Fractured Federal Circuit Invites the Supreme Court To Once Again Weigh In On Patentable Subject Matter – What Computer Software Patent Applicants Should Do In The Interim

by Downs Rachlin Martin PLLC

On May 10, 2013, the Federal Circuit issued its en banc decision in CLS Bank International et al. v. Alice Corporation Pty, Ltd., (2011-1301).  At a high level, the issue in CLS Bank was whether software, business method, financial system, and some computer implemented inventions are eligible to even be considered for patent protection (i.e. whether they are patent eligible under 35 U.S.C. § 101).  The Supreme Court long ago ruled that patents are not available for “abstract ideas”—patents that would prevent others from using a fundamental concept in any application (a somewhat abstract idea in and of itself).  But establishing a predictable test for determining when a patent claims nothing more than an abstract idea has proven difficult.  In CLS Bank, the court issued several opinions proposing at least three different approaches, none of which garnering enough support to have precedential effect.  So while this case did not change the law, it has cast a bright light on a deep divide between the Federal Circuit judges on this issue.  The following is a brief discussion of the opinion followed by tips for what patent applicants can do in the interim until the law (hopefully) becomes more clear.

The CLS Bank decision ruled on the patent eligibility of method, computer-readable medium, and system claims for technology related to “the management of risk relating to specified, yet unknown, future events.”  The court summarized the invention as basically a computer-implemented escrow.  If you are feeling a sense of déjà vu, you are not alone.  Judges Rader and Moore noted that the claims were “indistinguishable” from the claims at issue in Bilski (a 2008 Supreme Court decision on this issue).

Judge Lourie’s opinion was joined by Judges Dyk, Prost, Reyna, and Wallach.  He proposed a three step, “integrated approach” for determining if a claim is an ineligible abstract idea.  First, verify the claim falls within one of the four statutory categories and then ask if the claim raises “abstractness concerns.”  Next, identify the “fundamental concept wrapped up in the claims.”  And finally, determine whether the claim adds a “product of human ingenuity” to the “fundamental concept” and not merely some trivial addition.  Judge Lourie assures us that this is not a separate “inventiveness” requirement.  Starting with the method claims, he boiled them down to the idea of using an escrow and found the other claim elements insignificant.  Turning to the device and system claims, he noted that “we must look past drafting formalities and let the true substance of the claim guide our analysis.”  For the system claims, despite reciting several structural components, and in some claims reciting a means plus function format that would be limited to the specific algorithms disclosed, Judge Lourie saw the structure as mere “drafting formalities” and found the recited systems “abstract.”

The remaining judges wrote five separate opinions over 90 pages, dolling out harsh criticism for Judge Lourie’s approach.  Judge Rader wrote an opinion joined by Judges Moore, Linn, and O’Malley.  Judge Rader urged a de-emphasis on the use of § 101, noting the broad and inclusive nature of the statute and that patentability determinations should be left to sections 102, 103, and 112.  He agreed there is an abstract idea exception but would significantly limit it, and noted that calling the system claims at issue in this case an “abstract concept . . . wrenches all meaning from those words.”  Judge Rader also listed several reasons why Judge Lourie’s approach runs afoul of basic tenants of patent law, including giving weight to each claim element, treating each claim separately, and not injecting additional “inventiveness” requirements into the law.

Judge Moore wrote separately to expressly state that “[i]f the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries.”  And that “[t]here has never been a case which could do more damage to the patent system than this one.”  She asked the Supreme Court to grant certiorari, noting that the Federal Circuit “is irreconcilably fractured over these system claims.”  Judge Newman also wrote separately, and as one of the most experienced judges on the court, she reflected on the various failed attempts to develop a predictable test for the abstract idea exception.  She proposed the judges admit failure and return to the statute—if the invention fits within one of the four broad statutory categories, it should pass through the § 101 gate and be evaluated by the other statutory provisions.  Judge Rader also wrote separately to provide “additional reflections,” expressing concern that this uncertainty will damage development in important technology fields.

While CLS Bank provides more questions than answers, it might include some useful clues on what patent practitioners can do in the interim.  Under Judge Lourie’s approach, where he first considered the more conceptual method claims, and then moved on to the system claims, disregarding additional structural limitations.  An applicant trying to avoid this might consider pursuing more structural system claims in a first application, and then pursue method claims in a separate continuing application.  This could help prevent a court applying Judge Lourie’s test from viewing the method claims as merely reciting a “fundamental concept” and then glossing over claim elements in system claims that recite additional structure.  An applicant might also try to anticipate an application of Judge Lourie’s approach, guessing what a judge would consider the “abstract idea,” and then ensuring there is sufficient disclosure in the specification that provides a compelling story for the additional “inventiveness” added to that “abstract idea.”

Given the split in the Federal Circuit on such an important subject, we can most likely anticipate another Supreme Court decision on this issue relatively soon.  Until then, hope for the best (a bright line rule that minimizes the influence of § 101), and plan for the worst (each judge making their own determination of what the “basic idea” behind your invention is and then randomly deciding whether you’ve added enough additional, and sufficiently “inventive,” limitations to it).

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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