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Fresh From the Bench: Recent Patent Cases From the Federal Circuit

December 9, 2013

Overview

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.‎

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