In a fractured en banc decision, the Federal Circuit affirmed the district court’s holding that the claims at issue in CLS Bank v. Alice Corporation are invalid under 35 USC § 101. The multiple opinions reveal the judge’s fundamental differences as to the meaning and role of the statute, and the difficulty of applying Supreme Court precedent. The court’s inability to agree on even an appropriate framework for assessing patent-eligibility guarantees that this fundamental inquiry will be a murky area of law for the foreseeable future.
The Federal Circuit Decision
The en banc appeal was heard by Chief Judge Rader and Circuit Judges Newman, Lourie, Linn, Dyk, Prost, Moore, O’Malley, Reyna, and Wallach. The en banc decision is set forth in a one page per curium opinion:
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.
The Federal Circuit Opinions
Judge Lourie wrote a concurring opinion that was joined by Judges Dyk, Prost, Reyna, and Wallach.
Chief Judge Rader wrote an opinion concurring-in-part and dissenting-in-part that was joined by Judges Linn, Moore and O’Malley with regard to its dissent, but only joined by Judge Moore with regard to its concurrence.
Judge Moore wrote an opinion dissenting-in-part that was joined by Chief Judge Rader and Judges Linn and O’Malley.
Judge Newman wrote a dissenting opinion.
Judges Linn and O’Malley jointly wrote a dissenting opinion.
Chief Judge Rader wrote an opinion with “Additional Expressions.”
In this article, I focus on Judge Lourie’s “majority” opinion and Chief Judge Rader’s “runners-up” opinion.
As summarized by Judge Lourie, the patents relate to “computerized methods, computer-readable media, and systems that are useful for conducting financial transactions using a third party to settle obligations between a first and second party so as to mitigate ‘settlement risk,’” e.g., the risk that only one party will satisfy its obligations.
Briefly, the claimed process requires the supervisory institution to create shadow records for each party that mirror the parties’ real-world accounts held at their respective “exchange institutions.” At the start of each day, the supervisory institution updates its shadow records to reflect the value of the parties’ respective accounts. Transactions are then referred to the supervisory institution for settlement throughout the day, and the supervisory institution responds to each in sequence by adjusting the shadow records and permitting only those transactions for which the parties’ updated shadow records indicate sufficient resources to satisfy their mutual obligations. At the end of each day, the supervisory institution irrevocably instructs the exchange institutions to carry out the permitted transactions.
Judge Lourie also noted that “the parties have agreed that the recited shadow records and transactions require computer implementation.”
The CRM claims recite “[a] computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party, the computer program product comprising program code ….”
The system claims recite “[a] data processing system to enable the exchange of an obligation between parties, the system comprising: a data storage unit … and a computer, coupled to said data storage unit, that is configured to ….”
The following table shows how each judge came down on the patent-eligibility of each type of claim. (According to Judge Rader, Alice had conceded that the CRM claims would stand or fall with the method claims.)
|District Court Decision
|Lourie, Dyk, Prost, Reyna, Wallach
|Newman, Linn, O’Malley
|Federal Circuit Judgment
|Abstract Idea (7-3)
|Abstract Idea (7-3)
|Abstract Idea (5-5)
Judge Lourie’s “Integrated Approach to § 101”
Judge Lourie’s 38-page decision offers the following framework for assessing the patent-eligibility of “a computer-implemented claim.”
The first question is whether the claimed invention fits within one of the four statutory classes set out in § 101. Assuming that condition is met, the analysis turns to the judicial exceptions to subject-matter eligibility.
A preliminary question in applying the exceptions to such claims is whether the claim raises § 101 abstractness concerns at all. Does the claim pose any risk of preempting an abstract idea? In most cases, the answer plainly will be no.
Where bona fide § 101 concerns arise …. it is important at the outset to identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing.
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.
The requirement for substantive claim limitations beyond the mere recitation of a disembodied fundamental concept has “sometimes” been referred to as an “inventive concept.” …. An “inventive concept” in the § 101 context refers to a genuine human contribution to the claimed subject matter. …. [A]n “inventive concept” under § 101—in contrast to whatever fundamental concept is also represented in the claim—must be “a product of human ingenuity.” …. In addition, that human contribution must represent more than a trivial appendix to the underlying abstract idea.
