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Claims Directed to Statutory Subject Matter Under 35 U.S.C. § 101 Unless Unpatentability Is “Manifestly Evident”

July 09, 2012

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Last Month at the Federal Circuit - August 2012

Judges: Linn (author), Prost (dissenting), O'Malley

[Appealed from: D.D.C., Judge Collyer]

In CLS Bank International v. Alice Corp., No. 11-1301 (Fed. Cir. July 9, 2012), the Federal Circuit reversed the district court’s grant of SJ in favor of CLS Bank International and CLS Services Ltd. (collectively “CLS Bank”), finding that the system, method, and media claims of the patents-in-suit are not directed to mere abstract ideas, but rather to practical applications of invention that fall within the categories of patent-eligible subject matter defined by 35 U.S.C. § 101.

Alice Corporation Pty. Ltd. (“Alice”) is the owner of the patents-in-suit, which include U.S. Patent Nos. 5,970,479 (“the ’479 patent”); 6,912,510 (“the ’510 patent”); 7,149,720 (“the ’720 patent”); and 7,725,375 (“the ’375 patent”). The four patents-in-suit include system, method, and media claims directed to a computerized trading platform that enables a trusted third party to settle obligations between a first and second party in a manner that eliminates a “settlement risk” associated with a transaction.

CLS Bank filed suit against Alice seeking DJ of noninfringement against the ’479, ’510, and ’720 patents, and Alice filed a counterclaim alleging that CLS Bank infringed those patents. CLS Bank later moved for SJ, contending that the asserted claims of the ’479, ’510, and ’720 patents were invalid under 35 U.S.C. § 101. Alice opposed and cross-moved for SJ. Following the Supreme Court’s grant of certiorari in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), cert. granted sub. nom. Bilski v. Doll, 129 S. Ct. 2735 (June 1, 2009), the district court denied the parties’ cross-motions for SJ as to subject matter eligibility without prejudice to refiling following the Supreme Court’s decision on certiorari.

Upon issuance of the ’375 patent, Alice filed amended counterclaims additionally asserting that CLS Bank infringed the claims of the ’375 patent. After the Supreme Court’s decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010), the parties renewed their cross-motions for SJ, and CLS Bank additionally asserted the invalidity of the ’375 patent under 35 U.S.C. § 101. The district court granted CLS Bank’s motion for SJ and denied Alice’s cross-motion, finding that the asserted claims of the patents-in-suit were invalid for failing to claim patent-eligible subject matter under 35 U.S.C. § 101. Alice appealed.

Noting the different purposes of 35 U.S.C. §§ 101, 102, 103, and 112, the Court stated that §§ 102, 103, and 112, and not § 101, perform the substantive work of disqualifying those patent-eligible inventions that are “not worthy of a patent.” Slip op. at 12 (citing Research Corp. v. Microsoft Corp., 627 F.3d 859, 868 (Fed. Cir. 2010)). The Court also observed that challenges to invalidity, patentability, and patent eligibility under these sections present distinctly different questions. Although § 101 has been characterized as a “threshold test” and can be addressed before other matters touching the validity of patents, the Court noted that § 101 need not always be addressed first, particularly when other sections might be discerned by the trial judge as having the promise to resolve a dispute more expeditiously or with more clarity and predictability. Thus, and consistent with its role as the master of its own docket, the Court observed that the district court properly exercised its discretion to entertain a challenge to the validity of the patents-in-suit under 35 U.S.C. § 101.

Returning to the patent eligibility of the asserted claims, the Court noted that the district court’s decision ultimately turned on whether the claimed subject matter fell within the “abstract ideas” exception to patent eligibility. The Court observed that the Supreme Court often looks to the notion of preemption to further elucidate the “abstract ideas” exception. For example, the Court noted that in Diamond v. Diehr, 450 U.S. 188 (1981), the Supreme Court held that claims directed to a process for curing rubber using the Arrhenius equation did not “pre-empt the use of that equation” and “only foreclose[d] from others the use of that equation in conjunction with all of the other steps in the[] claimed process.” Slip op. at 16 (alterations in original) (citing Diehr, 450 U.S. at 187). As explained by the Court, the claims in Diehr were “not barred at the threshold by § 101” because they were “an application of a law of nature or mathematical formula to a known structure or process,” which “incorporate[d] in it a more efficient solution of the equation.” Id. (alteration in original) (citing Diehr, 450 U.S. at 187, 188).

