Federal Circuit Rules Software Invention Unpatentable

Posted: May 12, 2013 in Column, GT

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A clear legal standard for determining patent-eligible
subject matter remains elusive. On Friday, the
Federal Circuit, in CLS Bank International v. Alice Corporation, ruled that an invention involving software for a computerized trading platform does not
constitute patent‑eligible subject matter. The decision
— which spanned 135 pages — by a 10-member en banc panel of the Court included seven separate opinions, but not the clarity many had hoped for. Alice’s computerized trading platform patents were at
issue in the case. Those patents describe a process
for two parties to exchange obligations, such as stock
trades, which are then settled by a trusted third party. The focus of the legal proceedings was Alice’s patent
claims. Positioned at the end of a patent, claims are
numbered sentences that define the scope of
protection afforded by the patent. Among other
requirements, the subject matter of a claim must
comply with section 101 of the patent laws. Section 101 defines patent-eligible subject matter and
reads: “Whoever invents or discovers any new and
useful process, machine, manufacture, or
composition of matter, or any new and useful
improvement thereof, may obtain a patent therefor,
subject to the conditions and requirements of this title.” Alice asserted a variety of its patent claims in the
case, including claims written in method, system and
computer-readable-media claim formats. However,
Alice’s asserted claims generally share the same
underlying premise — that of software for exchanging
obligations between parties through a computerized trading platform and using a third party to handle
settlement of the exchanges. What Guidance Did the Court Provide for Software
Patents? A majority (seven of the 10 members) of the Court
concluded that Alice’s method and media claims are
not directed to patent-eligible subject matter. The
Court split 5-5, however, on Alice’s system claims. A
split means the lower district court’s ruling, which
found Alice’s system claims patent-ineligible, stands. A majority (eight of the 10 members) also agreed that
Alice’s method, media, and system claims should
rise or fall together when determining patent eligibility. The majority consensus ends there. A majority of the
Court, however, failed to reach agreement on the
reasoning behind these conclusions. Judge Lourie, in an opinion joined by four judges
(Judges Dyk, Prost, Reyna and Wallach), found all of
Alice’s asserted claims drawn to patent-ineligible
abstract ideas. In his view, Alice’s method claims are directed to
nothing more than the abstract idea of reducing
settlement risk by effecting trades through a third-
party intermediary. This, he said, is a “disembodied”
concept without any real-world application. Computer-
related aspects of the claims — including steps for creating records to store data, using a computer to
adjust and maintain those records, and reconciling
those records at the end of a trading day — in his
opinion failed to add anything of substance that would
save the claims. Judge Lourie similarly grouped Alice’s media and
system claims in the same boat with Alice’s method
claims. He characterized the media claims —
although defining physical storage media — as
nothing more than the same underlying method of
reducing settlement risk “in the guise of a device.” He then questioned whether structures found in the
system claims—including “a computer” and “a data
storage unit” — could justify a different approach for
those claims. In his opinion, they did not. He
reasoned that the computer-related limitations failed
to provide any “meaningful distinction” from the computer-related limitations found in the method
claims. In a separate opinion, Chief Judge Rader said he
would have found the system claims patent eligible.
Three judges (Judges Linn, Moore, and O’Malley)
joined in that part of his opinion. In Chief Judge
Rader’s view, the issue was “whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea.” Applying that rationale, he reasoned that the
structural limitations in Alice’s system claims (e.g.
limitations drawn to “a computer” and “a data storage
unit”) brought those claims into the realm of patent-
eligible subject matter. However, in the remainder of
his opinion (which only Judge O’Malley joined), Chief Judge Rader concluded that Alice’s method and
media claims are patent-ineligible abstract ideas. Judges Linn and O’Malley, in a separate opinion, said
they would have also found Alice’s method and media
claims patent-eligible for the same reasons expressed
in Chief Judge Rader’s opinion regarding Alice’s
system claims. Additionally, they noted that several
technology companies, in amicus (friend-of-the–court) briefs, expressed concern about what they viewed as
widespread proliferation and aggressive enforcement
of low-quality software patents. In responding to that
concern, Judges Linn and O’Malley said Congress,
and not the courts, is the proper avenue for
developing special rules for software patents. For example, they speculated that Congress could limit
the term of software patents or devise rules for
limiting their scope. Judge Moore, in a separate opinion (in which Chief
Judge Rader and Judges Linn and O’Malley joined),
said she would have found the system claims drawn
to patent-eligible subject matter. She also wrote that
the uncertainty in court decisions over this issue is
“causing a free fall in the patent system.” If all of Alice’s claims are not patent-eligible, she conjectured
that “this case is the death of hundreds of thousands
of patents, including all business-method, financial-
system, and software patents as well as many
computer implemented and telecommunications
patents.” In a separate opinion, Judge Newman shared the
majority view that all of the claims stand or fall
together. She would have found Alice’s system,
method and media claims patent‑eligible based on the
plain language of section 101. Chief Judge Rader offered an additional opinion
captioned “Additional Reflections.” There, he
emphasized that the Court should focus on the
language of section 101 and indicated it is unlikely
that innovation is promoted by the subjective
standards for evaluating patent eligibility expressed in the panel’s opinions. What’s Next for Software Patents? The Federal Circuit has ruled, but the dividing line
between patent-eligible software and patent-ineligible
abstract ideas has not come into focus. Some may
say the landscape remains in a similar state as it was
before the Federal Circuit’s decision: some software
claims might rise to the level of patent-eligible subject matter and others may not. The CLS Bank case is likely to undergo Supreme Court review. The Supreme Court may view the
Federal Circuit’s fractured decision as an opportunity
to consider software patenting again. Whether a clear
dividing line will emerge remains to be seen.

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