Intellectual Property Bulletin - Spring 2013: Federal Circuit Undecided About Whether Software is Patentable?

by Fenwick & West LLP

Patent holders, inventors, and even the courts have recently struggled with the limits of what can be patented. The patentability of software, widely accepted for decades, has lately been questioned. The scope of patentability is controlled by 35 U.S.C. § 101, which allows patents for any “new and useful process, machine, manufacture, or composition of matter.” Judges have created exceptions to § 101 for laws of nature, natural phenomena, or abstract ideas. Courts have recently struggled to define a test for when a patent claims “abstract ideas,” and, as a result, the patentability of software has been called into question. When the Federal Circuit granted an en banc petition in CLS Bank v. Alice Corp., many had hoped that the question of whether software is patentable would be put to rest. 2013 U.S. App. LEXIS 9493 (May 10, 2013).

Alice owned several patents covering a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate “settlement risk.” Settlement risk is the risk that only one party’s obligation will be paid, leaving the other party without its principal. Alice asserted system, method, and computer-readable storage medium claims against CLS Bank. The district court relied on Bilski and ruled the patents invalid under § 101 because they covered “abstract ideas.” Bilski v. Kappos, 130 S. Ct. 3218 (2010). The three-judge appellate panel reversed, holding that claims were patentable.

The Federal Circuit granted an en banc hearing and requested briefing on two issues: (1) The test to determine whether a computer-implemented invention is a patent-ineligible “abstract idea;” and (2) Whether the test varies based on the type of claim (such as a method, system, or computer-readable storage medium). The resulting decision, however, does not provide a definitive answer for either issue. The court issued seven opinions with strikingly different reasoning. A majority of the judges held the method and computer-readable storage medium claims invalid, but there was no majority consensus on the system claims. Furthermore, there was no majority agreement on what is the proper test for determining whether claims are invalid under § 101.

The result of the various opinions in CLS Bank is that, on appeal, the patentability of a software patent will vary with the specific composition of the appellate panel. The Federal Circuit’s inability to decide on a test for patentability of software may increase the likelihood that the Supreme Court grants certiorari. As Judge Kimberly A. Moore stated, “[t]his case presents the opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter.” 2013 U.S. App. LEXIS 9493, at *125.

In the last few years, the Supreme Court has taken several cases involving the scope of § 101: Bilski, Mayo, (Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)), Ultramercial (WildTangent, Inc. v. Ultramercial, LLC, 132 S. Ct. 2431 (2012)), and Myriad (Ass’n for Molecular Pathology v. Myriad Genetics, Inc., 2013 U.S. LEXIS 4540 (June 13, 2013)). None of those cases, however, have directly addressed the patentability of software. Bilski dealt with business method patents, Mayo with pharmaceutical patents, and Myriad with gene patents. The Supreme Court had the opportunity to address the patentability of software in Ultramercial, but merely remanded the case to the Federal Circuit to reconsider the case in light of Mayo.

Alice’s petition for certiorari is due in early August. Generally, the Supreme Court may grant certiorari to address the substantive issues or to remand in light of recent precedent (as in Ultramercial). Given the Federal Circuit’s inability to agree upon a standard, a remand of CLS Bank to the Federal Circuit may be pointless. A grant of certiorari, then, may signal the Supreme Court’s desire to provide a substantive opinion on the patentability of software.

Written by:

Fenwick & West LLP

Fenwick & West LLP on:

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