Judge Lourie found no such substantive limitations in any of the claims at issue. Judge Lourie characterized the CRM claims as “merely method claims in the guise of a device,” and the system claims as ”a Trojan horse designed to enable abstract claims to slide through the screen of patent eligibility.” (!!!)
Chief Judge Rader’s Familiar Framework
Chief Judge Rader’s opinion presents a more familiar statement of § 101 jurisprudence:
As the Supreme Court has explained, the relevant inquiry under the exceptions is whether the claim covers merely an abstract idea, law of nature, or natural phenomenon; or whether the claim covers a particular application of an abstract idea, law of nature, or natural phenomenon.
Responding to Judge Lourie’s analysis of the claims at issue, Chief Judge Rader emphasized:
The claims are key to this patent eligibility inquiry. A court must consider the asserted claim as a whole when assessing eligibility …. And, a court must consider the actual language of each claim. ….
Any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. Such an approach would “if carried to its extreme, make all inventions unpatentable because all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious.” … A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.
According to Chief Judge Rader, instead of ignoring claim language, we should ask “whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea.” Chief Judge Rader offers a few guideposts to aid such an analysis:
- [A] claim is not meaningfully limited if it merely describes an abstract idea or simply adds “apply it.”
- Pre-emption is only a subject matter eligibility problem when a claim preempts all practical uses of an abstract idea.
- It is not the breadth or narrowness of an idea that is relevant, but whether the claim covers every practical application of that abstract idea.
- [E]ven if a claim does not wholly pre-empt an abstract idea, it still will not be limited meaningfully if it contains only insignificant or token pre- or post-solution activity—such as identifying a relevant audience, a category of use, field of use, or technological environment.
- [A] claim is not meaningfully limited if its purported limitations provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized.
- [A] claim is meaningfully limited if it requires a particular machine implementing a process or a particular transformation of matter.
Drawing on the Supreme Court’s 1981 decision in Diamond v. Diehr, Chief Judge Rader states:
A claim also will be limited meaningfully when, in addition to the abstract idea, the claim recites added limitations which are essential to the invention. In those instances, the added limitations do more than recite pre- or post-solution activity, they are central to the solution itself. And, in such circumstances, the abstract idea is not wholly pre-empted; it is only preempted when practiced in conjunction with the other necessary elements of the claimed invention.
With regard to “computer implemented claims,” Chief Judge Rader provides the following additional guidance:
[W]hile the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility. … The key to this inquiry is whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible, unlike claims directed to nothing more than the idea of doing that thing on a computer. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology.
With regard to the claims at issue, Chief Judge Rader characterized the method claims as being directed to “the general and theoretical concept of using a neutral intermediary in exchange transactions to reduce risk that one party will not honor the deal, i.e., an escrow arrangement.” Considering the recited steps, Chief Judge Rader found:
[E]ach step individually recites merely a general step inherent within the concept of an escrow, using a third party intermediary in this fashion. While the claim certainly limits use of an escrow to the context of this particular field, that attempted limitation is not enough.
As noted above, this aspect of Chief Judge Rader’s opinion was joined only by Judge Moore.
Chief Judge Rader reached a different conclusion with regard to the system claims:
Here, the claim recites a machine and other steps to enable transactions. The claim begins with the machine acquiring data and ends with the machine exchanging financial instructions with other machines. The “abstract idea” present here is not disembodied at all, but is instead integrated into a system utilizing machines. In sum, the system claims are indistinguishable from those in Diehr. For these reasons, the system claims are not directed to patent ineligible subject matter.
This aspect of Chief Judge Rader’s opinion was joined by Judges Linn, Moore and O’Malley.
Can the Supreme Court Glue § 101 Back Together?
In her opinion, Judge Moore offers this case up to the Supreme Court as an “opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter,” assuming that the Court will agree with her assessment that the system claims must satisfy § 101. Since I felt the same way about the method claims that the Court invalidated in Mayo Collaborative Services v. Prometheus Laboratories, Inc., I am less optimistic that the Supreme Court will resolve this issue an a way that will prevent the “free fall in the patent system” that concerns Judge Moore or restore the degree of predictability that Judge Newman believes is necessary for the proper functioning of the patent system to promote innovation.