Turning to the role of preemption in fostering innovation, the Court observed that while every inventor is granted the right to exclude, or preempt, others from practicing his or her claimed invention, no one is entitled to claim an exclusive right to a fundamental truth or disembodied concept that would foreclose every future innovation in that art. According to the Court, “the essential concern is not preemption, per se, but the extent to which preemption results in the foreclosure of innovation,” and “[c]laims that are directed to no more than a fundamental truth and foreclose, rather than foster, future innovation are not directed to patent eligible subject matter under § 101.” Id. at 17-18.

The Court then examined practical implementations of “abstract ideas,” noting that the mere implementation on a computer of an otherwise ineligible abstract idea will not render the asserted “invention” patent eligible. The Court did, however, observe that where the addition of a machine imposes a meaningful limit on the scope of a claim and plays a significant part in permitting the claimed method to be performed, that machine limitation may render the claim patent eligible. Thus, while a specific way of doing something with a computer is likely to be patent eligible, the Court noted that a claim to nothing more than the idea of doing that thing on a computer may not be patent eligible.

The Court, however, cautioned that any claim can be stripped down, or simplified, removing all of its concrete limitations, until at its core, something that could be characterized as an “abstract idea” is revealed. According to the Court, nothing in the Supreme Court’s precedent, nor in its own precedent, allows a court to go hunting for abstractions by ignoring the concrete, palpable, tangible, and otherwise not abstract invention the patentee actually claims. The Court thus observed that “[p]atent eligibility must be evaluated based on what the claims recite, not merely on the ideas upon which they are premised.” Id. at 19.

In view of these observations, the Court held “that when—after taking all of the claim recitations into consideration—it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.” Id. at 20. The Court further explained that “[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, it is inappropriate to hold that the claim is directed to a patent ineligible ‘abstract idea’ under 35 U.S.C. § 101.” Id. at 21.

Returning to the asserted claims, the Court observed that the specifications of the patents-in-suit are consistent with the understanding that each asserted claim requires computer implementation. As such, the Court found no basis to question the district court’s assumption that the asserted claims require a computer system. Id. at 24. Although computer implementation indicates that these claims would likely satisfy the “machine” prong of the machine-or-transformation test, the Court further noted that the mere fact of computer implementation alone does not resolve the patent-eligibility question, as indeed, almost every method in the Digital Age can be implemented on a specially programmed computer.

To determine the patent eligibility of the asserted claims, the Court reviewed the limitations of the claims as a whole, and not just the computer implementation standing alone. The Court found that the asserted claims cover a practical application of a business concept in a specific way, which, among other things, requires computer-implemented steps of exchanging obligations maintained at an exchange institution by creating electronically maintained shadow credit and shadow debit records. The Court characterized these claim limitations as integral to the method, and not as token postsolution activity. Further, according to the Court, the limitations requiring specific “shadow” records leave broad room for other methods of using intermediaries to help consummate exchanges, and thus do not appear to preempt much in the way of innovation. The Court concluded that “presence of these limitations prevents us from finding it manifestly evident that the claims are patent ineligible under § 101.” Id. at 27.

Accordingly, the Court reversed the district court’s grant of SJ in favor of CLS Bank, finding that Alice’s method, system, and product claims are directed to statutory subject matter under § 101.

Judge Prost, in a dissenting opinion, stated that the Court departed from the Supreme Court’s unanimous directive to apply the patentable subject matter test with more vigor, instead creating an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under § 101 whenever they so desire. Judge Prost explained that the Court did not inquire whether Alice’s claims include an “inventive concept,” and instead relied on the fact that Alice’s claims require “computer implementation,” which the majority itself deemed insufficient to pass muster under § 101. Prost Dissent at 3. Accordingly, in Judge Prost’s opinion, “the majority’s ‘manifestly evident’ standard is more of an escape hatch than a yardstick.” Id. at 4.

Summary authored by James A. Cooke III, Ph.D., Esq.