CLS Bank: A Deeply Divided En Banc Federal Circuit Fails to Rule When Computer Claims are Invalid Under 35 U.S.C. § 101

by Orrick, Herrington & Sutcliffe LLP
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On May 10, 2013, the en banc Federal Circuit issued its highly anticipated decision in CLS Bank Int’l v. Alice Corp. Pty. Ltd., No. 2011-1301, concerning whether computer-implemented method and system claims are patent eligible under 35 U.S.C. § 101. The District Court had invalidated the patent’s claims, and a remarkably fractured en banc Federal Circuit affirmed that holding because (a) a majority of judges agreed that the asserted method and computer readable method claims are not directed to eligible subject matter under 35 U.S.C. § 101, and (b) an equally divided number of judges concluded that the district court was correct in holding that the asserted system claims are not directed to eligible subject matter, thereby resulting in an affirmance.

Unfortunately, the decision reflects at least three different views on patent eligibility, and does not provide any definitive standard for determining patent-eligible subject matter. Indeed, because none of the opinions garnered majority support, they are thus non-precedential. The deeply divided Court issued six separate non-opinions—spanning a collective 135 pages—with additional reflections by Chief Judge Randall Rader.

Background

The case began in 2007 when CLS filed suit seeking declaratory judgment of non-infringement, invalidity and unenforceability of Alice’s patents. Alice countersued alleging infringement of its patents, which described a process in a computerized trading platform for two parties to conduct financial transactions, such as stock trades, which are then settled by a third party.

In 2009, CLS filed a motion for summary judgment arguing that it could not infringe Alice’s patents because those patents were not eligible under 35 U.S.C. § 101, which reads “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.”  The U.S. District Court for the District of Columbia granted CLS’ motion in 2011, finding that Alice’s patent claims-at-issue were “directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221, 243 (D.D.C. 2011).

Alice appealed to the U.S. Court of Appeals for the Federal Circuit. On July 9, 2012, a split panel of the Federal Circuit reversed the district court’s decision holding these claims to be patent ineligible and held that the claims at issue covered patent-eligible subject matter. The majority decision, written by Judge Richard Linn and joined by Judge Kathleen O’Malley, found that the claims were not drawn to mere “abstract ideas” but rather were directed to “practical applications of invention.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 685 F.3d 1341, 1343 (Fed. Cir. 2012).

On Oct. 9, 2012, the Federal Circuit granted CLS’s petition for rehearing the case en banc, and vacated the July 9, 2012 panel opinion. In its en banc order, the Federal Circuit asked the parties to file new briefs addressing the following two questions:

  • What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?
  • In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?

CLS Bank Int’l v. Alice Corp. Pty. Ltd., 484 F. App’x 559, 559-60 (Fed. Cir. 2012) (per curiam).

The Current Opinions

 

Ineligible

Eligible

All Claims Rise or Fall Together

Method claims

Lourie
Dyk
Reyna
Prost
Wallach
Rader
Moore

Newman
Linn
O'Malley

 

Lourie
Dyk
Reyna
Prost
Wallach
Linn
O'Malley
Newman

 

Beauregard Claims
(computer media)

Lourie
Dyk
Reyna
Prost
Wallach
Rader
Moore

Newman
Linn
O'Malley

 

Lourie
Dyk
Reyna
Prost
Wallach
Linn
O'Malley
Newman

System Claims

Lourie
Dyk
Reyna
Prost
Wallach

Rader
Linn
Moore
O'Malley
Newman

Lourie
Dyk
Reyna
Prost
Wallach
Linn
O'Malley
Newman

Judge Lourie

Judge Lourie, in a concurrence joined by Judges Dyk, Reyna, Prost and Wallach, affirmed the District Court’s ruling in its entirety finding that all asserted claims were patent ineligible. Judge Lourie’s “integrated approach” involves the familiar step of first determining whether the claimed invention fits within one of the four statutory classes set out in Section 101 (i.e., processes, machines, manufactures and compositions of matter) and then, if so, determining whether the claimed invention is directed to one of the three judicial exceptions to patent-eligible subject matter (i.e., laws of nature, natural phenomena or abstract ideas). Lourie Op. at 18.

If a claim falls within one of the exceptions (i.e., it claims an abstract idea), then the next step is to “identify and define whatever fundamental [i.e., inventive] concept appears to be wrapped up in the claim so that the subsequent analytical steps can proceed on consistent footing.”  Id. Once the “inventive concept” is identified, it must be examined to see if it is a “product of human ingenuity” that represents “more than just a trivial appendix to the underlying idea . . . [l]imitations that represent a human contribution but are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility.”  Id. at 20.

