SmartGene v. Advanced Biological Laboratories

May 26, 2014PatentAbstract Idea, Affirmed Without Opinion, Federal Circuit En Banc, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

Earlier this month, I posed a question relating to the patent eligibility of the following claim:

A method for guiding the selection of a therapeutic treatment regimen for a patient with a known disease or medical condition, said method comprising:

(a) providing patient information to a computing device comprising:

a first knowledge base comprising a plurality of different therapeutic treatment regimens for said disease or medical condition;

a second knowledge base comprising a plurality of expert rules for evaluating and selecting a therapeutic treatment regimen for said disease or medical condition;

a third knowledge base comprising advisory information useful for the treatment of a patient with different constituents of said different therapeutic treatment regimens; and

(b) generating in said computing device a ranked listing of available therapeutic treatment regimens for said patient; and

(c) generating in said computing device advisory information for one or more therapeutic treatment regimens in said ranked listing based on said patient information and said expert rules.

This claim was a real one, from a real case. It’s Claim 1 from U.S. Patent No. 6,081,786, and in a January 2014 nonprecedential opinion the Federal Circuit affirmed a district court’s ruling that it and claims from related patent No. 6,188,988 were ineligible for patent protection under 35 U.S.C. § 101. Here’s the core of the court’s reasoning:

The district court correctly held that the claim 1 method falls outside the eligibility standards of section 101 as that provision has been construed. This conclusion follows from CyberSource Corp. v. Retail Decisions, Inc., where, based on earlier precedents, this court held that section 101 did not embrace a process defined simply as using a computer to perform a series of mental steps that people, aware of each step, can and regularly do perform in their heads. 654 F.3d 1366, 1373 (Fed. Cir. 2011); see also In re Grams, 888 F.2d 835, 840-41 (Fed. Cir. 1989); In re Meyer, 688 F.2d 789, 794-95 (C.C.P.A. 1982). As CyberSource explains, those precedents rest on Supreme Court decisions indicating that section 101 covers neither “mental processes”—associated with or as part of a category of “abstract ideas”—nor processes that merely invoke a computer and its basic functionality for implementing such mental processes, without specifying even arguably new physical components or specifying processes defined other than by the mentally performable steps. See Gottschalk v. Benson, 409 U.S. 63, 67-68 (1972); Parker v. Flook, 437 U.S. 584, 589 (1978).

***

The Supreme Court’s post-CyberSource decision in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), reinforces the application of Cyber-Source to decide the present case. The Supreme Court in Mayo, though addressing a case involving the “law of nature” exclusion from section 101, recognized that “mental processes” and “abstract ideas” (whatever may be the precise definition and relation of those concepts) are excluded from section 101. See 132 S. Ct. at 1289, 1293, 1297-98 (quotation marks omitted). Whatever the boundaries of the “abstract ideas” category, the claim at issue here involves a mental process excluded from section 101: the mental steps of comparing new and stored information and using rules to identify medical options. Mayo demanded that, when a claim involves an abstract idea (or, in Mayo itself, a law of nature), eligibility under section 101 requires that the claim involve “enough” else—applying the idea in the realm of tangible physical objects (for product claims) or physical actions (for process claims)—that is beyond “well-understood, routine, conventional activity.” 132 S. Ct. at 1294, 1298, 1299. The claim here does not do so. It calls on a computer to do nothing that is even arguably an advance in physical implementations of routine mental information comparison and rule-application processes. In this context, the concern about preempting public use of certain kinds of knowledge, emphasized in Mayo, is a grave one. See id. at 1301-02.

Our decisions since Mayo do not undermine Cyber-Source or its application here…..

You can read the entire opinion here: SmartGene v ABL.

ABL has since filed a petition for certiorari, as well as an amicus brief in Alice v. CLS. Its position is that SmartGene should be GVR’d regardless of the outcome in Alice v. CLS (which might issue as soon as tomorrow). From the introduction:

Judge Pauline Newman recently characterized the Federal Circuit as being in a state of jurisprudential “deadlock,” making patent eligibility under 35 U.S.C. § 101 a question “whose result will depend on the random selection of the panel.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1280 (Fed. Cir. 2013) (hereinafter CLS Bank) (en banc) (Newman, J., dissenting), cert granted, Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S.Ct. 734 (2013) (hereinafter Alice). No better case illustrates the panel-dependent crapshoot that Section 101 jurisprudence has become than this one. Although it is impossible to predict the Court’s forthcoming opinion in Alice, there is little doubt that it will significantly impact the law in this area and break the deadlock in the Federal Circuit.

The decision below is a prime example of the
current dysfunctional state of the law in the Federal Circuit.

You can read the petition here: ABL v. SmartGene petition for writ of certiorari.

Right Round: Comparing US and European Software Patent Eligiblity

October 10, 2014PatentAbstract Idea, anticipation, obviousness, Subject Matter EligibilityDennis Crouch

Guest Post by Michael Williams. Williams is a UK and European Patent Attorney and Partner at the London based Cleveland-IP firm.

In the book “Through t Alice he Looking-Glass”, Alice compares her drawing room to the one reflected in the mirror. She notes that everything is the same “only the things go the other way”.

In the recent Alice Corp[1] decision, the US Supreme Court set out a framework for assessing whether claims are patent eligible under 35 U.S.C. § 101. In this article I shall compare this framework with that used by the European Patent Office, and consider the similarities.

The US Alice Approach

In a memorandum dated June 24, 2014, the USTPO has set out its Preliminary Examination Instructions to the Patent Examining Corps in view of the Alice Corp decision[2]. In the Instructions, a three stage framework is set out which is summarized below:

Determine whether the claim is directed to one of the four statutory categories of invention, i.e., process, machine, manufacture, or composition of matter. If the claim does not fall within one of the categories, reject the claim as being directed to non-statutory subject matter (§ 101).
If the claim does fall within a statutory category, determine whether the claim is directed to an abstract idea. If not, proceed with examination of the claim for compliance with other statutory requirements.
If an abstract idea is present in the claims, determine whether any element, or combination of elements, in the claim is sufficient to ensure that the claim amounts to significantly more than the abstract idea itself. If there are no meaningful limitations in the claim, reject the claim as being directed to non-statutory subject matter.

The Examiner should then proceed to examine the claim for other patentability requirements, whether or not a rejection under § 101 has been raised.

I have illustrated the three-stage “Alice” approach in Figure 1.

The EPO approach

The approach of the EPO to claims with potentially excluded subject matter is summarised below.

Examine the claim to establish whether it relates to excluded subject matter as such. This is done by assessing whether the claim has a technical character. If there is no technical character at all, the claim is rejected under Article 52 EPC for relating to excluded subject matter as such[3] .
If the claim has technical character, it is examined for novelty and inventive step. In the case of inventive step, it is determined whether the invention involves an inventive step in a technical field. If the claim lacks an inventive step in a technical field it is rejected under Article 56 EPC.

In the case of a claim with a mix of technical and non-technical features, the following steps are followed when assessing inventive step[4]:

Identify the non-technical aspects of the claim,
Select the closest prior art on the basis of the technical aspects,
Identify the technical differences from the closest prior art,
Determine whether or not the technical differences are obvious.

If there are no technical differences, or if the technical differences are obvious, the claim is rejected for lack of inventive step.

I have illustrated the overall approach in Figure 2. In order to facilitate comparison, I have separated the approach into stages which correspond roughly with those of the USPTO approach. I have also assumed that there are differences between the claimed invention and the prior art (otherwise there would be lack of novelty).

Comparison of the two approaches

A comparison of the flow charts in Figures 1 and 2 shows a striking similarity between the first stages of each approach. In each case, it is in effect determined whether the claim relates to no more than excluded, or ineligible, subject matter. In both cases this acts as a filter to weed out claims which do not have any technical subject matter.

The second stages of each approach also bear comparison. In the case of the EPO, it is determined whether or not the claim includes both technical and non-technical features. In the case of the USPTO it is determined whether the claim is directed to a (non-technical) abstract idea. However, since the claim must contain some technical subject matter (or it would have been weeded out at stage one), this is akin to determining whether there is a mix of technical and non-technical features. In both cases, the second stage flags up cases where there might still be a problem with excluded subject matter.

In the third stage of each approach we come to the nub of the matter. It is here that borderline cases will stand or fall. It is therefore worthwhile analysing this stage of each approach.

In the case of the EPO approach, the technical and non-technical features of the claim are first separated out. The technical features which are not present in the prior art are then identified. It is then determined whether or not those technical features are non-obvious. In doing so, it is assumed that the non-technical features are already present in the prior art. If the technical features which are not present in the prior art are obvious, the claim is rejected for lack of inventive step.

In the case of the USPTO approach, stage three involves determining whether there are any elements in the claim which amount to significantly more than the abstract idea itself. This in effect requires two steps, as follows:

Identify the elements which are not an abstract idea, and
Determine whether those elements amount to significantly more than the abstract idea itself.

It is notable that step a is similar to the EPO approach of identifying the non-technical aspects of the claim.

With regard to step b, this begs the question: how much more is “significantly more”? According to the Instructions there must be “meaningful limitations” in the claim, but how meaningful do they have to be?

We can assume that the elements which must be “significantly more” than the abstract idea are technical (since otherwise the claim would have been weeded out at stage one). It is also the case that, in order to be “significantly more”, those technical elements must be meaningful. If they must be meaningful, does this mean they must contain the inventive concept?

My guess is that, in practice, persuading the USPTO to allow claims of this type is probably going to involve arguing that the elements which are significantly more than the abstract idea are somehow tied in with the inventive concept. Otherwise they would not be “meaningful”. This then starts looking very much like arguing for non-obvious technical subject matter; in other words, an inventive step in a technical field.

There will of course be differences between the two approaches, not least due an imprecise alignment of the concepts of “abstract” and “non-technical”. However it seems to me that both approaches are seeking to achieve something similar, namely, an assessment of whether the innovation itself lies in a non-excluded field.

Thus, to my mind, we are now in a situation where, in practice, the two approaches are considerably aligned, albeit “the other way round”.

Conclusion

As readers of the book will recall, when Alice actually goes through the looking glass, she finds it to be completely different from what she first saw. I suspect that, as case law and practice develop, we will find that USPTO and EPO practice will differ. However it is notable that, at least on the face of it, there are now considerable similarities.

= = = = =

[1] Alice Corporation Pty. Ltd. V CLS Bank International, et al

[2] http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf

[3] Guidelines for Examination in the European Patent Office G-II, 2.

[4] Guidelines G-VII, 5.4

Patenting Software: Obama Administration Argues “Sometimes”

December 17, 2012PatentAbstract Idea, AIA Trials, Claim Construction, Federal Circuit En Banc, PGR, Subject Matter Eligibility, USPTO DirectorDennis Crouch

By Dennis Crouch

CLS Bank Int'l v. Alice Corp (Fed. Cir. 2012)

The US Government has filed its amicus brief in the pending en banc CLS Bank case that focuses on the patentability of software systems. Download CLS-Bank_v_Alice_USA-amicus-ISO-Neither-Party. The brief generally rejects the idea that software per se represents patentable subject matter but is favorable toward the patenting of computerized applications that either improve computer performance, use technology in a unique technological way, or transform the local environment.

Unlike some recent briefs, this has been filed with the support of both the USPTO and the DOJ. The brief suggests a claim-by-claim subject matter analysis that begins with claim construction and only then asks "whether the challenged claim, properly construed, incorporates enough meaningful limitations to ensure that it amounts to more than a claim for the abstract idea itself." The brief then lists a set of factors that the government sees as important in making that determination:

Is the computer only nominally or tangentially related to the performance of the invention?
Is the computer generically recited or, instead are specific, unconventional computer equipment or tools required?
Is the invention focused primarily on non-technological fields or does the invention improve the ability of a computer to function as a computer?
Is the computer used generically for its automation or communication functions or does the computer manipulate particular data in particular, specific, and useful ways?
Is the abstract idea merely described within a particular environment or is the abstract idea part of an invention that transforms its environment.
Are the computer related elements merely conventional steps described at a high level of generality in a way that would be employed by anyone wanting to apply the abstract idea.

Each of these determinations is riddled with problems as is the potential weighting in an overall abstract-idea analysis. However, the overall approach adds substantially to the the

The brief suggests that all claimed features can contribute to subject matter eligibility, but some caution should be used to not allow "mere 'drafting effort designed to monopolize [an abstract idea] itself'" (quoting Mayo). Regarding the product/process divide, the government writes that the form of the claim should not impact subject matter eligibility because those differences come from the "draftsman's art" rather than the invention itself.

