By Dennis Crouch
Fort Properties, Inc. v. American Master Lease LLC, __ F.3d __ (Fed.Cir. 2012)(Judge Prost joined by Judges Schall and Moore.
American Master Lease (AML) owns a patent that covers a method of creating a tax-deferred real estate investment instrument. U.S. Patent No. 6,292,788. Claim 1 includes three primary steps: aggregating title to real property to form a real estate portfolio; encumbering the property in the real estate portfolio with a master agreement; and creating a plurality of deedshares by dividing title in the real estate portfolio into a set of tenant-in-common deeds with each of the deedshares subject to a reaggregation provision in the master agreement. This method is designed to take advantage of a federal income tax loophole that allows investment properties to be traded tax free in some circumstances.
This litigation arose after AML threatened Fort Properties with an infringement lawsuit and Fort Properties filed an action in the Central District of California asking for a declaratory judgment of invalidity. In a decision predating Bilski v. Kappos, the district court ruled the patent invalid for failing the machine-or-transformation test (MoT). On appeal, the Federal Circuit affirmed – finding the invention unpatentably abstract.
Unpatentably Abstract: Courts have long recognized patent claims as abstractions that tend to generalize and broaden the scope of a particular invention. That small level of abstraction is acceptable and encouraged. However, if a claim is too abstract then it becomes unpatentably abstract. At a conference this weekend, Chief Judge Rader, USPTO Solicitor Chen, and I held an interesting discussion on drawing that line. In my view, “preemption” is largely unhelpful because it falls into the same line drawing trap: A patent is only useful if it sufficiently preempts (i.e., excludes) others, but at some point too much preemption renders a claim unpatentably preemptive. I believe that all three of us see the current jurisprudence on abstract ideas as problematic. It leaves the courts and patent examiners without any real standards for determining an outcome other than asking whether the particularly claimed invention is “too much like Bilski, Benson, or Flook?”
Here, the appellate panel reviewed the tax strategy patent and decided that it counts as abstract because the invention is too much like Bilski.
We view the present case as similar to Bilski. Specifically, like the invention in Bilski, claims 1-31 of the ’788 patent disclose an investment tool, particularly a real estate investment tool designed to enable tax-free exchanges of property. This is an abstract concept. Under Bilski, this abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property. . . . When viewing the claimed invention as a whole, the physical activities involving the deeds, contracts, and real property are insufficient to render these claims patentable.
Some of the claims included a computer limitation. However, the court held that limitation did not impose any meaningful limits on the claim scope for subject matter eligibility purposes. “AML simply added a computer limitation to claims covering an abstract concept—that is, the computer limitation is simply insignificant post-solution activity. Without more, claims 32-41 cannot qualify as patent-eligible.”
The problem with the court’s jurisprudence here is that “unpatentably abstract” is not defined. Rather, the court simply recited the core function of the invention and the conclusion that it is abstract.