Fresh From the Bench: Recent Patent Cases From the Federal Circuit
Last week was another quiet one in the Federal Circuit but on Friday the Supreme Court granted a writ of certiorari in the case of Alice Corporation Pty. Ltd v. CLS Bank International, Docket No. 13-298 (Supreme Court 2013). Alice, the patent holder that lost an en banc decision by the Federal Circuit, presented the Court with the issue of whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101. You'll recall that in its decision affirming that the claims at issue did not recite patentable subject matter, the Federal Circuit split 5-5, offering little helpful guidance on drafting claims that will pass muster under §101. I am appending below my discussion of the Federal Circuit's decision in CLS.
A month after CLS was decided, a panel of the Federal Circuit decided the Ultramercial v Hulu case. In that decision the panel disagreed over the test to be applied, but in a unanimous decision agreed that the claimed method for distributing products over the Internet set forth patentable subject matter. A petition for certiorari has also been filed in Ultramercial but the Supreme Court has not yet ruled on that petition. For a little more background on the patentable subject matter issue, as handled by the Federal Circuit, I am also appending my prior discussion of Ultramercial.
CLS Bank v. Alice Corp., (en banc), 717 F.3d 1269 (Fed. Cir. 2013) (5/10/13)
A 5-5 divided Federal Circuit punts.
In a case that we all hoped might clear things up as to the patentability of computerized methods, the Federal Circuit en banc affirmed that the claims at issue did not constitute patentable subject matter. However, since the ten judges in the en banc panel issued seven different decisions, none of which was supported by a majority of the judges, the case provides little guidance. Seven of the ten agreed that the method and computer readable medium claims lacked subject matter eligibility. Eight of the ten judges felt that the claims should rise and fall together regardless of whether they were method, medium or system claims. The court divided 5-5 as to whether the computer system claims at issue were patent eligible.
Briefly, the claims at issue recite methods, data processing systems, or computer-readable storage media having a computer program stored therein. CLS contended that the asserted claims fall into the abstract ideas exception to § 101 and are therefore invalid as directed to patent-ineligible subject matter.
Judge Lourie's opinion had five judges behind it and it provided what is probably the best guidance. This opinion provided the normal verbiage about not permitting patents to preempt natural law, natural phenomenon, or abstract ideas. "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."
Alice Corp's claims are drawn to methods of reducing settlement risk by effecting trades through a supervisory institution empowered to verify that both parties can fulfill their obligations before allowing the exchange to be completed. The court determined that this is an abstract idea because it is a "disembodied" concept that is a basic building block of human ingenuity, untethered from any real-world application."
CLS describes that concept as "fundamental and ancient" and, citing Bilski and Alappat, argued that a basic building block of human ingenuity, untethered from any real-world application, is an abstract idea is not patent-eligible subject matter.
Referring to five Supreme Court decisions: Gottschalk v. Benson, 409 U.S. 63 (1972); Parker v. Flook, 437 U.S. 584 (1978); Diamond v. Diehr, 450 U.S. 175 (1981); Bilski v. Doll, 556 U.S. 1268 (2009); and Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), Lourie first looked to see whether the claim falls within one of the four statutory classes—process, machine, manufacture, or composition of matter. If an exception such as the idea exception is implicated, then we need to "identify and define whatever fundamental concept appears wrapped up in the claim." Lourie noted that precedent does not require claim construction prior to a Section 101 analysis, but he said such construction "may be especially helpful" to unambiguously identify the idea.
"With the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself."
Lourie's opinion tied the "inventive concept" of the Mayo opinion to such substantive limitations. "An ‘inventive concept' in the §101 context refers to a genuine human contribution to the claimed subject matter." Echoing Mayo, Lourie added, "Limitations that represent a human contribution but are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility."
He said that Mayo‘s use of the terms "routine" and "conventional" was meant "to indicate what qualities added to a natural law do not create patent-eligible subject matter." In contrast, he said, analysis under Sections 102 and 103 looks at "whether particular steps or physical components together constitute a new or nonobvious invention."
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 a dissent, Judge Rader noted that "nothing said beyond our [per curiam] judgment has the weight of precedent." The per curiam judgment merely stated: "Upon consideration en banc, a majority of the court affirms the district court's holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court's holding that the asserted system claims are not directed to eligible subject matter under that statute." In his dissent, Judge Rader, relying on a review of the record surrounding passage of the 1952 Act, explained that Section 101 was intended to be very broad in scope. Consequently, "a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea."