Perhaps attempting to endear itself to the Federal Circuit, the brief implicitly criticizes Supreme Court patent decisions by arguing that "the §101 inquiry should focus on the actual language of each challenged claim, properly construed, not a paraphrase or parody of the claims. Unfortunately, the government does not have any Supreme Court precedent to back-up this argument.

As a final point, the government brief argues that the presumption of validity associated with patent rights lead to a conclusion that a patent can only be invalidated on subject matter eligibility grounds based upon "clear and convincing evidence." Reading between the lines, this seems to mean that any conclusions draw from the factors above must be proven with clear and convincing evidence. While §101 eligibility may be a question of law, the government additionally argues that it is a factual question as to whether "limitations recited in a claim do not, in practice, impose any meaningful limitations on their claim scope." Of course, prior to issuance or during post-grant review there is no presumption of validity.

CLS Bank v. Alice: The “Nothing More Than” Limitation on Abstract Ideas

July 10, 2012PatentAbstract Idea, Enablement, First to Invent, Subject Matter EligibilityJason Rantanen

By Jason Rantanen

CLS Bank International v. Alice Corporation Pty. Ltd. (Fed. Cir. 2012) Download 11-1301
Panel: Linn (author), O'Malley, Prost (dissenting)

Despite two recent opinions by the Supreme Court, the issue of patent eligible subject matter continues to sharply divide the Federal Circuit. CLS Bank v. Alice Corporation illustrates this point neatly, even going a step further. Unlike other recent opinions involving questions of patent eligible subject matter that have approached the issue in a relatively narrow, case-specific manner, here the majority implements a sweeping rule with significant implications for future cases – a rule that the dissenting judge criticizes as being irreconcilable with Supreme Court's precedent.

Background: Alice sued CLS for infringement of four patents covering, in the majority's words, "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." Slip Op. at 2. The patents included method, system, and computer program product claims. Claim 1 of Patent No. 7,149,720 is representative of the system claims:

1. A data processing system to enable the exchange of an obligation between parties, the system comprising:
a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

The district court granted summary judgment of invalidity based on a failure to claim patent eligible subject matter. Alice appealed.

The majority's "nothing more than" limitation: In reversing the district court, the majority focused on the "abstract ideas" exception to patent eligible subject matter. Examing the concept of "abstract ideas," the majority concluded that despite substantial precedent and commentary, its meaning remains unclear and its boundary elusive. There is, of course, some guidance in the precedent, notably the machine or transformation test and concerns about preempting an entire field of innovation. There are also computer-specific opinions, which the majority distilled down into the rule that "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." Slip Op. at 18 (emphasis in original). But even this rule allows for "great uncertainty" as to the meaning of "abstract ideas."

Against this backdrop, the majority did not attempt to define the concept of "abstract ideas." Instead, it implemented a new rule that minimizes the need to make such a determination and strongly favors a conclusion of patentable subject matter when claims involve anything that might be characterized as an abstract idea. The majority's rule:

"this court holds 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…Unless 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."

Slip Op. at 20-21 (emphasis added). Applying this rule, the majority concluded that Alice's claims were directed to patent eligible subject matter. In reaching this conclusion, it emphasized the need to look at the claim as a whole rather than to generalize the invention as the district court did. Applying this approach, the majority concluded that the computer limitations "play a significant part in the performance of the invention" and that the claims are "limited to a very specific application of the concept of using an intermediary to help consummate exchanges between parties." Id. at 26.

The majority also emphasized a theme previously discussed on PatentlyO: that district courts have the discretion to determine the order in which to assess questions of validity, and may execise that discretion in the interests of judicial efficiency: "Although § 101 has been characterized as a “threshold test,” Bilski II, 130 S. Ct. at 3225, and certainly can be addressed before other matters touching the validity of patents, it 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." Slip Op. at 13 (emphasis added).

Judge Prost's Dissent: Writing in dissent, Judge Prost sharply criticized the majority for "responding to a unanimous Supreme Court decision against patentability with even a stricter subject matter standard." Dissent at 8. "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." Id. at 1. Judge Prost was equally critical of the majority's departure from the Supreme Court's case-specific approach to questions of patent eligible subject matter. "The majority has failed to follow the Supreme Court’s instructions—not just in its holding, but more importantly in its approach." Id. at 3.

Central to Judge Prost's dissent is the view that the Supreme Court in Prometheus required that to be patent eligible the subject matter must contain an "inventive concept." "Now there is no doubt that to be patent eligible under § 101, the claims must include an “inventive concept.” Dissent at 3. Finding nothing inventive in the claims – they consist of the abstract and ancient idea together with its implementation via a computer – the dissent concludes that they cannot constitute patent eligible subject matter.

The Heart of the Dispute: One interpretation of the divide between majority and dissent is that it flows from fundamentally different approaches to the question of what the "invention" is for purposes of § 101. The majority sees the "invention" as rigidly defined by the claims: "ignoring claim limitations in order to abstract a process down to a fundamental truth is legally impermissible," and accuses the dissent of doing just that. Slip Op. at 23. In contrast, the dissent, while recognizing the importance of the claims, strips them of jargon in order to ask "So where is the invention"? Dissent at 5. The majority's approach resembles the standard patent law approach to dealing with the concept of the invention; the dissent's is much more similar to how the Supreme Court analyzes questions of patentable subject matter.

In any event, given the fundamental disagreement between the majority and dissent, this will be a case to keep a close eye on.

Correction to original post: Judge Lourie was joined by Judge O'Malley, not Judge Moore.

The Public-Private Role of Federal Reserve Banks

September 16, 2020PatentDennis Crouch

Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, et al. (Supreme Court 2020)

The question in this case is whether the Federal Reserve Banks are people. The Patent Act allows any “person” to file a petition for covered-business-method review (or IPR/PGR). Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019) held (1) the U.S. Gov’t is not a person under the statute and (2) consequently the USPS (a branch of the US gov’t) is not permitted to petition the USPTO for review of a patent. The question before the Supreme Court is whether these banks are part of the government.

Whether the regional Federal Reserve Banks—the “operating arms” of the Federal Reserve System, which is the central bank of the United States—are “distinct” from the Federal Government, and qualify as “persons” permitted to seek post-issuance patent review under the America Invents Act, when the Federal Government may not under the Court’s holding in Return Mail, Inc. v. United States Postal Serv., 139 S. Ct. 1853 (2019).

Question presented.

Alexander Hamilton was instrumental in the creation of the First Bank of the United States. That Bank’s charter ended in 1811, but the foundation served for future national banks and eventually for creation of the Federal Reserve in 1913. The Federal Reserve system includes twelve regional Federal Reserve Banks that are largely controlled by private banking interests. The twelve are self-described “instrumentalities of the United States that, collectively, make up the operating arm of the Federal Reserve System, the central bank of the United States.” (Bank Complaint). The system as a whole is controlled by the Board of Governors of the Federal Reserve System. The Board members are presidential appointees.

Bill Bozeman’s patents cover what he calls “Universal Positive Pay” for fraud detection and check clearing. Back in 2017, the 12 Federal Reserve Banks (but not the Board) sued Bozeman seeking a declaratory judgment of non-infringement. The banks then also filed for Covered Business Method (CBM) review of the patents at the USPTO. The PTO instituted review and concluded that the claims were ineligible under Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014). In its decision, the Federal Circuit affirmed and also held that the banks are “persons” under the statute because they “are distinct from the government for purposes of the AIA.”

In other contexts, courts have found a very close link between the Banks and the Gov’t.

Fed. Reserve Bank of Bos. v. Comm’r of Corps. & Taxation of Com. of Mass., 499 F.2d 60, 62 (1st Cir. 1974) (Bank is a “public governmental body” whose “interests seem indistinguishable from those of the sovereign”)
Jet Courier Servs., Inc. v. Fed. Reserve Bank of Atlanta, 713 F.2d 1221 (6th Cir. 1983) (Banks are not “persons” under the Sherman Act because they are part of the Federal Reserve System, “an agency of the federal government.”)
Schroder v. Volcker, 864 F.2d 97, 99 (10th Cir. 1988) (no antitrust action against defendants “affiliated with the Federal Reserve System”, including individual banks)
United States v. Hollingshead, 672 F.2d 751 (9th Cir. 1982) (Fed Reserve Bank employees are public officials for purposes of anti-bribery statute).
Berini v. Fed. Reserve Bank of St. Louis, 420 F. Supp. 2d 1021, 1028 (E.D. Mo. 2005) (“[C]ontrol and supervision of the federal reserve banks is vested in a Board of Governors appointed by the President with the advice and consent of the Senate”)

This case is not huge for the patent system — although there are hundreds of federally-created entities that might be “people.” In addition, the CBM program has sunset and is unlikely to be revived.

The case is still a big deal as our country discusses the role of socialist governmental policies providing a safety net for Americans. The US system is already ripe with “private” entities designed to serve a public good: Federal Reserve banking system; Fannie Mae; Freddie Mac; Highly regulated utilities (that are given the power of eminent domain); etc. For over 100 years, this approach has been a form of back-door socialism that becomes palatable because of paperwork showing a separation from government. This case would shine some interesting light on the field with the simple question — Are the Federal Reserve Banks part of the U.S. Government?

Federal Circuit: Novelty in Implementation of an Abstract Idea Insufficient to Overcome Alice

November 14, 2014PatentAbstract Idea, anticipation, Subject Matter EligibilityDennis Crouch

by Dennis Crouch

The key language from the Federal Circuit’s most recent pronouncement in Ultramercial v. Hulu (Fed. Cir. 2014) is as follows:

We do not agree with Ultramercial that the addition of merely novel or non-routine components to the claimed idea necessarily turns an abstraction into something concrete. In any event, any novelty in implementation of the [abstract] idea is a factor to be considered only in the second step of the Alice analysis. . . . [And, the Internet] is a ubiquitous information-transmitting medium, not a novel machine. And adding a computer to otherwise conventional steps does not make an invention patent-eligible. Any transformation from the use of computers or the transfer of content between computers is merely what computers do and does not change the analysis.

= = = = =

Following Alice Corp., the Federal Circuit has now flipped its prior two rulings in the Ultramercial case — finding this time that the computerized business method patent lacks patent eligibility. Both prior Federal Circuit decisions in favor of patent eligibility had been vacated by the Supreme Court without opinion except with orders to consider Mayo v. Prometheus and Alice Corp v CLS Bank respectively.

This decision offers a strong signal from the Federal Circuit that the court is now understanding what the Supreme Court meant in its recent quartet of Bilski, Mayo, Myriad, and Alice and that the court will support the 101 eligibility decisions being laid-down by the lower courts and the Patent Office.

The patent at issue here covers a method of distributing copyrighted products over the internet – instead of paying for the product, the consumer watches a paid-advertisement. U.S. Patent No. 7,346,545. The claims include some further limitations, such as using an “activity log” to select the advert to be shown based upon criteria (such as whether the advertiser has paid for another transaction). Claim 1 is pasted below.

It turns out that the advertising model works for the internet just as it previously worked for radio and television. And, as a result, the patent would be quite valuable, but only if it were valid. It is not valid. The decision here does not eliminate all software patents, but it again calls-into question patents where the focus of the invention is either the content of information being transferred/transformed or a business transaction. It is telling that the court added the following the caveat to its decision here: “[W}e do not purport to state that all claims in all software-based patents will necessarily be directed to an abstract idea. Future cases may turn out differently.”

The district court in this case found that the claims embodied the abstract idea of using “advertisement as an exchange or currency.” On appeal, the Federal Circuit rejected that restatement for a more detailed analysis:

The process of receiving copyrighted media, selecting an ad, offering the media in exchange for watching the selected ad, displaying the ad, allowing the consumer access to the media, and receiving payment from the sponsor of the ad all describe an abstract idea, devoid of a concrete or tangible application. Although certain additional limitations, such as consulting an activity log, add a degree of particularity, the concept embodied by the majority of the limitations describes only the abstract idea of showing an advertisement before delivering free content.

With that abstract idea in hand, the court moved to the second step of the Alice Corp test — whether the claim adds significantly more in its implementation such that the abstract idea is transformed into a patent eligible invention.

