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.