Business Method Claims Patentable Says Fed. Cir.

Patent claims directed to using an intermediary in financial transactions to eliminate settlement risk have been held to recite patent-eligible subject matter under 35 U.S.C. § 101.  CLS Bank Int'l. v. Alice Corp., No. 2011-1301 (Fed. Cir. July 9, 2012).  Writing for the majority of a divided panel, Judge Linn, joined by Judge O'Malley, emphasized the court's consideration of the claims “as a whole.”  Because the court could not conclude that the claims were drawn to an abstract idea, they were patent-eligible.  In a dissent (to which the overused description of “scathing” truly applies), Judge Prost found no limitation in the claims that made them non-abstract.  Judge Prost would have found the claims, which she characterized as similar to the claims in Bilski v. Kappos and other recent cases denying patent-eligibility, unpatentable under Section 101.

In 2007, CLS brought a declaratory judgment action against Alice concerning three patents, with a fourth patent issuing in 2010.  Following the Supreme Court's decision in Bilski v. Kappos, the District Court held “that each asserted claim of Alice's four patents is invalid for failure to claim patent eligible subject matter.”  According to the District Court, the method claims were invalid under Section 101 because they recited the “fundamental idea of employing a neutral intermediary to ensure that parties to an exchange can honor a proposed transaction, to consummate the exchange simultaneously to minimize the risk that one party does not gain the fruits of the exchange, and then irrevocably to direct the parties, or their value holders, to adjust their accounts or records to reflect the concluded transaction.”  Computer system and media claims, according to the District Court, were likewise unpatentable as directed to the same abstract idea.

Before beginning its analysis of patent-eligibility, the majority noted that, although the Supreme Court had characterized Section 101 as a “threshold test” in Bilski, Section 101 “need not always be addressed first, particularly when other sections [i.e., 35 U.S.C. §§ 102, 103, and 112] might be discerned by the trial judge as having the promise to resolve a dispute more expeditiously or with more clarity and predictability.”  It was interesting that the court felt the need to discuss this issue, and to cite the majority opinion in MySpace, Inc. v. GraphOn Corp., inasmuch as there was no question here that the District Court had exercised its proper discretion to decide Section 101 issues.

The court then turned to the Section 101 analysis, noting that, while the Supreme Court recently reiterated the “abstract idea” test in the Prometheus case, “it did not directly address how to determine whether a claim is drawn to an abstract idea in the first instance.”  The court then devoted several pages to the concept of preemption, i.e., to the question of when patent claims preempt a fundamental idea.  Adding computer-implemented limitations to a claim does not render it patentable, although “a claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.”  Moreover, reading Section 101 too broadly could eviscerate patent law; claims must be read as a whole, and the novelty or lack thereof of particular elements or steps is irrelevant in Section 101 analysis.

Here, “method, system, and media claims fall within different statutory categories,” but “the form of the claim in this case does not change the patent eligibility analysis under § 101.”  The District Court characterized the claims as “directed to the fundamental concept 'of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk,'” and thus “looked past the details of the claims.”

The court then spent several pages explaining that each claim required a computer, while acknowledging that “the mere fact of computer implementation alone does not resolve the patent eligibility question.”  Nonetheless, the majority distinguished Bilski and its progeny, stating that here “it is difficult to conclude that the computer limitations here do not play a significant part in the performance of the invention or that the claims are not limited to a very specific application of the concept of using an intermediary to help consummate exchanges between parties.”  These claims “appear to cover the practical application of a business concept in a specific way,” and were held patent-eligible.

Judge Prost did not pull any punches in the opening lines of her dissent: “The majority resists the Supreme Court's unanimous directive to apply the patentable subject matter test with more vigor.  Worse yet, it creates an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under § 101 whenever they so desire.”  Although Judge Prost also found “it difficult to answer the questions presented here with absolute certainty,” she nonetheless believed “that precedent and common sense counsel that the asserted patent claims are abstract ideas repackaged as methods and systems.”

Like, I suspect, many commentators, Judge Prost found it surprising that the majority upheld these claims in the wake of the Supreme Court's recent Prometheus decision, reversing the Federal Circuit “in a § 101 case for a second time in its last three terms, [and] hinting (not so tacitly) that our subject matter patentability test is not sufficiently exacting.”  Judge Prost also cited the Supreme Court's recent grant of certiorari and remand in Ultramercial, LLC v. Hulu, a case that the majority failed to mention.

Judge Prost took issue with the majority's failure to “inquire whether the asserted claims include an inventive concept,” and with its approach of avoiding decisions in “a § 101 case unless unpatentability is 'manifestly evident.'”  She further noted the seeming inconsistency of the majority's emphasis on the computer implementation of the claims even though, as the majority acknowledged, computer implementation was not dispositive of the Section 101 question.

In response to the majority's criticism that she did not consider the claims as a whole, Judge Prost provided a table that reduced the claim terms to a “plain English translation,” and then asked, rhetorically, how her table “glosses over a limitation that would otherwise narrow the claims to something that is non-abstract.”  According to Judge Prost, the majority identified no such limitation.  Further, she could not distinguish this case from applicable precedent, including Gottschalk v. Benson, Bilski, Dealertrack v. Huber, and Prometheus.

Further, although system claims could be treated differently, “providing all system claims with immunity from the subject matter inquiry would eviscerate the abstract idea test altogether.”  Here, the system claims were closely similar to the method claims.  Moreover, the specification talked about computer implementation only in general terms, and did “not mention what aspect of the apparatus is an advancement in the art.”  Rather, “the claimed invention is not about physical systems; it is the abstract idea of risk-management and financial transactions carried out on an already known infrastructure.”  (Emphasis in original.)