute has not changed a syllable.”
The answer to the conundrum, Chief Judge Rader writes, is that “[w]hen all else fails, consult the statute!” He explained that
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