The Federal Circuit’s en banc decision in CLS Bank Int’l v. Alice Corp., 717 F.3d 1269, (Fed. Cir. 2013) has been roundly criticized as a “nightmare,” further cementing the impression that the court was confused and in conflict over the requirements of patent eligibility under 35 U.S.C. § 101. The six non-precedential opinions are seen as leaving patent applicants and owners alike without guidance, let alone predictability, as to whether their patents are valid.
Alice Corp.’s patents covered computer-implemented methods and systems for a third-party intermediary to ensure real-time settlement of currency exchange transactions between counterparties. Judges Lourie, Dyk, Wallach, Reyna, and Prost appeared to take a hard stand against such software-based financial inventions, finding that neither the method nor system claims were patent-eligible. Under Lourie’s “integrated approach,” the patent claims lacked any “meaningful limitations” and thereby preempted all “practical applications” of the abstract idea of third-party settlement. Taking a middle position, Judges Rader, Moore, Linn, and O’Malley agreed that the method claims were not patent-eligible, but argued that the system claims were patent-eligible because they contained limitations that were not necessary and inherent in the abstract idea. At the other end of the bench, Judges Linn and O’Malley argued that the method claims were indeed patent-eligible because they included limitations that prevented the claims from being “unduly preemptive.”
Not long after CLS issued, the Federal Circuit issued its second opinion on patent eligibility in the case of Ultramercial v. Hulu, No. 2010-1544, 2013 U.S. App. LEXIS 12715 (Fed. Cir. June 21, 2013) (Ultramercial II). The Ultramercial patent had been before the Federal Circuit back in 2011,Ultramercial, LLC v. Hulu, LLC, 657 F.3rd 1323 (Fed. Cir. 2011) (Ultramercial I). Then, Rader, Lourie, and O’Malley agreed that the method claims were patent-eligible—but they had no guiding theory, just a bundle of notions regarding the expansive scope of § 101, its role as a “coarse eligibility filter,” and an “I-know-it-when-I see-it” test that the abstractness of the claim “should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter”. Id at *1327. There was no discussion of preemption or meaningful limitations, or whether limitations were inherent or necessary. After its decision in Mayo v. Prometheus, 132 S.Ct. 1289 (2012), the Supreme Court vacated the panel’s decision and remanded.
One way to resolve an argumentative deadlock is for one party to show that its own approach is consistent with that of its putative opponent. Thus, while the Ultramercial II decision was ostensibly for the purpose of conforming with the Supreme Court’s guidance in Mayo, Rader took the opportunity to extend a judicial olive branch by more explicitly adopting Lourie’s “integrated approach” to § 101. The most striking feature of Rader’s opinion is how it synthesizes Lourie’s views with his own. Rader’s opinion cited Lourie’s CLS opinion for the framework of his § 101 analysis but then followed it with text taken almost entirely from Rader’s own CLS opinion.
Rader adopted the primary facets of Lourie’s “integrated approach”: 1) That preemption is the core concern; 2) That one must identify limitations in the claim that meaningfully limit the claim to a “practical application” of the abstract idea; and 3) That what counts as a meaningful limitation is a question of fact, including determining whether claimed limitations are in fact conventional, routine, or well understood.
In short, Rader was saying that he agrees with Lourie, and the details of his analysis were entirely consistent with Lourie’s overall framework. Rader was not offering up an alternative or contrary theory of patent eligibility, but simply a “formulation” of a “precise test” that implemented Lourie’s theory.
Lourie either did not see, or rejected, this attempt at judicial détente. His concurrence practically chides Rader: “I concur in the result reached by the majority, but I write separately because I believe that we should concisely and faithfully follow” the Supreme Court and “should track the plurality opinion of five judges from this court in CLS Bank.” Ultramercial II, 2013 U.S. App. LEXIS 12715, at *46-47.
Perhaps the problem is that Rader did not explicitly implement the first two steps of Lourie’s approach: “First, a court must identify whether the claimed invention fits within one of the four statutory classes set out in § 101” and “[s]econd, one must assess whether any of the judicial exceptions to subject-matter eligibility apply, including whether the claims are to patent-ineligible abstract ideas.” Id. at *48. But Rader did in fact touch these bases. In Section III.A, he provided a detailed analysis of § 101’s use of the term “process,” and in Section III.B he reviewed the exceptions to § 101, including the abstract idea exception, followed by a detailed discussion of “abstractness” in Section IV.A. In Section VI, Rader applied his analysis and stated: “The claimed invention is a method for monetizing and distributing copyrighted products over the Internet. As a method, it easily satisfies § 100’s definition of ‘process’ and thus falls within a § 101 category of patent-eligible subject matter.” Id. at *38. Addressing the “abstractness” question, Rader set forth the 10 steps of the claim in a concise prose form and stated:
Even at this general level, it wrenches meaning from the word to label the claimed invention “abstract.” The claim does not cover the use of advertising as currency disassociated with any specific application of that activity. It was an error for the district court to strip away these limitations and instead imagine some “core” of the invention. Id. at *40.