We conclude that the limitations of the ’545 claims do not transform the abstract idea that they recite into patent-eligible subject matter because the claims simply instruct the practitioner to implement the abstract idea
with routine, conventional activity. None of these eleven individual steps, viewed “both individually and ‘as an ordered combination,’” transform the nature of the claim into patent-eligible subject matter. The majority of those steps comprise the abstract concept of offering media content in exchange for viewing an advertisement. Adding routine additional steps such as updating an activity log, requiring a request from the consumer to view the ad, restrictions on public access, and use of the Internet does not transform an otherwise abstract idea into patent-eligible subject matter. Instead, the claimed sequence of steps comprises only “conventional steps, specified at a high level of generality,” which is insufficient to supply an “inventive concept.” Indeed, the steps of consulting and updating an activity log represent insignificant “data-gathering steps,” and thus add nothing of practical significance to the underlying abstract idea. Further, that the system is active, rather than passive, and restricts public access also represents only insignificant “[pre]-solution activity,” which is also not sufficient to transform an otherwise patent-ineligible abstract idea into patent-eligible subject matter.

The claims’ invocation of the Internet also adds no inventive concept. As we have held, the use of the Internet is not sufficient to save otherwise abstract claims from ineligibility under § 101. Narrowing the abstract idea of using advertising as a currency to the Internet is an “attempt[] to limit the use” of the abstract idea “to a particular technological environment,” which is insufficient to save a claim. Given the prevalence of the Internet, implementation of an abstract idea on the Internet in this case is not sufficient to provide any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.” In sum, each of those eleven steps merely instructs the practitioner to implement the abstract idea with “routine, conventional activit[ies],” which is insufficient to transform the patent-ineligible abstract idea into patenteligible subject matter.

That some of the eleven steps were not previously employed in this art is not enough—standing alone—to confer patent eligibility upon the claims at issue.

While the Supreme Court has held that the machine-or-transformation test is not the sole test governing § 101 analyses, that test can provide a “useful clue” in the second step of the Alice framework. A claimed process can be patent-eligible under § 101 if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” The claims of the ’545 patent, however, are not tied to any particular novel machine or apparatus, only a general purpose computer. As we have previously held, the Internet is not sufficient to save the patent under the machine prong of the machine-or-transformation test. It is a ubiquitous information-transmitting medium, not a novel machine. And adding a computer to otherwise conventional steps does not make an invention patent-eligible. Any transformation from the use of computers or the transfer of content between computers is merely what computers do and does not change the analysis. Although the preamble of claim 1 also requires a facilitator, the specification makes clear that the facilitator can be a person and not a machine. Thus, nowhere does the ’545 patent tie the claims to a novel machine. The claims of the ’545 patent also fail to satisfy the transformation prong of the machine-or-transformation test. The method as claimed refers to a transaction involving the grant of permission and viewing of an advertisement by the consumer, the grant of access by the content provider, and the exchange of money between the sponsor and the content provider. These manipulations of “public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances.” We therefore hold that the claims of the ’545 patent do not transform any article to a different state or thing. While this test is not conclusive, it is a further reason why claim 1 of the ’545 patent does not contain anything more than conventional steps relating to using advertising as a currency.

The majority panel here was written by Judge Lourie and joined by Judge O’Malley. Judge Mayer (who replaced Judge Rader on the panel) wrote in concurrence to emphasize the following three points:

First, whether claims meet the demands of 35 U.S.C. § 101 is a threshold question, one that must be addressed at the outset of litigation. Second, no presumption of eligibility attends the section 101 inquiry. Third, Alice Corporation v. CLS Bank International, for all intents and purposes, set out a technological arts test for patent eligibility.

Although Judge Mayer’s conclusions here veer somewhat from the patent eligibility doctrine, he provides a roadmap for district courts to use the doctrine in deciding Section 101 cases going forward.

Anonymous Loan Shopping — An Unpatentable Abstract Idea

January 20, 2016PatentAbstract Idea, Affirmed Without Opinion, Enablement, First to Invent, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

On summary judgment, Judge Guilford (C.D.Cal) found Mortgage Grader’s asserted patents[1] ineligible under 35 U.S.C. § 101.[2] On appeal, the Federal Circuit has affirmed this substantive holding as well as the district court’s procedural decision to allow the defendant (First Choice) to re-add its Section 101 contention after first dropping it.[3] The appellate decision here was authored by Chief Judge Stark (D.Del) who was sitting by designation. Judges O’Malley and Taranto joined the unanimous opinion.

A patent is not permitted to effectively claim an abstract idea. In Mayo/Alice, the Supreme Court outlined a two-step process for determining whether this exception applies to Section 101’s otherwise broad eligibility principles: (1) is the claim at issue directed to a patent-ineligible concept and (2) if so, does the claim include an “inventive concept … sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”[4]

Here, the district court found that the claims-at-issue were generally directed to “anonymous loan shopping” which is an unpatentable abstract idea.[5] According to the court and apart from the computerization claim limits, the “series of steps covered by the asserted claims—borrower applies for a loan, a third party calculates the borrower’s credit grading, lenders provide loan pricing information to the third party based on the borrower’s credit grading, and only thereafter (at the election of the borrower) the borrower discloses its identity to a lender—could all be performed by humans without a computer.” These human-mind-potentials cannot be claimed in the abstract. In step two of Mayo/Alice, the court considered the computerization elements of the claims, but found only “generic computer components such as an ‘interface,’ ‘network,’ and ‘database.’ These generic computer components do not satisfy the inventive concept requirement.”

In the appeal, the patentee argued a factual dispute regarding the history of loan processing in an attempt to show that the process here was not “old.” The appellate panel, however, found the testimony essentially irrelevant to the legal question of whether claim is directed to an abstract idea.

====

On the procedural point, the defendant had dropped its eligibility defense from its contentions. However, following the Supreme Court’s Alice decision added the contention back into place – but well after the court appointed deadline. On appeal, the appellate panel confirmed that the district court did not abuse its discretion in allowing that procedural anomaly because of the significance of the decision:

In Alice, the Supreme Court held that “merely requiring generic computer implementation fails to transform [an] abstract idea into a patent-eligible invention.” 134 S. Ct. at 2352. We recognized the significance of Alice in buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1354–55 (Fed. Cir. 2014), in which we stated that Alice “made clear that a claim directed to an abstract idea does not move into § 101 eligibility territory by merely requiring generic computer implementation” (internal quotation marks omitted). The impact of Alice is also illustrated by our decision in Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709 (Fed. Cir. 2014) (“Ultramercial III”). Ultramercial had sued WildTangent for infringement of U.S. Patent No. 7,346,545, a patent directed to allowing consumers to view copyrighted media products on the Internet at no cost in exchange for viewing an advertisement. See id. at 712. When the case was first before us, in 2011, we reversed the district court’s grant of WildTangent’s Rule 12(b)(6) motion to dismiss, holding that “as a practical application of the general concept of advertising as currency and an improvement to prior art technology, the claimed invention is not so manifestly abstract as to override the statutory language of § 101.” Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323, 1330 (Fed. Cir. 2011) (“Ultramercial I”) (internal quotation marks omitted). The Supreme Court granted WildTangent’s petition for certiorari, vacated our order, and remanded for further consideration in light of Mayo. Ultramercial III, 772 F.3d at 713. On remand, we again reversed the district court, holding yet again that the claims were patent-eligible. Ultramercial v. Hulu, 722 F.3d 1335, 1354 (Fed. Cir. 2013) (“Ultramercial II”). Once more, the Supreme Court granted WildTangent’s petition for certiorari, vacated our order, and remanded, this time for further consideration in light of Alice. Id. On this further remand, with the “added benefit of the Supreme Court’s reasoning in Alice,” we affirmed the district court and found the claims to be not patent-eligible. Id. Our conclusion was expressly based on Alice’s holding that “adding a computer to otherwise conventional steps does not make an invention patent-eligible.” Id. at 713, 716–17.

Ultramercial III demonstrates that a § 101 defense previously lacking in merit may be meritorious after Alice. This scenario is most likely to occur with respect to patent claims that involve implementations of economic arrangements using generic computer technology, as the claims do here. For example, the asserted claims of the ’694 patent require use of a “computer system” or “computer network” for facilitating anonymous loan shopping and the asserted claim of the ’728 patent requires “programmatically generating” and uses a “network” for shopping for loans. In this context, it was not an abuse of discretion to allow Appellees to inject a § 101 defense into the case after Alice.

= = = = =

[1] U.S. Patent Nos. 7,366,694 (“’694 patent”) and 7,680,728 (“’728 patent”).

[2] Mortgage Grader, Inc. v. Costco Wholesale Corp., 89 F. Supp. 3d 1055, 1065 (C.D. Cal. 2015) (Costco was later dismissed as a party).

[3] Mortgage Grade, Inc. v. First Choice Loan Services, ___ F.3d ___, App. No. 15-1415 (Fed. Cir. 2016) available at http://www.cafc.uscourts.gov/sites/default/files/opinions-orders/15-1415.Opinion.1-15-2016.1.PDF.

[4] Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012) (as clarified by Alice).

[5] Claim 1 of the ‘694 patent, that the court found sufficiently representative is listed as follows:

1. A computer-implemented system for enabling borrowers to anonymously shop for loan packages offered by a plurality of lenders, the system comprising:

a database that stores loan package data specifying loan packages for home loans offered by the lenders, the loan package data specifying, for each of the loan packages, at least a loan type, an interest rate, and a required borrower credit grading; and

a computer system that provides:

a first interface that allows the lenders to securely upload at least some of the loan package data for their respective loan packages to the database over a computer network; and

a second interface that prompts a borrower to enter personal loan evaluation information, and invokes, on a computer, a borrower grading module which uses at least the entered personal loan evaluation information to calculate a credit grading for the borrower, said credit grading being distinct from a credit score of the borrower, and being based on underwriting criteria used by at least some of said lenders;

wherein the second interface provides functionality for the borrower to search the database to identify a set of loan packages for which the borrower qualifies based on the credit grading, and to compare the loan packages within the set, including loan type and interest rate, while remaining anonymous to each of the lenders and without having to post a request to any of the lenders, said second interface configured to display to the borrower an indication of a total cost of each loan package in the set, said total cost including costs of closing services not provided by corresponding lenders;

and wherein the computer-implemented system further enables the borrower to selectively expose at least the personal loan evaluation information to a lender corresponding to a selected loan package.

The Three Faces of Prometheus: Alice and Generic Application

June 24, 2014PatentAbstract Idea, Federal Circuit En Banc, obviousness, Subject Matter EligibilityJason Rantanen

Today continues our mini-symposium on Alice v. CLS Bank with a guest post by Jeffrey A. Lefstin, Professor at the University of California, Hastings College of the Law.

Alice Corp. marks the Supreme Court’s eighth subject-matter eligibility case since the 1952 Act. Without question, the most problematic aspect of the Supreme Court’s § 101 jurisprudence has been discerning the actual test for patent-eligibility. In Mayo v. Prometheus, the Court purported to establish a general framework for subject-matter eligibility: that to be patent-eligible, a claim must include an “inventive concept” beyond an underlying fundamental principle, such as a law of nature, natural phenomenon, or abstract idea. The Court’s omission of significant reference to Mayo in Association for Molecular Pathology raised some doubt as to whether Mayo defined a universal test for eligibility under § 101. Yet Alice Corp. appears to confirm that Mayo is a universal framework for discriminating between ineligible principles and patent-eligible applications.

Mayo’s ambiguity led to the Federal Circuit’s fracture when it heard CLS Bank en banc. Mayo suggested three possible tests for patent-eligibility, without committing definitively to any one of them: inventive application, pre-emption, and “more than just apply it.” Justice Thomas’s opinion in Alice does not expressly commit to a single interpretation of Mayo. Yet Thomas’s presentation of Mayo, his framing of the Court’s prior precedent, and his application of Mayo to Alice’s claims all indicate that Alice endorses the last aspect of Mayo: that a claim must do more than set forth a fundamental principle and add a generic instruction to “apply it.” If this interpretation is correct, then Alice may in the long run be more significant for fields such as biotechnology, where Mayo’s “inventive application” aspect has cast doubt on the patent-eligibility of many discovery-based inventions.