Judge Moore criticized Lourie's opinion, saying: "If the reasoning of Judge Lourie's opinion were adopted, it would decimate the electronics and software industries," she said. "There has never been a case which could do more damage to the patent system than this one."
Judge Prost faulted the majority for misreading Mayo: "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." Prost further criticized the court for not heeding the Mayo court's instruction, to "inquire whether the asserted claims include an inventive concept."
Judge Newman essentially viewed the court's multiple opinions in the case as a failure: "[W]e have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation," She contended that all attempts to agree upon an appropriate Section 101 analysis have failed because "Section 101 is not the appropriate vehicle for determining whether a particular technical advance is patentable; that determination is made in accordance with the rigorous legal criteria of patentability." She expressed that "an inclusive listing of the ‘useful arts' " is the only threshold of Section 101, and that analysis under the patentability sections of the Patent Act would "eliminate claims that are ‘abstract' or ‘preemptive.' "
In view of CLS v. Alice, a good question is what should we do now in drafting patent claims before either the Supreme Court or Congress provides clear guidance. It seems to me the only thing we can do is continue to draft claims to cover computer-related inventions from a variety of perspectives – as computer systems and as methods, and at varying levels of specificity. The problem of course is that the claims we are drafting now would not be evaluated by the courts for at least 5 years.
Ultramercial Inc. v. Hulu L.L.C., 722 F.3d 1335 (Fed. Cir. 2013) (6/21/13)
The panel disagrees on the test but agrees that this method for distributing products over the Internet sets forth patentable subject matter.
A month after deciding CLS, the Federal Circuit came down with its decision in Ultramercial. Here the court agreed 3-0 that the claims at issue to a "method for distribution of products over the Internet via a facilitator" did in fact constitute patentable subject matter. Therefore, the court held that the district court's dismissal of the case should be reversed. The panel, made up of Judges Rader, Lourie and O'Malley, of course vehemently disagreed on the appropriate tests on determining whether there was patentable subject matter.
This case came to the Circuit in an unusual way in that the district court dismissed the case under Fed.R.Civ. P. 12(b)(6) because the claim did not recite patentable subject matter. The Federal Circuit reversed and remanded, and a petition for certiorari was filed. Shortly thereafter the Supreme Court decided Mayo, holding that steps of the medical diagnostic method claims at issue failed to "add enough" to the "inventive concept" of the asserted method patents—the correlations between metabolite levels and effectiveness of the drug. The Supreme Court vacated the Federal Circuit's opinion and remanded the case. On remand, the Federal Circuit denied a motion for en banc hearing since it was in the process of considering CLS.
Judge Rader had written the court's 2011 Ultramercial opinion so he authored the remanded decision as well. He started by noting that claim construction had not been conducted because the case was dismissed under 12(b)(6). While saying that the claims must be construed in the light most favorable to the plaintiff, he stated that a motion to dismiss should rarely be granted since claim construction often involves issues of fact, and we must always consider the presumption of validity. But he then concluded that construing every disputed term of every asserted claim was not a wise use of judicial resources, and he jumped right into a Section 101 discussion.
He first referenced the Supreme Court's two method claim decisions in the past three years, and Mayo. Citing Bilski he noted: "a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself. The inquiry here is to determine on which side of the line the claim falls: does the claim cover only an abstract idea, or instead does the claim cover an application of an abstract idea?" He then cited Mayo for the proposition that "the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea."
Judge Rader then brought up the Mayo recitation of an "inventive concept" that must be accompanied by steps that are more than "routine" or "conventional" to those in the field to be patent eligible, and noted Parker v. Flook's suggestion that an abstract idea is to be ‘treated as though it were a familiar part of the prior art.' "
Turning to the claims at issue, Judge Rader found: "This court does not need the record of a formal claim construction to see that many of these steps require intricate and complex computer programming." A claim to "sell advertising using a computer" would pre-empt "all forms of advertising, let alone advertising on the Internet," but a "particular process" is at issue here.
Judge Rader's opinion cites In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994), as a reminder that programming creates a special purpose machine. "In other words, a programmed computer contains circuitry unique to that computer." It also distinguished a ruling of patent ineligibility of internet-related claims in CyberSource Corp. v. Retail Decisions Inc., 654 F.3d 1366 (Fed. Cir. 2011)."Unlike the claims in CyberSource, the claims here require, among other things, controlled interaction with a consumer via an Internet website, something far removed from purely mental steps."
Judge Lourie, in his concurring opinion, chastised the majority for applying its own Section 101 standards rather than following the Supreme Court's lead in Mayo and the plurality's views in CLS Bank.