CLS Bank Int'l v. Alice Corp. (Fed. Cir. 2013) (en banc) -- Judge Lourie's Concurrence

Federal Circuit SealOn May 10, the Federal Circuit handed down a much anticipated en banc ruling regarding the patent eligibility of computer-implemented inventions under 35 U.S.C. § 101.  In a per curiam opinion that is perhaps the most important § 101 jurisprudence since the Supreme Court's Bilski v. Kappos and Mayo v. Prometheus decisions, a plurality of judges set forth procedures for determining whether claims that recite an abstract idea or a law of nature meet the requirements of this section.  While the overall effect of this case remains to be seen and is likely to be a subject of heated debate, this decision has the potential to impact both patent litigation and prosecution.

CLSIn 2007, CLS Bank filed a declaratory judgment action against Alice Corp., contending that, among other things, Alice's U.S. Patents Nos. 5,970,479, 6,912,510, and 7,149,720 were invalid under § 101.  Alice filed counterclaims alleging infringement of these three patents.  Later, Alice's U.S. Patent No. 7,725,375 was added to the mix, and the parties respectively asserted invalidity and infringement contentions for this patent as well.

All four patents are from the same family and "share substantially the same specification."  The plurality described the claimed subject matter as:

[A] computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate "counterparty" or "settlement" risk . . . .  Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counterparty's performance.  Alice's patents address that risk by relying on a trusted third party to ensure the exchange of either both parties' obligations or neither obligation.

Between the four patents, method, computer-readable medium (CRM), and system claims were asserted.  The parties stipulated that all claims, including the method claims, require "a computer including at least a processor and memory" and electronic implementation, even though the representative method claim analyzed by the Federal Circuit did not literally recite such a requirement.

Alice CorporationThe District Court held that all asserted claims failed to meet the requirements of § 101, and thus were invalid.  Particularly, the District Court concluded that the method claims were directed to an unpatentable abstract idea, and that the CRM and system claims would similarly preempt all practical applications of this idea, despite those claims falling under a different statutory category.

On appeal, a Federal Circuit panel reversed the District Court on all counts, holding that all claims, including the method claims, were patent eligible under § 101.  CLS petitioned the full Federal Circuit for review, which was granted.  Sitting en banc, seven of the ten judges overruled the panel and affirmed the District Court's ruling regarding the method and CRM claims.  However, this majority did not agree on the rationale for their conclusion.  Further, five of the judges found that the system claims were unpatentable, while the other five concluded that these claims passed muster under § 101.  Additionally, eight of the judges indicated that the method, CRM, and system claims must rise or fall together.  Consequently, the precedential value of his decision, especially with respect to the system claims, may be limited.

Below, Judge Lourie's plurality concurrence is discussed.  Joining him were Judges Dyk, Prost, Reyna, and Wallach.  The other concurrences and dissents will be examined in subsequent posts.

Judge Lourie admitted the difficulty of analyzing patentability under § 101, and acknowledged the need for a more practical approach to this analysis:

While simple enough to state, the patent-eligibility test has proven quite difficult to apply.  The difficulty 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.  For example, deciding whether or not a particular claim is abstract can feel subjective and unsystematic, and the debate often trends toward the metaphysical, littered with unhelpful analogies and generalizations.  What is needed is a consistent, cohesive, and accessible approach to the § 101 analysis -- a framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts.  (Citation omitted.)

Judge Lourie then turned to the inevitable overview of Supreme Court decisions impacting § 101 as guideposts for this analysis.  In an example of judicial foreshadowing, he viewed Benson, Flook, Deihr, and Bilski through the lens of Prometheus.  In particular, he focused on the judicial exception to patentable subject matter when the claims at issue incorporate abstract ideas or laws of nature.  Then, he applied Prometheus's approach for analyzing such claims, with special concern for whether a claimed invention would effectively preempt other uses of any potentially abstract idea recited therein.

Particularly, Judge Lourie set forth a four-step analysis for patent eligibility under § 101 based heavily on Prometheus.  These steps are as follows:

1)  Determine "whether the claimed invention fits within one of the four statutory classes set out in § 101."  In other words, is the invention directed to a process, machine, manufacture, or composition of matter?

2)  Determine whether "the claim pose[s] any risk of preempting an abstract idea."  Or, does the claim incorporate an abstract idea?

3)  If an abstract idea is implicated by the claim, then "identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing."  Judge Lourie indicates that carrying out claim construction activities prior to this step may be helpful, but is not required.

4)  Finally, "[w]ith the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it 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."

Judge Lourie refers to this final step as "inventive concept" analysis.  He explicitly states that this "balance of the claim" -- the human contribution -- need not require inventiveness in the same sense that claims must be novel and non-obvious under sections 102 and 103, respectively.  However, he does not clearly differentiate how this inventive concept analysis would differ in practice from, say, an obviousness analysis.  Instead he asserts that:

An "inventive concept" in the § 101 context refers to a genuine human contribution to the claimed subject matter . . . .  [A] person cannot truly "invent" an abstract idea or scientific truth.  He or she can discover it, but not invent it.  Accordingly, an "inventive concept" under § 101 -- in contrast to whatever fundamental concept is also represented in the claim -- must be a product of human ingenuity.