Mayo’s first test of patent-eligibility is a test for inventive, or non-obvious, application of a fundamental principle. Drawing from Flook, where Justice Stevens wrote that “conventional and obvious” post-solution activity cannot transform an unpatentable principle into a patentable process, and Funk Brothers, where Justice Douglas held that a composition of matter was not patentable because the patentee’s application was “a simple step” once his discovery was assumed away, Justice Breyer invalidated Prometheus’s claims because the steps of the claimed method beyond the underlying natural law were merely “well-understood, routine, conventional activity already engaged in by the scientific community.” Breyer contrasted those steps with the additional steps claimed in Diamond v. Diehr, which in context were not “obvious, already in use, or purely conventional.” The Mayo Court drew support for this test from the Court of Exchequer’s 1843 opinion in Neilson v. Harford, where the patent was said to have been sustained because the patentee implemented his newly discovered principle “in an inventive way.”* This view of Mayo – that obvious applications of fundamental principles are not patent-eligible – was the one taken by the Northern District of California in the Ariosa v. Sequenom litigation, where Judge Ilston invalidated Sequenom’s claims largely because once Sequenom’s discovery of cell-free fetal DNA in the maternal bloodstream was assumed to be known, the application in the form of a test for fetal abnormalities required only routine and well-known methods of DNA amplification.

The second test of eligibility suggested by Mayo is a test of pre-emption. The Court explained that subject-matter exclusions were grounded in pre-emption, echoing Benson’s concern that patents should not monopolize “the basic tools of scientific and technological work.” Mayo seemed to state that pre-emption was analytically secondary to categorical exclusion: the concern that Prometheus’s claims would tie up too much future use of the underlying natural laws “simply reinforces our conclusion” that the claimed processes were not patent-eligible. Yet Breyer’s opinion intertwined pre-emption with inventive application as a criterion for patent-eligibility: Diehr was described as a case where the patentee had not sought to pre-empt the use of the Arrhenius equation. While the patentee in Flook had failed to “limit the claim to a particular application,” the supposedly unconventional steps in Neilson had “confined the claims to a particular, useful application of the principle.” This interpretation of Mayo was followed by the majority of the Federal Circuit when it heard CLS Bank en banc. Both Judge Rader and Judge Lourie rejected the notion that Mayo’s “inventive concept” demanded “inventiveness” in the sense of a non-obvious application. And while they disagreed on the proper framework, both Judge Lourie and Judge Rader founded their analyses on the question of whether Alice’s claims would pre-empt every practical application of the underlying abstract idea.

But Mayo suggests a third test beyond inventive application or pre-emption: that a claim must represent more than a mere direction to apply a fundamental principle. According to Justice Breyer, one could not transform a law of nature into a patent-eligible application by simply disclosing the law of nature, and adding the words “apply it;” Einstein or Archimedes, for example, could not have patented their famous discoveries by merely appending an instruction to apply them. This aspect of Mayo has received the least attention in subsequent cases and commentary. And yet in Justice Thomas’s opinion in Alice, it is this aspect of Mayo that becomes the core of the doctrine.

In Alice’s framework, once it has been determined that a claim is drawn to an abstract idea, ‘step two’ of the Mayo test is to determine whether it contains an “inventive concept” sufficient to transform the claim into a patent-eligible application. But in contrast to Flook and Mayo, “inventive concept” in Alice bears little trace of “inventiveness.” Justice Thomas does describe the computer implementation in Alice as “conventional.” But nowhere does he label it non-inventive, and the word obvious is conspicuously lacking from the opinion. And while Alice hardly addresses the Federal Circuit’s opinions at all, it may be significant that Thomas never contradicts Judge Lourie’s and Judge Rader’s rejection of “inventiveness” as an aspect of “inventive concept” in their CLS Bank opinions.
The contrast between Alice and Mayo is most apparent in their treatment of Diehr. In Mayo, the claims in Diehr represented an inventive application of the Arrhenius equation, and were not “obvious, already in use, or purely conventional.” But in Alice, the claims in Diehr were sustained not because they were non-obvious, but because “they improved an existing technological process,” and achieved a result the industry had not been able to obtain. Likewise, in Mayo, the failing of the Flook claims was that the steps of the claim were well-known, conventional or obvious; in Alice, while Thomas notes that the Flook implementation was purely conventional, Flook primarily stands for the proposition that limitation to a particular technological environment does not render an abstract idea patent eligible.

As for pre-emption, which intertwined so closely with inventive application in Mayo, is hardly present for ‘Mayo step two’ in Alice. Again the characterization of precedent is telling: in Mayo, the claim in Benson was vulnerable because it was “overly broad.” In Alice, Benson requires a “new and useful” – but not inventive – application of an idea for patent eligibility, but the lesson of Benson is that simply implementing a principle on a computer is not a patentable application.

For Justice Thomas, the ‘step two’ inquiry involves neither inventiveness nor pre-emption, but revolves around Mayo’s proscription against “more than just apply it.” Alice follows Flook and Mayo in holding that “conventional” activity cannot transform a principle into a patent-eligible application, but in Alice “conventional” seems to connote generic more than it connotes obvious. Thus Thomas introduces ‘step two,’ the search for an inventive concept, by invoking the third aspect of Mayo: patent-eligible application requires more than a statement of the abstract ideas plus the words ‘apply it.’ And while Thomas notes that the measuring steps in Mayo were “well known in the art,” he again quotes the ‘more than apply it’ language from Mayo to establish that those steps adding nothing of significance to the underlying natural law.

Most significantly for the Alice analysis, Thomas ends his summary of Mayo by quoting language that played little role in Mayo itself: it was not that conventional steps cannot supply an ‘inventive concept,’ but “conventional steps, specified at a high level of generality” (emphasis added) could not supply an inventive concept. For it is genericness, not lack of invention or pre-emption, that dominates the remainder of Thomas’s opinion. His summary of the Court’s § 101 jurisprudence touches upon the notion of pre-emption, but emphasizes above all else the requirement of “more than generic” application:

These cases demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea “while adding the words ‘apply it’” is not enough for patent eligibility. Nor is limiting the use of an abstract idea “‘to a particular technological environment.’ ” Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to “implemen[t]” an abstract idea “on . . . a computer,” that addition cannot impart patent eligibility. This conclusion accords with the pre- emption concern that undergirds our §101 jurisprudence. Given the ubiquity of computers, wholly generic computer implementation is not generally the sort of “additional featur[e]” that provides any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.”

(citations omitted).

Similarly, Alice’s application of the test to the claims in suit emphasizes “more than apply it” and generic application; the question for Justice Thomas “is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” Thomas does describe the functions performed by the computer as “routine, conventional, and well-known in the field,” but his characterization serves to support the conclusion that the claimed steps do nothing more than define generic computer implementation. And taken as a whole, the claims at issue fail not because they lack inventiveness, nor because they reach too broadly, but because they amount to “’nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer.

So Alice may fail to provide clear boundaries for the eligibility of computer-implemented inventions. But it could clarify something more important. As I have described in a recent paper, the actual test for patent-eligibility in cases like Neilson v. Harford, and in American jurisprudence for the next century, was a requirement that the patentee claim a specific mode of application of a fundamental principle, rather than a generic claim to the principle as applied. If Alice does indeed endorse the third aspect of Mayo, then the test for patent-eligibility is not a question of non-obvious application, nor a question of pre-emption, but a question of whether the claim does significantly more than state a fundamental principle coupled with an instruction to “apply it.” Embracing that aspect of Mayo could signal a return to the historical standard of patent-eligibility.

*As I discussed in a previous post, the Court’s reliance on Neilson in Mayo and Flook was entirely misplaced. The patent in Neilson was sustained not because the patentee’s implementation was inventive, but precisely because it was entirely conventional and well-known in the art.

Alice Corp. and Patent Claiming: A Simple Example

August 28, 2014PatentAbstract Idea, First to Invent, obviousness, Subject Matter Eligibility, USPTO DirectorDennis Crouch

By Howard Skaist[1]

In the wake of Alice Corp (“Alice”), many practitioners, including myself, are thinking about its implications, in particular, with respect to drafting patent claims. Of note, especially, is the Court’s statement, recited more than once in Alice, that “this Court has long “warn[ed] …. against” interpreting section 101 “in ways that make patent eligibility ‘depend simply on the draftsman’s art.’” See 573 U.S. ____ (2014); slip opinion at 16. I would like to test that notion and, potentially, its general boundaries with a simple example.

Let’s consider, as an example, the early days of computers and the creation of VisiCalc. If today’s law applied then, e.g., Alice, would a patent claim covering VisiCalc have been statutory? I would be inclined to say, even today, that it depends a lot on the particular claim, but we also have the Supreme Court’s position on the matter, mentioned above. So, to what extent does the answer depend on the particular claim?

Here is one possible claim to VisiCalc:

A method comprising: implementing a spreadsheet on a computer.

One issue worthy of mention here is that cases getting to the Court are ones in which the claims do not appear on their face to appropriately flush out the subject matter considered innovative, at least if we can rely on the opinions without taking the trouble to look at other claims of the particular patents. However, most skilled practitioners tend to make sure that a spectrum of claims are included, at least for considerations related to section 103. As shall be seen, this may also be the best practice for addressing 101 issues.

The claim above, thus, is in line with claims previously adjudicated before the Court. That is, the claim on its face does not appear to communicate details about the innovation itself. Rather, this claim would likely be held non-statutory under the approach in Alice. Applying the analysis, spreadsheets constitute a way to organize human activity that is of longstanding use. Thus, it would seem that, following Bilski and Alice, a spreadsheet may potentially be deemed an abstract idea or a fundamental concept. Thus, it is, if anything, a building block for human ingenuity and, on policy grounds, section 101 exceptions to statutory subject matter are potentially implicated.

Again, then, following the approach in Alice, the aspect of the claim calling out implementation on a computer likewise does not constitute a sufficiently meaningful addition, whether analyzed element by element or as a whole. It might be argued that computer implementation is faster than performing spreadsheet calculations on paper, but merely being faster is not sufficient, generally, to pass muster here.

It is important to realize, however, that when technology is implemented, rarely does it just result in being faster and nothing more. Usually, the implementation provides other advantages. Here, referring to this simple example as an illustration, VisiCalc made a type of functionality possible that had not existed before. Therefore, if that aspect were particularly claimed, perhaps such a claim would be deemed statutory under the analysis in Alice.

For example, consider the following two claims, recognizing that this example is not intended to illustrate the best claims possible, but is just a simple example to test the Court’s recent pronouncement.

A method comprising:

generating and displaying a matrix of cells comprising an electronic spreadsheet on a computer, said electronic spreadsheet to implement on said computer one or more user-specified mathematical operations in which one or more operands for said one or more user-specified mathematical operations are to be entered in particular cells of said matrix and results of performing said one or more user-specified mathematical operations on said one or more operands are to be displayed in other particular cells of said matrix; and

displaying on said computer, in said particular cells and in said particular other cells, after said one or more operands are entered, said one or more operands and said results of performing said one or more user-specified mathematical operations on said one or more operands, respectively.

The method of claim 1, wherein said results of performing said one or more user-specified mathematical operations on said one or more operands comprise one or more operands of one or more other user-specified mathematical operations either with or without displaying said one or more operands of said one or more other user-specified mathematical operations in cells of said matrix.

Several arguments are available that one, if not both, of these claims is statutory. To turn the issue around, we should, perhaps, ask the following: If we ignore the conventional hardware elements of the claim, is the implementation, as claimed, more than merely conventional?

This question, of course, as framed, clearly is not the same question presented under section 103. Thus, while the Court may be criticized for making considerations under 101 more similar to considerations under 103 than had previously been the case, the analysis is still different.

To be even more explicit, we may ask: is an innovation being claimed (even if it may in light of prior art later be determined to be an obvious one)?

Here, the answer is quite arguably, yes!

Most everyone is familiar with the functioning of VisiCalc and Excel. Certainly, at the time Apple introduced VisiCalc, it was an innovation over what had been done previously with conventional spreadsheets of the time.

Perhaps I am overly optimistic and not everyone will agree that claim 2 at least is statutory. However, these claims call out an improvement over existing processes involving spreadsheets. See 573 U.S. ____ (2014); slip opinion at 13 (discussing that the claims in Diehr improved on an existing process). A user is able to link together in a spreadsheet format, complex calculations and display the results in a manner so that any change in “operands” is able to be rippled across the spreadsheet and displayed immediately. This is an improvement over use of a paper spreadsheet and provides a new functionality that previously did not exist. I am not arguing that this is necessarily patentable, since that is judged relative to particular prior art, only that it is at least statutory because it is not merely conventional.

If it were generally agreed that the first example is likely non-statutory under the Court’s recent pronouncement and the second example is likely statutory[2], then what does that tell us in terms of claim drafting? One thing it demonstrates is that including limitations directed to innovative aspects of particular implementations may provide a claim drafting safe harbor, so to speak, for this area. Where this is done correctly, it would seem that claims of value to a client should ultimately stand up as statutory. As was mentioned, most practitioners tend to make sure that a spectrum of claims are included. This is good practice, now, to address, not just 102 and 103, but also 101.

