By Barry Wilson and Martin Bader
On July 9, 2012, a three judge panel of the Federal Circuit in CLS Bank International v. Alice Corporation (Appeal No. 2011-1301) ("CLS Bank") [enhanced version available to lexis.com subscribers], decided a case of patent eligibility under 35 U.S.C. § 101. In a split decision, the panel reversed the district court's finding that three Alice Corporation patents claiming a computerized trading platform for exchanging obligations are drawn to patent ineligible subject matter. In holding the claims valid, the court found that the claims at issue included computer implemented limitations that are integral to the invention and not token post-solution activity. The court stated that claims should not be found patent ineligible unless it is "manifestly evident," that the claims are directed to an abstract idea. CLS Bank is the first Federal Circuit decision on patent eligibility following the Supreme Courts' unanimous reversal of that court in Mayo Medical Laboratories v. Prometheus Laboratories 566 U.S. ____ (2012) ("Prometheus") [enhanced version available to lexis.com subscribers]. The majority decision in CLS Bank, as characterized by the dissent, departs significantly from the § 101 analysis enunciated in Prometheus.
The Alice Corporation patents contain system, method and media claims pertaining to a business method for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate risk. (The court analyzed all of the claims similarly and its decision did not turn upon the statutory class of the claims at issue.) Claim 33 of U.S. Patent 6.910,510 patent is illustrative of the method.
33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party's shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.
This appeal was brought by Alice Corporation following a summary judgment by the district court holding all claims invalid for want of patent eligible subject matter. In its decision, the district court found that the claims recite an abstract idea and that the "nominal recitation of a general-purpose computer" does not tie the claim to a particular machine or apparatus and is therefore not patent eligible.
The Federal Circuit acknowledged that the Prometheus Court "reiterated" the trilogy of implicit exceptions to patent eligibility, which includes abstract ideas, but stated that the Supreme Court did not address how to determine if a claim is impermissibly drawn solely to an abstract idea or a permissible application of that idea. CLS Bank at 13. According to the majority, the absence of clarity as to the contours of an abstract idea test is a serious issue leading to great uncertainty and to the devaluing of inventions. Id at 14. In attempting to formulate its own test for an abstract idea, the Federal Circuit looked at various Supreme Court decisions pertaining to § 101 and assessed whether the claim preempts or forecloses future innovation. Id at 14-17. The court departed from a strict application of the analysis set forth in Prometheus and instead enunciated a seemingly different approach for assessing the patent eligibility of abstract ideas under § 101. The court held that the claim should not be found patent ineligible unless it is "manifestly evident," that the claim is directed to that abstract idea. The court further explained that a claim is patent eligible "[u]nless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application." CLS Bank at 21.
The court ultimately found that the asserted claims differ from those held patent ineligible from the "Bilski line of cases" (Bilski [enhanced version available to lexis.com subscribers], CyberSource [enhanced version available to lexis.com subscribers], Dealertrack [enhanced version available to lexis.com subscribers] and Fort Properties [enhanced version available to lexis.com subscribers]) because the claims at issue recite limitations that place "meaningful boundaries" on the meaning of the claims. CLS Bank at 26. Elaborating further, the majority pointed to numerous limitations of the claims that it believed evidence computer implementation of the invention in a specific way. These claim limitations, according to the majority, are integral to the method and not token post-solution activity, and the limitation for specific "shadow" records would not preempt much in the way of innovation.Id at 26. Finally, while admitting that machine usage in the Alice Corporation claims is less substantial than in earlier cases where eligible subject matter was found (citing to Diehr [enhanced version available to lexis.com subscribers] for curing rubber and Alappat [enhanced version available to lexis.com subscribers] for a rasterizer), the CLS Bank majority reversed the district courts finding of invalidity under the "manifestly evident" standard. Id at 27.
Circuit Judge Prost, in dissent, initially criticized the majority for failing to follow the approach for evaluating patent eligible subject matter recently enunciated by Supreme Court in Prometheus. Dissent at 3. Specifically, she argued that the majority failed to evaluate whether the asserted claims include an "inventive concept," as required under Prometheus substituting instead its own "manifestly evident" approach. Id. Prost also criticized the majority for not explaining why the specific computer implementation in the Alice Corporation claims can be characterized as integral to the invention and to explain what that characterization means to patent eligibility under § 101. Id at 3-4. Prost's dissent appears to characterize the "manifestly evident" standard as a way to diminish the Prometheus § 101 analytical framework with greater reliance on other statutory provisions of the patent code (e.g. novelty and obviousness) - an approach that, according to the dissent, was considered but rejected by the Prometheus Court. Id at 4.
The dissent also takes issue with how the majority characterized the specific features of the Alice Corporation claims. The dissent finds nothing inventive or special when jargon is removed from the claim elements - asserting that the claims only present an abstract idea and say to apply it. Id at 4-5. The dissent also challenges the conclusion of the majority that there is any difference in the Alice Corporation claims from those held patent ineligible in Benson [enhanced version available to lexis.com subscribers], Bilski, Dealertrack and Prometheus. Id at 8.
Whether future panels of the Federal Circuit will follow the majority or dissent in addressing § 101 patentability of claims that recite abstract ideas remains to be determined.
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Copyright © 2012, Sheppard Mullin Richter & Hampton LLP
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