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Federal Circuit Fails to Agree on What Constitutes Patent Eligible Subject Matter with Respect to Computer-Implemented Inventions

May 30, 2013

The future of software patents and other computer-implemented inventions were hanging in the balance ahead of the Federal Circuit’s highly anticipated decision in CLS Bank Int’l v. Alice Corp. Pty. Ltd. (Fed. Cir. 2013) (en banc).  Everyone from the patent practitioner community, to the open source community, to the Silicon Valley tech giants chimed in, each proposing their own tests for how to judge computer-implemented inventions. The result was more uncertainty for applicants and owners of software patents.   

Sitting en banc,  The United States Court of Appeals for the Federal Circuit recently issued a per curiam decision on  CLS Bank Int’l v. Alice Corp. Pty. Ltd. (Fed. Cir. 2013).  The court was called upon to answer two questions.  First, what test should be applied to determine whether a computer-implemented invention is drawn to an abstract idea? And second, in assessing the subject matter eligibility of a computer-implemented invention, does it matter whether the invention is claimed as a method, system, or computer readable medium?  In the authorless opinion, the court affirmed the district court’s decision that Alice’s method, system, and computer readable medium claims were not directed to patent eligible subject matter under 35 U.S.C. § 101.  While the court was able to decide that the claims were not patent eligible, the court produced a highly fractured decision that included five concurring and/or dissenting opinions and neither of the questions asked of the court were definitively answered.  Nonetheless, CLS has provided us with some important guidance as to the direction of 35 U.S.C. §101 jurisprudence. 

The claims at issue were directed to the “management of risk relating to specified, yet unknown future events” using a form of escrow.  In essence, a trusted third party settles obligations between two parties in order to eliminate “counterparty” or “settlement” risk by verifying each party’s ability to perform its respective obligations.  The claims were recited in four related patents and were drafted as method, system, and computer readable medium claims (also referred to as “media claims” or “Beauregard claims”).  In general a computer readable medium claim is a claim that ties a method to a storage medium, e.g., memory or a CD, and a system claim defines a system, e.g., a computer or server, that is configured to perform the method.  In the fractured decision, seven of the ten judges found the method and computer readable medium claims to be unpatentable (Judges Lourie, Dyk, Prost, Renya, Wallach, Moore, and Chief Judge Rader).  Five of the ten judges found the system claim to be drawn to ineligible subject matter (Judges Lourie, Dyk, Prost, Renya, and Wallach).  Judges Linn, O’Malley, and Newman believed that all the claims were patentable.  The two most substantive opinions were those of Judge Lourie and Chief Judge Rader, both of which provide us with some insight as to how computer-implemented inventions may be analyzed in the future.    

Judge Lourie’s concurring opinion (joined by Judges Dyk, Prost, Renya, and Wallach) outlines the basic patent eligibility analysis where a court asks whether the claimed invention is a process, machine, manufacture, or composition of matter, as outlined in the text of 35 U.S.C. §101.  If the claim is not drawn to one of the statutory categories, the claim is not eligible for patent protection. If, however, the claim is drawn to one of the statutory categories, the court asks whether the claim falls under one of the exceptions to 35 U.S.C. §101, which are patent-ineligible laws of nature, natural phenomena, and abstract ideas.  These categories are ineligible for patent protection because they represent fundamental principles that are the “basic tools of scientific and technological work.”   Relying on previous Supreme Court decisions on subject matter eligibility[1], Judge Lourie provides some guidance on determining whether a claim is drawn to a fundamental principle.  In particular, a claim should not preempt an entire fundamental principle.  Put another way, a claim cannot be drawn such that it is coextensive with the fundamental principle, e.g., an abstract idea.  According to Judge Lourie, a court should “identify and define whatever fundamental concept appears wrapped up in the claim.”  Next, a court should determine whether the claim contains “additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”  The substantive limitations requirement requires that the substantive limitations include an “inventive concept” and, according to Judge Lourie, asks whether the claim contains a “genuine human contribution to the claimed subject matter.”  Judge Lourie points out that the human contribution must represent more than “a trivial appendix to the underlying abstract idea.”  According to Judge Lourie, limitations adding human contributions that are “tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative other fundamental principle” are insufficient for §101 purposes.  Applying these principles to Alice’s claims, Judge Lourie concluded that all three types of claims, i.e., the method, system, and computer-readable medium claims, were invalid. 