If we compare the two example claims above, what is the difference? Why, from a policy perspective should one be statutory and the other not, since they are both directed to what is meant to be the same core subject matter? It appears that section 101 imposes a statutory requirement of proper form. That is, from a formal perspective, it is necessary that innovative aspects of the invention, as implemented or intended to be implemented, be on the face of the claim for the claim to be statutory.[3]

Recall that we started with the notion that “this Court has long “warn[ed] …. against” interpreting section 101 “in ways that make patent eligibility ‘depend simply on the draftsman’s art.’” The ironic twist here seems to be that, if section 101 imposes a statutory requirement of proper form, then the prevailing situation would seem quite the opposite of the Court’s stated view. That is, that patent eligibility indeed depends on the draftsman’s art and our example appears to confirm as much.

Several points are therefore addressed with this example.

Take care when evaluating inventions for meeting statutory subject matter – rarely are things as simple as they look.
Great care is needed in drafting claims in general but particularly in this area because otherwise there may have been a statutory invention inadvertently left unclaimed.
The policy view that patent-eligibility should not turn on the draftsman’s art is not the full story.

[1] Howard Skaist founded Berkeley Law & Technology Group (BLTG) in 2003 after having been employed as the Director of Patents for Intel Corp. BLTG has a total of twelve patent lawyers and handles all aspects of intellectual property law practice, including patent law. Mr. Skaist has also been an adjunct professor at Boalt Hall Law School in Berkeley, CA, at Willamette School of Law in Salem, OR, at Lewis and Clark Law School in Portland, OR, and at Albany Law School.

[2] A separate twist is raised by Sotomayor’s concurrence (also expressly by Judge Mayer recently in I/P Engine v. AOL). Would the second example get over those hurdles? I would say probably not. It appears difficult here to argue that the problem solved is technical in nature rather than being directed to organizing human activity. Thus, three justices would probably say that the second example is also non-statutory.

[3] Of course, one would expect that this would also be true to meet section 103. However, perhaps a difference is that, for purposes of section 103, dissection is not permitted, at least not yet. While Alice looks at the claim as a whole as well as the claim elements, it was clear as far back as Flook, that some amount of dissection was permissible. Alice has made that even clearer, following Mayo, by permitting an element by element analysis.

Gray-Le Coz and Duan: USPTO’s Immediate Implementation Alice v. CLS Bank

November 3, 2014Articles and Publications, JournalAbstract Idea, Subject Matter EligibilityDennis Crouch

In our newest Patently-O Patent Law Journal article, Charles Duan and Tristan Gray-Le Coz of Public Knowledge provide details of the USPTO’s recent implementation of Alice Corp. Pty. Ltd. v. CLS Bank International. In particular, the pair used a FOIA request to obtain information on applications withdrawn from issuance and analyzed the 800+ cases whose allowances were withdrawn following Alice. The pair writes:

Unsurprisingly, we found that business methods patents were particularly vulnerable to rejection. However, the diversity of USPTO classifications in the withdrawn allowance data set indicates the range of subject matter that is suspect under Alice. In many fields it is apparently common to draft “computer-plus” patents that inappropriately try to take a monopoly on abstract ideas, fundamental economic practices, or methods of organizing human behavior by carrying out bare concepts on a generic computer, at least in the interpretation of USPTO examiners.

Read the Article: Tristan Gray–Le Coz and Charles Duan, Apply It to the USPTO: Review of the Implementation of Alice v. CLS Bank in Patent Examination, 2014 Patently-O Patent Law Journal 1.

Article: GrayLeCozDuan
Data: ApplicationList

Which Side of the Mushroom did Alice Eat From?

June 22, 2014Ethics, PatentMarkingDavid

If you don’t know the story, Alice meets up with a hookah-smoking caterpillar who tells her that if she eats out of one “side” of a (round) mushroom, she’ll get bigger, but out of the other side, she’ll get smaller. He doesn’t fully explain to Alice what will happen to make her taller and shorter, and so here is a fun read:

This time Alice waited patiently until [the caterpillar] chose to speak again. In a minute or two the Caterpillar took the hookah out of its mouth and yawned once or twice, and shook itself. Then it got down off the mushroom, and crawled away in the grass, merely remarking as it went, ‘One side will make you grow taller, and the other side will make you grow shorter.’

‘One side of what? The other side of what?’ thought Alice to herself.

‘Of the mushroom,’ said the Caterpillar, just as if she had asked it aloud; and in another moment it was out of sight.

Alice remained looking thoughtfully at the mushroom for a minute, trying to make out which were the two sides of it; and as it was perfectly round, she found this a very difficult question. However, at last she stretched her arms round it as far as they would go, and broke off a bit of the edge with each hand.

‘And now which is which?’ she said to herself, and nibbled a little of the right-hand bit to try the effect: the next moment she felt a violent blow underneath her chin: it had struck her foot!

She was a good deal frightened by this very sudden change, but she felt that there was no time to be lost, as she was shrinking rapidly; so she set to work at once to eat some of the other bit. Her chin was pressed so closely against her foot, that there was hardly room to open her mouth; but she did it at last, and managed to swallow a morsel of the lefthand bit.

‘Come, my head’s free at last!’ said Alice in a tone of delight, which changed into alarm in another moment, when she found that her shoulders were nowhere to be found: all she could see, when she looked down, was an immense length of neck, which seemed to rise like a stalk out of a sea of green leaves that lay far below her.

Since law professors are, no doubt, going to beat the hell out of the Alice-in-Wonderland connection, I thought I’d stake my claim early. I’ve been reading a lot of law professor views, and several (if not many) think software patents are dead, or largely so. Kappos, in contrast, thinks Alice ate out of the side that’s going to make software patents larger, or at least not shrink. His view is here.

My guess is Alice is going to cause us all to bang our heads, stub our toes, and wander through Wonderland for many years to come.

Has Diehr been Overruled?; and How do you Prove Technological Advance

January 28, 2024PatentDennis Crouch

by Dennis Crouch

Ficep begins its petition for certiorari with a brilliant statement of how its patented steel manufacturing method has won numerous awards and complements for its innovative approach, been copied by competitors, and led to numerous successful sales. Despite these clear indicia of patentability, the Federal Circuit invalidated claims — affirming the lower court’s judgment on appeal.

That the invention was an important real-world manufacturing innovation was, as a factual matter, thoroughly established. The improvement was touted as enabling vastly more efficient and superior manufacture of components – not just by Petitioner’s experts, but also in the defendant’s advertising. There was industry recognition applauding the “innovation.” There was copying by competitors. There was successful litigation and licensing. And there was specific customer demand for the improvement to the manufacturing process. That is, every objective indicium of inventiveness that this Court has identified was present in the technological, traditionally patent-eligible, setting of manufacturing lines.

Ficep petition for certiorari. But, in the Federal Circuit’s view, facts are confined to the obviousness analysis, and Ficep’s patent is invalid because it is directed to an abstract idea. Ficep Corp. v. Peddinghaus Corp., No. 2022-1590, 2023 WL 5346043 (Fed. Cir. Aug. 21, 2023). The petition goes on to ask three questions:

Does a claim directed to patent-eligible subject matter (here, manufacturing) nevertheless become ineligible as “abstract” if the process is improved using automation? (and should an “abstract-idea” behind a claim to a patent-eligible process be identified and, if so, how and at what level of abstraction?)
What is the appropriate standard for determining whether a claim is “inventive,” conferring eligibility under Alice Step 2, including whether objective evidence of inventiveness and technological improvement is relevant?
Is either what a claim is “directed to” and whether that is abstract, or whether a claim is “inventive” as articulated in Alice step 2, only for a judge to decide as a legal matter or does it include fact issues and, if the latter, are they for a jury?

SCT No. 23-796. This case again highlights the need for clearer guidance from the Supreme Court on when a patent claim directed to an industrial process should be considered an abstract idea and therefore patent ineligible under 35 U.S.C. § 101.

For its part, the Federal Circuit applied the two-step test for patent eligibility established in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. 208 (2014). At step one, the court determines whether the patent is “directed to” a patent-ineligible concept like an abstract idea. If so, then at step two the court searches for an “inventive concept” beyond the ineligible concept.

Here, the Federal Circuit held Ficep’s patent claims to be directed to the abstract idea of “extracting and transferring information from a design file to a manufacturing machine.” The court characterized the focus of the claims as “automating a previously manual process” that a human operator used to perform. Further finding no inventive concept at step two, the Federal Circuit affirmed the district court’s ruling that the claims were patent ineligible under § 101.

In its cert petition, Ficep contends that the Federal Circuit misapplied Alice in a way that conflicts with precedent and casts doubt on patents for industrial innovations. Ficep argues that its claims are directed to an eligible manufacturing process under Diamond v. Diehr, 450 U.S. 175 (1981), which held that a rubber curing method did not become patent ineligible simply because one step used the Arrhenius equation to automate timing of when to open the presses. According to Ficep, the Federal Circuit improperly focused on one aspect of its claims—data extraction and transfer—rather than evaluating the claims as a whole, which require physical manufacture of components. Ficep also presented extensive evidence of its patented system’s superiority over prior manufacturing methods, which it contends demonstrates a technological advance under step two of Alice that the Federal Circuit wrongly dismissed.

Lets look at the claim at issue for just a moment. Claim 7 below claims an “apparatus for automatic manufacture of an object” and requires, among other things, “at least one manufacturing machine [that] manufactures the components” after receiving dimensions from a computing device. Although the court agreed that the claim requires hardware, the court noted that the actual advance here is simply automating the previously manual process of transferring information from a CAD design model to a manufacturing machine. The court found that, in a general sense, that automation process is an abstract idea. And, that the patent claims offer no specific technological improvement that would transform the ineligible idea into a patent eligible. But, the patentee here argues that the closest Supreme Court case on point is not Alice, but rather Diehr, which would favor eligibility.

7. An apparatus for automatic manufacture of an object, comprising:

a computing device adapted to create a design model of an object having multiple individual components, at least two of the individual components defining an intersection at which the two components are in contact with one another;

at least one programmable logic controller in communication with the computing device and with at least one manufacturing machine;

a receiver associated with the programmable logic controller for receiving the design model of the object;

a database unit adapted to store the design model received at the receiver;

a processor which is associated with the programmable logic controller and extracts from the design model a plurality of dimensions of components which define a plurality of components of the object;

wherein the processor identifies a plurality of intersection parameters which define the intersection of the two components;

wherein the processor extracts from the design model the intersection parameters;

a transmitter associated with the processor for transmitting the intersection and machining parameters and the component dimensions from the programmable logic controller to the at least one manufacturing machine; and

wherein the at least one manufacturing machine manufactures the components based at least in part on the transmitted component dimensions and on the transmitted intersection and manufacturing parameters.

In focusing on Diehr, the patentee here is raising a difficult issue that the the Supreme Court’s landmark 1980 decision is effectively dead, even though it has not been rejected or repudiated by the Supreme Court. Rather, it was favorably cited in the Supreme Court’s recent trio of Bilksi, Mayo, and Alice.

Zombie Precedent: Ficep contends that its claims are analogous to the patent-eligible claims in Diamond v. Diehr for a rubber curing method that used the Arrhenius equation to calculate when to automatically open the presses. Ficep argues that like Diehr, its claims as a whole are directed to an eligible manufacturing process—namely manufacturing steel building components—even if one aspect involves automation based on extracting data like intersection parameters. But, the lower courts are not applying Diehr because they see that case as in conflict with the more recent trio. In its petition, Ficep asks the Supreme Court to make a statement on this issue — either confirm or overrule Diehr.

On the inventiveness issue that I started with in this post, the patentee here asks for guidance on Step-2 of Alice/Mayo and for a recognition that technological advance is a fact question for a jury to decide alongside parallel questions in obviousness and anticipation analysis.

= = =

The patentee-petitioner is represented by Matthew Lowrie and his team from Foley & Lardner. Peddinghaus’s responsive brief is due Feb 23, 2024. Their attorneys have not filed an appearance, but I expect they will still be represented by Nathaniel Love and his Sidley Austin team that includes Stephanie Koh and Leif Peterson.

Smartflash v. Apple: Is the Invention an Abstract Idea?