At least textually, it seems that at worst Rader’s opinion was not “concise” enough for Lourie: It took Rader 19 pages to set forth his § 101 analysis before applying the claims; by contrast, Lourie did it in two paragraphs on a single page.
But the textual explanation is not sufficient. Rather, the explanation lies in the profound difference in stances Lourie and Rader take toward technology in general and computer technology in particular. Judge Lourie (along with Judges Dyk, Prost, and Mayer) are “Normativists,” who see § 101 as defining what inventions “ought” to be patent-eligible. The Normative approach imposes an extrinsic value judgment—from an unspecified source—as to what kinds of innovations count as “inventive” and what kinds do not. In particular, the Normativists believe that the use of computers to deliver useful functionality has no inherent inventive value per se, that there is no “human ingenuity” in designing computerized solutions. This view is based in part on the view that computers are so common, so woven into modern life, that using them to do something useful is not inventive:
Because of the efficiency and ubiquity of computers, essentially all practical, real-world applications of the abstract idea implicated here would rely, at some level, on basic computer functions—for example, to quickly and reliably calculate balances or exchange data among financial institutions. At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. CLS Bank, 717 F.3d at 1286.
Because of this view, Lourie and other Normativists approach the patent eligibility question by stripping computer-implemented claims of the “jargon” to create “plain English” renderings. To the Normativists, using computers to perform functional tasks is merely “generic computer automation,” evincing no “human contribution.” This is odd because without the “human contribution” of programming, a computer is simply an expensive brick.
Rader, O’Malley, Linn, Moore, and Newman are Positivists: They view § 101 as asking whether invention as claimed is of a particular kind—a process, a machine, composition of matter, etc. Thus, they strongly respect the claim language, and criticized Lourie’s approach of stripping down the claims and identifying “abstract ideas” as “hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.” Ultramercial II, 2013 U.S. App. LEXIS 12715, at *22.
The Normativist view also reflects an “industrial” view of innovation and invention. In the Industrial Age, innovation was primarily achieved through structural transformation of raw materials in order to achieve the desired function. Hence the statement in Cochrane v. Deener, 94 U.S. 780 (1877): “A process is a mode of treatment of certain materials to produce a given result. It is an act, or a series of acts, performed upon the subject matter to be transformed and reduced to a different state or thing.” In this framework, invention is essentially the creation of new things rather than new functions.
By contrast, for the Positivists there is invention in the manipulation of a computer toward a functional goal. This is significant because in the Information Age, there was value in the creation of new functions, new ways of doing things, as well as in the creation of information itself. More specifically, the ability to create functional transformation apart from structural transformation by the configuring (programming) of a computer is itself an innovation and can be an invention.
But Lourie’s superficial view of computer technology led him to reject this point of view. In In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc), the Federal Circuit, Lourie concluded, held that “programming creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.” Id. at 1545. Now, 19 years later, Lourie rejected this view, stating that Rader’s reliance on Alappat is a “fallacy,” because “not only has the world of technology changed, but the legal world has changed. The Supreme Court has spoken since Alappat on the question of patent eligibility, and we must take note of that change.” CLS Bank, 717 F.3d at 1292. The problem with Lourie’s reasoning is that the technology has not changed. It is universally accepted by computer scientists that anything that can be done in hardware by a special-purpose computer can be equivalently performed by a general-purpose computer running software. Indeed, the overwhelming majority of complex hardware devices—computers, cameras, smartphones, Blu-ray players, etc.—are designed first in software, and then implemented by hardware circuits. Nothing the Supreme Court has ruled—or could ever rule—can alter these technological facts.
Professor Mark Lemley has commented said that there are “two Federal Circuits.” I think this is too simple a view. As Rader has attempted to show, the majority of the court agrees on the fundamental legal theory and implementation of § 101. In my view, the furor in the patent bar over the CLS opinion results from a myopic focus on the non-precedential status of the individual opinions and the verbal battle engaged in by the justices. However, if we view the overall complex of CLS opinions and Ultramercial II as a window into the working theories of the Federal Circuit judges, then out of discord can arise harmony. First, 10 members of the court agree that the presumption of validity applies to § 101 and that a challenge to the eligibility of the subject matter must be proven by clear and convincing evidence. Second, these judges agree that, contrary to the Supreme Court’s suggestion, patent eligibility is not a “gateway” issue that must be addressed in patent litigation; instead, a district court can decide to focus on the issue of infringement, for example, and if the jury finds no infringement, dispense with the question of § 101 entirely. Finally, the judges also agree that § 101 ultimately requires resolution of questions of facts, not merely attorney arguments about the claims being simply abstract ideas, laws of nature, or other legal fictions. Where they differ is in their value judgments of what constitutes invention generally and their appreciation (or lack thereof) for the nature of computers and software in particular.