Compared to novelty and non-obviousness analyses "which consider whether particular steps or physical components together constitute a new or nonobvious invention," Judge Lourie states that the inventive concept analysis "considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself."  But, in practice, this distinction may easily become blurred, and seems to advocate that claims be considered piecemeal under § 101 rather than as a whole.

Furthermore, at first blush, Judge Lourie's differentiation between discovery and invention seems like an aesthetically pleasing dichotomy -- after all, one could say that Pythagoras didn't invent the Pythagorean Theorem, but he did discover it.  However, Judge Lourie went on to point to four potentially subjective factors that would weigh against whether the human contribution to the claimed invention rises to such a level that the claim as a whole meets § 101 requirements:

1)  Is the human contribution necessary to every practical use of the abstract idea and therefore is not truly limiting.

2)  Does the human contribution "amount to more than well-understood, routine, conventional activity previously engaged in by researchers in the field?"

3)  Does the human contribution consist of token or trivial limitations, such as insignificant post-solution activity?

4)  Is the human contribution a "field-of-use limitation . . . where the claim as written still effectively preempts all uses of a fundamental concept within the stated field?"

Applying this approach to the patents in suit, Judge Lourie found that all claims failed under § 101.  The representative method claim was found to be directed to the reduction of settlement risk using a third-party intermediary.  As such, Judge Lourie concluded that this claim recited an abstract idea -- a "disembodied concept, a basic building block of human ingenuity, untethered from any real-world application."  Therefore, he turned to whether the remaining aspects of the claim added anything of substance.  He concluded that they did not.

Notably, this method claim did not recite any required physical structure.  It did not include a memory, a processor, transmitters or receivers, or any other computer component or peripheral.  Despite the parties' stipulation that the claim was computer implemented, Judge Lourie indicated that such a limitation was "insignificant post-solution activity" and that "simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept does not meaningfully limit claim scope for purposes of patent eligibility."  Thus, he concluded that "[a]s in Bilski, upholding Alice's claims to methods of financial intermediation would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea."

Judge Lourie similarly found the representative CRM claim unpatentable as well, despite its recitation of a tangible article of manufacture, which would ostensibly be a physical device.  This claim essentially recited the invention of the method claim, but in CRM form.  Judge Lourie asserted that "under § 101 we must look past drafting formalities and let the true substance of the claim guide our analysis."  Applying this analysis he concluded that the CRM claim was actually drawn to "the underlying method of reducing settlement risk using a third-party intermediary," and that it was merely a method claim in the guise of a device claim.  He further warned that one should not allow a competent draftsman to "endow abstract claims with patent-eligible status."

The representative system claim also fell under Judge Lourie's analysis.  This claim recites ample structure -- including a data storage unit and a computer that receives data, performs operations on the data, and generates an instruction to an "exchange institution."  Nonetheless, Judge Lourie found that the similarity between the method and system claims required application of the same abstract idea analysis for both.  In this case, the question was whether "the limitations of the claim, including any computer-based limitations, add enough beyond the abstract idea itself to limit the claim to a narrower, patent-eligible application of that idea."  Viewing the "generic" computer structure recited by the claim sufficient to "encompass any device capable of performing the same ubiquitous calculation, storage, and connectivity functions required by the method claims," Judge Lourie found that they did not because this structure did not provide a significant "inventive concept."  Summing up, he wrote that:

We are not here faced with a computer per se.  Such are surely patent-eligible machines.  We are faced with abstract methods coupled with computers adapted to perform those methods . . . .  Abstract methods do not become patent-eligible machines by being clothed in computer language.

In order to properly seek protection of their inventions, Applicants need to understand the requirements of § 101.  Despite the plurality's cry for "a consistent, cohesive, and accessible approach to the § 101 analysis," at best, a handful of dirt has been tossed into already muddied waters.  Judge Lourie's procedures for § 101 analysis allow significant opportunities for subjectivity on the part of the fact finder.  As a result, an Applicant's best practice for obtaining suitable protection of its computer-implemented technologies remains unclear.  A more detailed discussion of the open questions coming out of this decision will be the subject of future posts.

CLS Bank Int'l v. Alice Corp. (Fed. Cir. 2013) (en banc)
Opinion for the court per curiam; concurring opinion by Circuit Judge Lourie, joined by Circuit Judges Dyk, Prost, Reyna, and Wallach; concurring-in-part and dissenting-in-part opinion by Chief Judge Rader, joined by Circuit Judge Moore, and by Circuit Judges Linn and O'Malley as to all but part VI of that opinion; dissenting-in-part opinion by Circuit Judge Moore, joined by Chief Judge Rader and Circuit Judges Linn and O'Malley; concurring-in-part and dissenting-in-part opinion by Circuit Judge Newman; dissenting opinion by Circuit Judges Linn and O'Malley; additional reflections by Chief Judge Rader.