February 27, 2015PatentAbstract Idea, anticipation, Subject Matter EligibilityDennis Crouch

by Dennis Crouch

In the upcoming $500 million Apple v. Smartflash appeal, a central question will be whether the Smartflash patents properly claim eligible subject matter under 35 U.S.C. 101 as interpreted by Alice v. CLS Bank (2014). (These issues will first arise in post-verdict motions before the district court). If these claims are patent eligible, then Alice will ultimately have only a minor shift in the law.

Although there may be factual underpinnings, patent eligibility is generally thought to be a question of law that is decided by a judge rather than jury. In this case, Apple motioned for summary judgment of ineligibility under the Alice standard. That motion was first considered and rejected by Magistrate Judge Nicole Mitchell and then confirmed without opinion by Judge Rodney Gilstrap.

Lets look at the Smartflash claims. Claim 32 of U.S. Patent No. 8,118,221 is fairly indicative and claims a data access terminal that is designed to take-in data from a supplier and provides the data to a carrier. The arguably novel features of the apparatus is found in the claimed software code that (1) receives payment data and payment validation; and (2) once payment is made then retrieving data and a “condition for accessing the data” from the supplier and send it to the carrier. The claim further points out that the condition is “dependent upon the amount of payment.” [Text of the claim is at the bottom]. That condition might, for instance, be that the data file (i.e., movie) is permanently accessible based upon a larger payment, but only available for a seven days based upon a smaller payment. The eligibility question will be whether this claim is effectively directed to an unpatentable abstract idea.

In Alice Corp., the Supreme Court explained a two step process for its abstract idea analysis. In step one, the court asks whether the claim is directed to or encompasses an abstract idea. For some, it appears that this approach involves considering the gist of the invention as claimed. Thus, in Alice Corp., the Supreme Court saw that the claimed invention was directed toward the general idea of “mitigating settlement risk” even though the particular claim at issue involved more particularized elements. In step two, the court asks whether any of the specifically claimed elements or combination of elements in the claim are sufficient to ensure that the claim amounts to significantly more than the abstract idea itself. Here, the question could be restated as to whether the claim in question includes an innovative or otherwise sufficient practical application of the aforementioned abstract idea.

In thinking through the claims at issue in Smartflash, the district court (through the magistrate judge) followed the two-step approach of Alice to ultimately find the claims patent eligible.

In step one, the district court sided with Apple – finding that the patent claims do recite abstract ideas. In particular, the court found that “the asserted claims recite methods and systems for controlling access to content data … and receiving and validating payment data” with the state purpose of “reduc[ing] the risk of unauthorized access to content data.” Generalizing further upon these notions, the court found that the general purpose of the claim to be “conditioning and controlling access to data based on payment” and concluded that to be an “abstract and a fundamental building block of the economy in the digital age.” In considering this approach, the district court interpreted Alice step one as focused on the “general purpose” of the invention and that Alice only “considers specific limitations at step two.”

In step two, the district court ruled against Apple — finding that the specific limitations found in the claims were sufficient to transform the abstract purpose to a patent eligible invention. “The asserted claims contain meaningful limitations that transform the abstract idea of the general purpose of the claims into a patent-eligible invention.” Here, the court pointed to the recited limitations such as “status data”, “use rules”, and “content memory.” Although those none of those individual limitations may be substantial enough, the court found them indicative of the reality that the “claimed solution is necessarily rooted in computer technology in order to overcome a problem specifically arising in the realm of computer networks.” Finally, to drive-home this point, the court attempted to draw an analogy to pre-internet days and found that the solutions offered here is fundamentally different from prior solutions of the general abstract problem in pre-internet days.

In its step-two analysis, the district court attempted to hone its decision closely to Judge Chen’s decision in DDR Holdings.

[Read the Magistrate Judge opinion adopted by the District Court: 6-13-cv-00447-JRG-KNM-423-PRIMARY DOCUMENT]

In the same way that the Supreme Court’s Alice Corp analysis is deeply unsatisfying, the district court’s analysis here is also fails to be compelling. In each case, application of the legal rule to the particular facts is done in merely a conclusory way without support of either facts or substantial analysis.

= = = = = =

Claim 32.

A data access terminal for retrieving data from a data supplier and providing the retrieved data to a data carrier, the terminal comprising:

a first interface for communicating with the data supplier;

a data carrier interface for interfacing with the data carrier;

a program store storing code; and

a processor coupled to the first interface, the data carrier interface, and the program store for implementing the stored code, the code comprising:

code to read payment data from the data carrier and to forward the payment data to a payment validation system;

code to receive payment validation data from the payment validation system;

code responsive to the payment validation data to retrieve data from the data supplier and to write the retrieved data into the data carrier;

code responsive to the payment validation data to receive at least one access rule from the data supplier and to write the at least one access rule into the data carrier, the at least one access rule specifying at least one condition for accessing the retrieved data written into the data carrier, the at least one condition being dependent upon the amount of payment associated with the payment data forwarded to the payment validation system; and

code to retrieve from the data supplier and output to a user-stored data identifier data and associated value data and use rule data for a data item available from the data supplier.

Slicing the Bologna: Judge Chen Distinguishes this Business Method from those Found Ineligible in Alice, Bilski, and Ultramercial

December 8, 2014PatentAbstract Idea, Affirmed Without Opinion, anticipation, Federal Circuit En Banc, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

Typically, Supreme Court patent cases alter Federal Circuit precedent, while – at the same time – leaving many open questions for the appellate court to address. That standard certainly fits the recent set of patent eligibility cases. In Alice Corp v. CLS Bank (2014) the Supreme Court outlined an eligibility test whose practical impact will vary greatly depending upon how it is implemented by the Patent Office and the court: broadly or narrowly?

In DDR Holdings v. Hotels.com, the Federal Circuit has affirmed the patent eligibility of DDR’s eCommerce patent. U.S. patent No. 7,818,399. Particularly, Judge Chen authored the majority opinion that was joined by Judge Wallach. Judge Mayer wrote in dissent. The case is close enough to the line that I expect a strong push for en banc review and certiorari. Although Judge Chen’s analysis is admirable, I cannot see it standing up to Supreme Court review and, the holding here is in dreadful tension with the Federal Circuit’s recent Ultramercial decision.

The basic idea behind DDR’s patent (as claimed) is to allow a website operator to include various pages within its website that each corresponds to a different merchant (such as a cruise line) with products being sold through a broker (such as a cruise broker). The various pages will have a look-and-feel that corresponds to the particular merchant (by including, for instance the cruise line logo). And, the system dynamically populates product options on the site by pinging the broker’s server. To accomplish all this, the invention uses computer networks in what appears to be standard form without what I would call “new technology.” Judge Chen writes that a major purpose of this setup is to be able to provide a diversity of stores while keeping customers on the same overall website. Representative claim 19 is posted below. The accused infringers summarize this as simply “syndicated commerce on the computer using the Internet.”

Patent Eligibility under Alice Corp: The two-step approach to eligibility decreed by Alice Corp first queries whether the invention is directed to an abstract idea. And, if so, then looks to whether the invention includes an “inventive concept” sufficient to “transform” that abstract idea into a patentable invention. In Alice, the Supreme Court particularly held that transformation is not satisfied by merely the recitation of generic computer limitations.

Here, Judge Chen finds that neither step of Alice Corp implicate the patent in question. In doing so, Judge Chen attempts to cabin-in the scope of ideas that qualify as “abstract ideas.”

Not An Abstract Idea: First, Judge Chen found the solution here to be internet-focused with no direct corresponding offline equivalence. That conclusion is important because it helps distinguish Alice Corp where the Supreme Court found the patented invention there abstract because it related to a longstanding business practice. Judge Chen writes:

[The asserted claims do not] recite a fundamental economic or longstanding commercial practice. Although the claims address a business challenge (retaining website visitors), it is a challenge particular to the Internet.

In the dissent, Judge Mayer challenges this conclusion by drawing an analogy to the pre-internet business of having kiosk within a mall or warehouse shore that sells third-party cruise vacation packages. Judge Chen rejects that analogy because it does not “account for the ephemeral nature of an Internet “location” or the near-instantaneous transport between these locations made possible by standard Internet communication protocols.” According to Judge Chen, those differences introduce new problems – and it is those problems that are particularly addressed by the patented invention.

In Ultramercial, the Federal Circuit found that even novel ideas can be abstract. Distinguishing from that case, Judge Chen writes that the claims here:

are different enough in substance from those in Ultramercial because they do not broadly and generically claim “use of the Internet” to perform an abstract business practice (with insignificant added activity). Unlike the claims in Ultramercial, the claims at issue here specify how interactions with the Internet are manipulated to yield a desired result—a result that overrides the routine and conventional sequenceof events ordinarily triggered by the click of a hyperlink.

Moving on, Judge Chen finds that – even if the claims are directed to an abstract idea – they do not preempt that idea but instead represent a “specific way” of creating a composite web page “in order to solve a problem faced by websites on the Internet.”

Writing in dissent, Judge Mayer argues that the patents at issue here are “long on obfuscation but short on substance. Indeed, much of what they disclose is so rudimentary that it borders on the comical.”

DDR’s claims … simply take a well-known and widely-applied business practice and apply it using a generic computer and the Internet. The idea of having a “store within a store” was in widespread use well before the dawn of eCommerce. For example, [NLG], one of the defendants here, previously “sold vacations at . . . BJ’s Wholesale Clubs through point of purchase displays.” . . . DDR’s patents are directed to the same concept. Just as visitors to [BJ’s] could purchase travel products from NLG without leaving the BJ’s warehouse, the claimed system permits a person to purchase goods from a third-party vendor, but still have the visual “impression that she is viewing pages served by the [original host merchant].” Indeed, any doubt as to whether the claimed system is merely an Internet iteration of an established business practice is laid to rest by the fact that one of the named inventors acknowledged that the innovative aspect of his claimed invention was “[t]aking something that worked in the real world and doing it on the Internet.” . . .

The solution offered by DDR’s claims, however, is not rooted in any new computer technology. Its patents address the problem of preventing online merchants from losing “hard-won visitor traffic,” and the solution they offer
is an entrepreneurial, rather than a technological, one. DDR has admitted that it did not invent any of the generic computer elements disclosed in its claims. There is no dispute, moreover, that at the time of the claimed invention the use of hyperlinks to divert consumers to particular web pages was a well-understood and widely-used technique. While DDR’s patents describe the potential advantages of making two web pages look alike, they do not disclose any non-conventional technology for capturing the “look and feel” of a host website or for giving two web pages a similar appearance.

In concluding that DDR’s claims meet the demands of section 101, the court focuses on the fact that “they recite a specific way to automate the creation of a composite web page . . . .” The Supreme Court, however, has emphatically rejected the idea that claims become patent eligible simply because they disclose a specific solution to a particular problem. . . . Indeed, although the claims at issue in Alice described a very specific method for conducting intermediated settlement, the Court nonetheless unanimously concluded that they fell outside section 101.

= = = = =

This case may end up again delaying the expected USPTO examiner guidance on abstract idea analysis.

= = = = =

The patent itself issued in 2006 but claims priority to a 1998 filing. Five inventors are listed including father-son pair: DD Ross, Sr. and Jr. – hence DDR Holdings.

= = = = =

Claim 19. A system useful in an outsource provider serving web pages offering commercial opportunities, the system comprising:

(a) a computer store containing data, for each of a plurality of first web pages, defining a plurality of visually perceptible elements, which visually perceptible elements correspond to the plurality of first web pages; (i) wherein each of the first web pages belongs to one of a plurality of web page owners; (ii) wherein each of the first web pages displays at least one active link associated with a commerce object associated with a buying opportunity of a selected one of a plurality of merchants; and (iii) wherein the selected merchant, the outsource provider, and the owner of the first web page displaying the associated link are each third parties with respect to one other;

(b) a computer server at the outsource provider, which computer server is coupled to the computer store and programmed to: (i) receive from the web browser of a computer user a signal indicating activation of one of the links displayed by one of the first web pages; (ii) automatically identify as the source page the one of the first web pages on which the link has been activated; (iii) in response to identification of the source page, automatically retrieve the stored data corresponding to the source page; and (iv) using the data retrieved, automatically generate and transmit to the web browser a second web page that displays: (A) information associated with the commerce object associated with the link that has been activated, and (B) the plurality of visually perceptible elements visually corresponding to the source page.