Applying this analysis, Judge Lourie determined that the abstract idea at issue is “reducing settlement risk by facilitating a trade through third-party intermediation” and that “[n]one of th[e] limitations adds anything of substance to the claim.”  Id. at 18-19. Because there was nothing added to this abstract idea, he then concluded that all the claims—whether directed to computer implemented methods, computer media or computer systems—were not patent eligible. Id. at 25-26.

Judge Rader

Chief Judge Rader, along with Judges Linn, Moore and O’Malley, wrote an opinion concurring-in-part that Alice’s method claims are patent ineligible, and dissenting-in-part with respect to the systems claim, which he found to be patent eligible.

Judge Rader criticized Judge Lourie’s “inventive concept” analysis, noting that it “injects an ‘ingenuity’ requirement into the abstract exception inquiry,” which is “neither consistent with the Patent Act’s description of Section 101, nor with the totality of Supreme Court precedent regarding the narrow exceptions thereto.”  Rader Op. n. 5 at 24. Instead, he posited that the key to the inquiry into Alice’s claims 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.”  Id. at 21. “At bottom, 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.”  Id. at 22.

Consistent with this approach, these four judges found the system claims patent eligible, noting that “the claimed data processing system is limited to an implementation of the invention that includes at least four separate structural components” and that “at least thirty-two figures . . . provide detailed algorithms for the software with which this hardware is to be programmed,” and that “someone can use an escrow arrangement in many other applications, without computer systems, and even with computers but in other ways without infringing the claims.”  Id. at 31 and 35. However, the four judges split on the issue of whether the method claims were patent eligible. Judges Rader and Moore joined the majority and found the method claims patent ineligible, stating that they “add nothing beyond the well-known procedures used in the concept of an escrow.” 

Judge Linn

Judge Linn, joined by Judge O’Malley, wrote a separate dissent, finding the method claims (and system claims) patent eligible, noting that “all asserted claims must rise or fall together.”  Linn Op. at 10-11. Judge Linn agreed with Judge Rader’s and Judge Moore’s method of analysis but criticized their analysis of the method claims as being “divorced from the record.”  Id. at 2. He recognized that although the claims had not yet been construed, the record of the case—including the written description in the patents, expert testimony, and stipulations between the parties—established that the “method claims require more than the use of a computer in some unspecified way.”  Id. at 7. Therefore, the “specific functionality” found by Judge Rader and Judges Linn, Moore, and O’Malley regarding the system claims applies just as much to the method claims that must utilize that same computer implementation. Id. at 7-8.

Judge Moore

Judge Moore filed a separate dissent-in-part, in which Chief Judge Rader, and Judges Linn and O’Malley joined. She expressed her concern "that the current interpretation of § 101, and in particular the abstract idea exception, is causing a free fall in the patent system." Moore Op. at 1-2. She blasted the Federal Circuit judges for “erroneously applying” the “inventive concept” language by “stripping away all known elements from the asserted system claims and analyzing only whether what remains, as opposed to the claim as a whole, is an abstract idea.”  Id. at 6. She further commented that 35 U.S.C. §§ 102 and 103 are “the means to challenge a system claim that does no more than take a familiar, well known concept and put it on a computer.”  Id. at 14-15. Consistent with that point, she concluded that “[w]hen you walk up to the § 101 gate holding a computer in your arms (or software for that matter), you should not be rejected because your computer is an abstract idea.”  Id. at 15.

Judge Newman

Judge Newman filed her own concurrence-in-part, and dissent-in-part. She agreed that all of the claims stand and fall together, and would hold that the system, method and media claims are all patent eligible. She expressed disappointment in the Court’s impasse, and she proposed that the court “resolve the present impasse by returning to the time-tested principles of patent law”:

  • The court should hold that § 101 is an inclusive statement of patent-eligible subject matter—there is “no need for an all-purpose definition of ‘abstractness’ or ‘preemption,’ as heroically attempted today.”  Newman Op. at 3.
  • The court should hold that the form of the claim (e.g., whether system or method claims) does not determine § 101 eligibility. Id. at 4.
  • The court should confirm that experimental use of patented information is not barred, and she expressed a concern that her colleagues and the “popular press” have “accepted the theory that experimentation is barred for patented subject matter.”  Id. at 4 and 8.

Practical Implications

If any case ever warranted U.S. Supreme Court review, this is it: the en banc Federal Circuit just issued a remarkable per curium affirmance, effectively admitting it cannot agree on the reasoning for the ultimate outcome of the case with respect to a subject that forms the starting point for any validity analysis of computer-implemented patent claims. In fact, several of the judges called on the U.S. Supreme Court to step in and provide guidance. Until the U.S. Supreme Court weighs in on these issues (and we expect it will) the patent-eligibility of computer-implemented claims remains a murky gateway involving, as Judge Newman lamented, additional, expensive litigation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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