In Chief Judge Rader’s concurring-in-part, dissenting-in-part opinion (joined by Judge Moore for its entirety and Judges Linn and O’Malley for all but part VI of the opinion), the Chief Judge argues that the analysis of whether a claim is drawn to a fundamental principle, e.g., an abstract idea, should focus on the claim in its entirety, rather than its individual limitations.  That is, a court should “determine whether the claim, as a whole with all of its limitations, in effect covers a patent ineligible abstract idea or a patent eligible application of that idea.”  Chief Judge Rader cautioned against the “hunting for abstractions by ignoring concrete, palpable, tangible limitations of the invention the patentee actually claims.”  According to him, the inquiry must be “whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea.”   A claim is meaningfully limited if the claim recites additional limitations essential to the invention in addition to the abstract idea.  With respect to computer-specific limitations, Chief Judge Rader argues that while including a general purpose computer in a claim “will not save a method claim from being deemed too abstract to be patent eligible, the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility.”  The primary focus “is whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible, unlike claims directed to nothing more than the idea of doing that thing on a computer.”  Chief Judge Rader further cautioned against conflating the principles of the “inventive concept” as applied in the context of subject matter eligibility and as it is understood with respect to validity, i.e., novelty and obviousness.  The Chief Judge further argued that the judicial exceptions to 35 U.S.C. §101 should be narrowly construed.   Chief Judge Rader, joined by Judge Moore, agreed that the method and computer readable medium claims were not patent eligible, but felt that the system claims were patent eligible.  With respect to the system claims (which were drawn to a data processing system that included a communications controller, a first party device, a data storage unit, and a computer configured to execute steps of the method), Chief Judge Rader noted that “analyzing each asserted system claim as a whole...demonstrates that each does not claim anything abstract in its machine embodiments.”  Furthermore, relying on the specifications of the patents at issue, Chief Judge Rader argued that the components of the claim added more than insignificant pre- or post-solution activity.

In view of Judge Lourie’s and Chief Judge Rader’s contrasting opinions, it is clear that the court is divided on how to apply the exemptions to 35 U.S.C. §101.  On one hand, Judge Lourie’s position is that a claim must include a substantive limitation that recites a genuine human contribution to the claimed subject matter.  Using Judge Lourie’s approach, there must be something about the limitation which required some form of human ingenuity (but not necessarily a novel or non-obvious contribution).  On the other hand, Chief Judge Rader promotes a softer standard, whereby the claim must include a meaningful limitation that restricts the claim to a particular application.  According to Chief Judge Rader, tying a seemingly abstract idea to a specific way of doing something on a computer should be sufficient to pass the broad filter of 35 U.S.C. §101.  As neither judge’s reasoning garnered a majority, patentees and patent applicants in the business method and software arts are left in an uncertain position, as it is unclear which standard will ultimately prevail.    

What CLS does teach us is that similar claims will rise and fall together, regardless of their format.  In what had become accepted practice, many practitioners relied on computer readable medium claims and system claims to avoid or overcome rejections issued by the United States Patent and Trademark Office (USPTO).  As seven of the ten judges in CLS agreed that the method and computer readable medium claims were not directed to patent eligible subject matter and the court was divided as to whether the system claims were eligible, courts may be more likely to rely on CLS and its predecessor CyberSource Corp v. Retail Decisions Inc., 654 F.3d 1366 (Fed Cir. 2011), to invalidate computer readable medium claims and perhaps even system claims when these claims are substantially similar to “abstract” method claims.  As Judge Moore points out in her dissenting-in-part opinion, Judge Lourie’s framework for determining subject matter eligibility could lead to the “death of hundreds of thousands of patents.”

Given the division on the panel, it very well may be that the Supreme Court decides to hear CLS, thereby providing us with more concrete guidance on how 35 U.S.C. §101 should be applied to computer-implemented inventions.  From a patent prosecution perspective, the United States Patent and Trademark Office (USPTO) recently issued a memo to its examiners instructing them to stay the course when analyzing claims for subject matter eligibility.  The memo states that the USPTO will continue “to study the decision in CLS Bank and will consider whether further detailed guidance is needed on patent subject matter eligibility under 35 U.S.C. § 101.”  

In the meantime, we will have to wait and see if the Supreme Court decides to hear yet another subject matter eligibility case or if the USPTO offers patent applicants and practitioners some additional guidance for drafting claims.  Honigman will continue to monitor this issue and keep you apprised of any developments.

[1]  Gottschalk v. Benson 409 U.S. 63 (1972), Parker v. Flook, 437, U.S. 584 (1978), Diamond v. Diehr 450 U.S. 175 (1981), Bilski v. Kappos 130 S. Ct. 3218 (2010), and  Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012).

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