USPTO Moves to Strongly Enforce Eligibility Limitations

July 25, 2014PatentAbstract Idea, Subject Matter EligibilityDennis Crouch

By Dennis Crouch

Earlier this summer, the Supreme Court decided the subject matter eligibility case of Alice Corp. v. CLS Bank Int’l, 573 U.S. ___ (2014). The main point of Alice Corp. was to find that the eligibility-limiting holding of Mayo v. Prometheus, 566 U.S. ___ (2012) applies equally to the patenting of abstract ideas. (Mayo focused on laws of nature).

Alice Corp. offers a two-step process for determining patent eligibility of a claimed invention:

Building Block: First, determine whether the claim recites or is directed to a patent-ineligible concept such as an abstract idea, law of nature, or product of nature. The court calls these “building blocks of human ingenuity” that should not themselves be patentable.
Something More: Second, determine whether the claim recites sufficient additional inventive features such that the claim does not solely capture the abstract idea.

Although Alice Corp decision stemmed from a district court challenge to an issued patent, the law of subject matter eligibility applies (roughly) equally to pending patent applications. In particular, the USPTO is charged with the task of ensuring that patents are only issued for eligible inventions. Thus, following Alice Corp the USPTO issued a set of guidance instructions to its examiners that follow the two step process. Although the two step approach appears straightforward. There is no standard definition for “abstract” and so it is difficult to identify abstract ideas from non-abstract ideas. Further, we do not know the threshold of “something more” that would allow patentability.

As I have written before, every patent claim serves as an abstraction from any physical implementation of an invention – and so any line-drawing rules on this front will necessarily be either arbitrary or murky. Still, the USPTO is charged with moving forward and examining these cases and, in the absence of concrete guidance in the law, the USPTO must create its own policy. At this stage, USPTO policy on examining for 101 can be largely impacted by White House views on patentability. And the current White House viewpoint seems to be that information-software focused inventions are likely unpatentable under 101 unless tied to inventive technology.

Based on information from several sources, it appears that the USPTO is now taking a more aggressive stance on subject matter eligibility and is particularly re-examining all claims for eligibility grounds prior to issuance. This is most apparent in technology centers managing data-processing inventions classes (Classes 700-707).

A set of form-paragraphs are being used that may present a prima facie case but that do not really provide much analysis:

Claims XXXX are rejected under 35 U.S.C. § 101 because the claimed invention is directed to non-statutory subject matter, specifically an abstract idea.

Claims are directed to a judicial exception (i. e., law of nature, natural phenomenon, or abstract idea), specifically, the abstract idea of [INSERT INVENTION HERE]. After considering all claim elements, both individually and in combination, it has been determined that the claim does not amount to significantly more than the abstract idea itself. Further, while the claims recite [hardware or software elements, such as processors or modules], these limitations are not enough to qualify as “significantly more” being recited in the claim along with the abstract idea. Therefore, since there are no limitations in the claim that transform the exception into a patent eligible application such that the claim amounts to significantly more than the exception itself, the claim is rejected under 35 USC § 101 as being directed to non-statutory subject matter.

. . . Indeed, the claims fail to recite any improvements to another technology or technical field, improvements to the functioning of the computer itself, and/or meaningful limitations beyond generally linking the use of an abstract idea to a particular environment. Although the claims do recite the use of a computer, nothing more than a generic computer, performing generic, well-understood and routine computer functions, would be required to implement the aforementioned abstract idea.

Therefore, because there are no meaningful limitations in the claim that transform the exception into a patent eligible application such that the claim amounts to significantly more than the exception itself, the claim is rejected under 35 U.S.C. § 101 as being directed to non-statutory subject matter.

It appears that applications whose inventive features are found in software or information processing will now have a difficult time being patented.

Director Kappos: Some Thoughts on Patentability

August 4, 2012PatentAbstract Idea, Enablement, First to Invent, Subject Matter Eligibility, USPTO Director, Written DescriptionDennis Crouch

The following is a reprint from USPTO Director Kappos’ recent statement on patentable subject matter:

+ + + + +

The recent Federal Circuit decision CLS Bank International v. Alice Corporation raises some important points that offer insight on advancing prosecution of patent applications. In CLS Bank, the claims to a computer-implemented invention were found to fall within an eligible category of invention and not to mere abstract ideas. In answering the question of eligibility under § 101, I found it interesting that the court looked at the different roles of the various statutory provisions, § 101, 102, 103, and 112. Sections 102, 103 and 112 do the substantive work of disqualifying those patent eligible inventions that are “not worthy of a patent”, while § 101 is a general statement of the type of subject matter eligible for patenting. The court notes that, while § 101 has been characterized as a threshold test and certainly can be addressed before other matters touching on patent validity, it need not always be addressed first, particularly when other sections might be discerned by a trial judge as having the promise to resolve a dispute more expeditiously or with more clarity or predictability. The court in CLS Bank also recognized that the exceptions to eligibility—laws of nature, natural phenomenon, and abstract ideas—should arise infrequently.

Based on my experience, I appreciate the wisdom of the court’s discussion relating to resolving disputed claims by focusing initially on patentability requirements of § 102, 103, and 112, rather than § 101. I have found that when claims are refined to distinguish over the prior art, recite definite boundaries, and be fully enabled based on a complete written description, they do not usually encounter issues of eligibility based on reciting mere abstract ideas or broad fundamental concepts. Put another way, every business looks for opportunities to sequence workflow so that the first issues addressed are the ones that can simplify or completely resolve other issues. This is good basic management for businesses, and for patent offices.

While courts can resolve patent disputes in the most expeditious manner given the facts of the case, the Office has the unique duty of ensuring that all patentability requirements are met before issuing a patent. Applications that are presented in the best possible condition for examination with clear and definite claims that are believed to distinguish over the prior art and are supported by a robust disclosure will most likely not encounter rejections based on eligibility. Avoiding issues under § 101 can have a very positive effect on pendency and help examiners focus on finding the closest prior art, leading to strong patent protection. Hopefully, the guidance supplied by the Federal Circuit in CLS Bank can help us as we continue to work on reducing pendency and enhancing quality of issued patents.

Guest Post: In Rush to Invalidate Patents at Pleadings Stage, Are Courts Coloring Outside the Lines?

July 1, 2015PatentAbstract Idea, Affirmed Without Opinion, AIA Trials, Claim Construction, obviousness, PGR, Subject Matter Eligibility, Supreme CourtJason Rantanen

Guest post by David Bohrer, Patent Trial Practice, Valorem Law Group.

OIP Technologies v. Amazon.com and IPC v. Active Network are the most recent of a growing number of decisions dismissing software and business method patent lawsuits on the pleadings. In these decisions, the courts are finding that the invention alleged in the complaint is an abstract idea that is not eligible for patent protection.

While early resolution of patent litigation is laudable, motions directed to the pleadings generally may not consider matters outside what is pled in the complaint. Yet this is what courts are doing — they have been coloring outside the lines when deciding whether a patented software or business method is an ineligible abstraction. They are looking beyond the allegations in the complaint to discern “fundamental economic concepts.” Independent of anything pled in the complaint, they are making historical observations about alleged longstanding commercial practices and deciding whether the claimed invention is analogous to such practices.

Coloring outside the lines may not be acceptable. The benefit of providing an early exit from otherwise expensive and burdensome patent litigation may be outweighed by the prejudice to all parties of eroding the rules regarding the matters that may be considered before throwing out a lawsuit. Perhaps there is a better solution. Perhaps pleading motions challenging patent subject matter eligibility should be converted to expedited and limited scope summary judgment motions, thereby allowing the parties to present declarations, testimony and other extrinsic evidence that better address whether a claimed economic practice is an unpatentable idea or a patentable invention.

Alice is being used to obtain early dismissal of lawsuits based on software and business method patents

Courts granting patent ineligible subject matter motions are using the Supreme Court’s 2014 Alice decision as an effective weapon to combat vexatious patent litigation brought by non-practicing entities (NPEs). See Curiouser and Curiouser Is Alice the Long Sought Troll Killer _ The Legal Intelligencer. Alice provides relatively easy to satisfy requirements for demonstrating that an asserted software patent is claiming an “abstract idea” and therefore is not eligible for patent protection under section 101 of the patent statute.

Not only have courts found in Alice the tools necessary to dispose of vexatious patent lawsuits asserting software and business method patents, they also are willing to entertain an Alice challenge at the pleadings stage. The procedural posture of a pleading motion is key to using Alice to “kill trolls.” Defendants can challenge the merits of the patent lawsuit at the pleadings stage and before having to incur significant expenses associated with discovery, claim construction, experts and summary judgment. The nuisance value of the lawsuit goes way down. Defendants are less likely to feel they have to pay a distasteful settlement or else bear the much greater expense of defending on the merits.

Recent Federal Circuit decisions continue the trend

On June 11, 2015 and again on June 23, 2015, the Federal Circuit affirmed decisions by the Northern District of California dismissing software patent lawsuits at the pleading stage. In each of these cases, OIP Technologies v. Amazon.com (underlying patent claimed offer-based price optimization) and IPC v. Active Network (retaining information lost in the navigation of online forms) the district courts granted Rule 12(b)(6) motions to dismiss on the grounds that the patents claimed abstract ideas ineligible for patent protection.

In each case, the Federal Circuit approved the resolution of 101 eligibility at the pleading stage with little to no analysis. In IPC, the Federal Circuit’s opinion includes one sentence in which the court states that claim construction (which had not yet occurred) is “not an inviolable concept.” In OIP, the lead opinion does not address how early in litigation alleged ineligibility may be resolved, but in a concurring opinion Judge Mayer supports addressing eligibility at the motion-to-dismiss stage.

Failure to recite statutory subject matter is the sort of “basic deficiency,” that can, and should, “be exposed at the point of minimum expenditure of time and money by the parties and the court,” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 558 (2007) (citations and internal quotation marks omitted). Addressing 35 U.S.C. § 101 at the outset not only conserves scarce judicial resources and spares litigants the staggering costs associated with discovery and protracted claim construction litigation, it also works to stem the tide of vexatious suits brought by the owners of vague and overbroad business method patents. Accordingly, where, as here, asserted claims are plainly directed to a patent ineligible abstract idea, we have repeatedly sanctioned a district court’s decision to dispose of them on the pleadings. See, e.g., Content Extraction & Transmission LLC v. Wells Fargo Bank, 776 F.3d 1343, 1349 (Fed. Cir. 2014); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 717 (Fed. Cir. 2014); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1352 (Fed. Cir. 2014). I commend the district court’s adherence to the Supreme Court’s instruction that patent eligibility is a “threshold” issue, Bilski v. Kappos, 561 U.S. 593, 602 (2010), by resolving it at the first opportunity.

Contrary to the suggestion made by Judge Mayer, the Supreme Court has not addressed whether it is appropriate to address a 101 challenge at the pleading stage. Bilski’s characterization of patent eligibility as a “threshold” issue was made with reference to the 102 and 103 invalidity defenses and did not address the procedural issue. Bilski also cites to extrinsic economic treatises and other evidence of economic practice in support of the decision reviewing the denial of a patent application. Alice did NOT address patent eligibility in the context of a pleadings motion, but instead reviewed a patent eligibility ruling that was made at summary judgment. Alice cites to the same extrinsic economic evidence relied upon in Bilski.

There is not supposed to be any coloring outside the lines on pleadings motions

The well-established general rule is that Rule 12(b)(6) motions to dismiss as well as Rule 12(c) motions for judgment on the pleadings are limited to the well-pled factual allegations made in the complaint. “A court generally cannot consider material outside of the complaint (e.g., facts presented in briefs, affidavits or discovery materials).” Chavez v. United States, 683 F.3d 1102, 1108 (9th Cir. 2012); In re American Cont’l Corp./Lincoln Sav. & Loan Sec. Litig., 102 F.3d 1524, 1537 (9th Cir. 1996) (As recognized in OIP and IPC, the Federal Circuit applies regional circuit law in deciding motions to dismiss.).

Yet this is what is happening

Notwithstanding these rules, OIP and IPC each looked beyond the complaint in determining whether the asserted claims are directed to ineligible abstract ideas. In OIP, the asserted price optimization claims were deemed “similar to other ‘fundamental economic concepts’ found to be abstract ideas.” In IPC, the asserted online information retention claims were deemed “well-understood, routine, conventional activities previously known.” In each instance, the court is looking at practices and activities outside of anything alleged in the complaint.

These Federal Circuit cases teach that it is acceptable to consider matters outside of the complaint, as confirmed by Affinity Labs of Texas v. Amazon.com (June 12, 2015 WD Tex.), in which the magistrate judge, applying 101 precedent from OIP and other Federal Circuit decisions, says that it is making “general historical observations that come to mind.” Based on such extrinsic “historical observations,” the court finds that the claimed invention of delivering selectable media content and subsequently playing the selected content on a portable devices is a “long-standing commercial practice and is therefore abstract.”

The Court notes that the first transistor radio, which delivers selectable audio media to a portable device, was developed in the late 1940s and was immensely popular in the succeeding decades. Similarly, the first portable televisions, another form of delivering “selectable” media content to a portable device, were introduced in the 1980s and 1990s. The above examples represent just a few of the many general historical observations that come to mind as evidence of the long-standing commercial practice of delivering selectable media content and subsequently playing the selected content on a portable device.

Reliance on extrinsic evidence of economic practices and concepts found in precedent

OIP and IPC support their abstract idea findings by equating the economic purpose of the asserted patent with the economic concepts successfully challenged in other cases. For example, in OIP, the Federal Circuit says offer-based price optimization (at issue in OIP) is analogous to using advertising as an exchange or currency (deemed an abstract idea in the earlier Federal Circuit decision Ultramercial v. Hulu). Likewise, in IPC, the Federal Circuit said that recent precedent illustrates the boundary between abstraction and patent eligible subject matter. But how is the court in a position to make the connection between the asserted claims and prior precedent on its own observation and independent of expert testimony or other relevant extrinsic evidence? Judge Mayer and many other respected judges might reply that it is acceptable to make this connection because it is “plain” or “obvious.” Yet this seems to invite the application of 20-20 hindsight and of the “I know it when I see it” standard.

Can’t take judicial notice of truth of findings made in other decisions

Furthermore, while a court may take judicial notice of another court’s opinion in ruling on a motion to dismiss, it may do so only as to the existence of the opinion and not for the truth of the facts recited therein. Lee v. City of Los Angeles, 250 F.3d 668, 690 (9th Cir. 2001). It appears that cases such as OIP and IPC are relying on the truth of factual findings made in other decisions regarding whether certain economic concepts are “conventional” or “well-known” – such matters appear outside the scope of what may be judicially noticed in a motion to dismiss.

Possible solution is expedited and limited scope summary judgment motions

A court’s consideration of information outside the four corners of the complaint, assuming it does not fall within exceptions such as judicial notice, converts a motion to dismiss into a summary judgment motion. Lee, 250 F.3d at 688. True enough, this raises the specter of time-consuming discovery and case development (see the criticism of ED Texas Judge Gilstrap’s requirement that the parties demonstrate that there is a good faith basis for such a motion). This said, district courts have the discretion to expedite such motions as well as limit their scope. They could, for example, specifically require the responding party to submit to expedited discovery on the issue whether the asserted patent claims eligible subject matter followed by expedited briefing and submission of evidence on both the question whether the purpose of the asserted claims is a conventional economic concept and therefore an ineligible abstract idea, and if so, whether there is an inventive concept that saves the claim from dismissal. They could stay other case development or discovery during the expedited resolution of the motion. It does not necessarily follow that the court would have to conduct claim construction as part of the process. The parties, as they do now, could brief whether claim construction is necessary, but would also have greater flexibility in terms of their ability to submit proofs in support of their claim construction arguments. Woe unto the party who purports without any reasonable basis to have compelling extrinsic evidence that they are not asserting a conventional economic concept or that their patent is directed to a protected inventive concept– the district courts have ample support in High Octane and its progeny for awarding fees under such circumstances.

If courts are going to color outside the lines, then let the parties do the same thing

Courts are willing to color outside the lines and consider extrinsic evidence upon addressing motions to dismiss challenging alleged ineligible patent subject matter. This contravenes well-established rules and policies regarding pleading challenges and may cause undue prejudice by denying a party the ability to submit extrinsic evidence in support of a well-pled claim. A possible solution is for the court to allow the parties to color outside the lines as well. The court has the discretion to impose time and scope limits on discovery and briefing without opening the door to prolonged, vexatious litigation.

CLS Bank v. Alice Corp: Court Finds Many Software Patents Ineligible

May 10, 2013PatentAbstract Idea, Federal Circuit En Banc, First to Invent, obviousness, Subject Matter Eligibility, Supreme CourtDennis Crouch

by Dennis Crouch

CLS Bank v. Alice Corp. (Fed. Cir. 2013) (en banc)

In a much awaited en banc decision, the Federal Circuit has affirmed the patent ineligibility of Alice Corp’s claims to a computerized method, a computer-readable medium containing computer instructions, and a computer system that implements those instructions. The ten-member en banc panel released seven different decisions. While none of the opinions garnered majority support, seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility. And, eight of the ten concluded that the claims should rise and fall together regardless of their claim type.

All of the judges recognized that the test for patent eligibility under section 101 should be “a consistent, cohesive, and accessible approach” that provides “guidance and predictability for patent applicants and examiners, litigants, and the courts.” However, the judges hotly disagree as to the pathway that will lead to that result.

The leading five-member opinion written by Judge Lourie provides three guideposts for its analysis:

First and foremost is an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery—those must remain “free to all . . . and reserved exclusively to none.” . . . [T]he animating concern is that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add “significantly more” to the basic principle, with the result that the claim covers significantly less. Thus, broad claims do not necessarily raise § 101 preemption concerns, and seemingly narrower claims are not necessarily exempt. What matters is whether a claim threatens to subsume the full scope of a fundamental concept, and when those concerns arise, we must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application.
Next, the cases repeatedly caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants. . . . Thus, claim drafting strategies that attempt to circumvent the basic exceptions to § 101 using, for example, highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity should not be credited.
Finally, the cases urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing.

Abstract Ideas are Disembodied Concepts: Alice Corp’s claims are drawn to methods of reducing settlement risk by effecting trades through a third party intermediary (a supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange to be completed. This essence, the method is a form of third-party escrow that helps overcome the risk of fraud and non-payment. In thinking about that method, the court determined that it is an abstract idea because it is a “disembodied” concept that is a basic building block of human ingenuity and untethered from any real-world application. Lourie writes:

CLS describes that concept as “fundamental and ancient,” but the latter is not determinative of the question of abstractness. Even venerable concepts, such as risk hedging in commodity transactions, see Bilski, 130 S. Ct. at 3231, were once unfamiliar, just like the concepts inventors are unlocking at the leading edges of technology today. But whether long in use or just recognized, abstract ideas remain abstract. The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.

After identifying the portion of the claim directed to an abstract idea, Judge Lourie then looked to see whether “the balance of the claim adds ‘significantly more.’” Answering that question in the negative, the court found the claims lack eligibility.

Writing in Dissent, Chief Judge Rader disagreed with the court’s decision. He writes:

I enjoy good writing and a good mystery, but I doubt that innovation is promoted when subjective and empty words like “contribution” or “inventiveness” are offered up by the courts to determine investment, resource allocation, and business decisions. Again, it is almost . . . well, “obvious” . . . to note that when all else fails, it makes sense to consult the simplicity, clarity, and directness of the statute.

As I start my next quarter century of judicial experience, I am sure that one day I will reflect on this moment as well. I can only hope it is a brighter reflection than I encounter today.

Awaiting the Outcome of CLS Bank v. Alice Corp.

April 11, 2013PatentAIA Trials, Damages, Federal Circuit En Banc, IPRDennis Crouch

by Dennis Crouch

Pollin Patent Licensing v. Commerce Bancshares (E.D.Mo 2013)

The following is a recent Court Order from Judge Audrey Fleissig.

IT IS HEREBY ORDERED that this matter shall be stayed pending the decision of the Federal Circuit in CLS Bank Intl v. Alice Corp., 685 F.3d 1341, 1356 (Fed. Cir. 2012), vacated, rehg granted, 2012 WL 4784336 (Fed. Cir. Oct. 9, 2012).

In the lawsuit, Pollin is asserting U.S. Patent No. 7,117,171. Although the company has asserted the patent in at least 17 different lawsuits, it does not appear that any of the accused infringers has filed a request for rexamination or inter partes review. Instead almost all of the cases have ended in settlement.

Pollin’s invention claims priority back to a 1992 application. That means that the patent is now expired. However, Pollin may still be able to collect substantial back damages – so long as the patent is not renedered invalid by CLS Bank. The 1992 invention focused being able to use a checking account to pay for a service without actually writing a check. The claims are broadly written to encompass the operation via the internet (without actually using those words).

Interestingly, it was Pollin who asked for the stay in this case.

= = = = =

Pollin’s Claim 1 is as follows:

1. A system for generating authorized payments from financial accounts belonging to a plurality of payers, in payment of debts to a payee, comprising:

input means for performing an electronic information input process wherein a system operator contemporaneously enters information sufficient to identify a new payer previously unknown to the system and information specifying a payment to be generated from an account of that payer,

said information including a financial institution identification number, payer account identifier, and an amount to be paid from said payer’s account to said payee;

an institutional database comprising financial institution identification information;

institution verification means associated with said input means for receiving said financial institution identification number and comparing said financial institution identification number to entries in said institutional database,

wherein when said financial institution is found in the institutional database, the institution verification means retrieves identifying information about the institution and verifies the accuracy of said financial institution identification number, and

wherein when said financial institution is not found in the institutional database, an error indication is generated; and

output means connected to said input means for receiving said information specifying a payment and generating in electronic information form instructions for said payment to said payee.

They’re Alive: Federal Reserve Banks are “Persons” under the AIA

April 10, 2020PatentDennis Crouch

by Dennis Crouch

Over the past couple of decades, some banks have been making efforts to appear more personal & humane. All that has come to fruition with the Federal Circuit’s decision in Bozeman Financial LLC v. Federal Reserve Bank of Atlanta, et al. In its opinion the court explained that yes, the Federal Reserve is a person too — at least with regards to the right to file an inter partes review (IPR) or post grant review (PGR) petition.

The AIA permits “a person who is not the owner of a patent” to petition for IPR/PGR requesting cancellation of a patent. In 2019, the Supreme Court took-up a case where the US Postal Service (USPS) had filed for review of a patent owned by Return Mail, Inc. Return Mail, Inc. v. U.S. Postal Serv., 139 S. Ct. 1853 (2018). In its decision, the Supreme Court held that the USPS is not a person under the statute. The court stuck to its “longstanding interpretive presumption” that Congress’s use of the term “person” does not “include the sovereign.”

In the present case, the twelve Federal Reserve Banks jointly petitioned the USPTO to challenge Bozeman’s U.S. Patent Nos. 6,754,640 and 8,768,840. The PTAB complied and cancelled all of the claims — finding them ineligible under Section 101.

On appeal, the patentee asked that the entire case be thrown-out under Return Mail. However, the Federal Circuit refused — finding that the Federal Reserve Banks are sufficiently separate and distinct from the United States Gov’t.

The Federal Reserve Banks were established as chartered corporate instrumentalities of the United States under the Federal Reserve Act of 1913. Unlike the Postal Service, which was at issue in Return Mail, the Banks’s enabling statute does not establish them as part of an executive agency, but rather each bank is a “body corporate.” Like any other private corporation, the Banks each have a board of directors to enact bylaws and to govern the business of banking. Moreover, the Banks may sue or be sued in “any court of law or equity.” . . .

The Banks are not structured as government agencies. The Banks do not receive congressionally appropriated funds. 12 U.S.C. § 244. No Bank official is appointed by the President or any other Government official. 12 U.S.C. § 341. Moreover, the government exercises limited control over the operation of the Banks. Instead, the “direct supervision and control of each Bank is exercised by its board of directors.” 12 U.S.C. § 301. And the Banks cannot promulgate regulations with the force of law. Scott v. Fed. Reserve Bank, 406 F.3d 532, 535 (8th Cir. 2005). For these reasons, we conclude that the Banks are distinct from the government for purposes of the AIA. We recognize that there may be circumstances where the structure of the Banks does not render them distinct from the government for purposes of statutes other than the AIA. For purposes of the AIA, however, we conclude the Banks are “persons” capable of petitioning for post-issuance review under the AIA. The Board therefore had authority to decide the CBM petitions at issue here.

Note here that the court did not mention the Fed Reserve Board of Governors – whose members are appointed by the president – or the fact that the Board of Governors appoint a substantial portion of the directors of each bank. The outcome here is also interesting to consider with respect to the corporate structure of various public universities around the country.

Moving on to the merits, of the eligibility decision, the Federal Circuit affirmed that the claims were directed to the abstract ideas of “collecting and analyzing information for financial transaction fraud or error detection” (‘840 patent).

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