The Alice in Wonderland En Banc Decision by the Federal Circuit in CLS Bank v. Alice Corp
|Written by John Kong
Westerman Hattori Daniels & Adrian, LLP
Posted: May 14, 2013 @ 3:16 pm
After the Federal Circuit issued its en banc decision on May 10, 2013 in CLS Bank v. Alice Corp, the patent owner Alice Corp must be feeling like Alice in Alice in Wonderland, bewildered and frightened by the fantastical situation in which they find themselves:
(1) “bewildered” because an equally divided Federal Circuit affirmed the district court’s holding that Alice’s claimed system to tangible machine components including a first party device, a data storage unit, a second party device, a computer, and a communications controller, programmed with specialized functions consistent with detailed algorithms disclosed in the patent, constitutes a patent ineligible “abstract idea;”
(2) “frightened” because, as Judge Moore puts it, “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” (Moore Op. at 2); and
(3) “fantastical” because, as Judge Newman puts it, the en banc court was tasked to provide objective standards for 35 USC §101 patent-eligibility, but instead has “propounded at least three incompatible standards, devoid of consensus, serving to add to the unreliability and cost of the [patent] system…[such that] the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel” (Newman Op. at 1-2).
What panel would that be? A panel including at least any two of Judges Lourie, Dyk, Prost, Reyna, and Wallach would be the favorites for an accused infringer hoping to sink any asserted business method, financial system, and software patent through a §101 “abstract idea” attack. A panel including at least any two of Judges Rader, Linn, Moore, O’Malley and Newman would be the favorites for an owner of a business method, financial system, and software patent hoping to survive a §101 “abstract idea” attack.
All the Judges rely on the same Supreme Court precedents in Gottschalk v Benson, Parker v. Flook, Diamond v. Diehr, Bilski v. Kappos, and Mayo v. Prometheus. All the Judges recognize the same judicial exception to statutory subject matter under §101 for laws of nature, natural phenomena, and abstract ideas. All the Judges recognize that a claim must include “meaningful limitations” that go beyond an abstract idea. Hollow field-of-use limitations and insignificant pre or post-solution activity don’t count. However, this is where their similarities end.
For Judge Lourie and four other Judges who joined his opinion, the Supreme Court guidance for §101 analysis turns on whether there is claim “preemption.” Lourie Op. at 9. A claim cannot subsume the full scope of a fundamental concept/abstract idea, and when that threat exists, the court must look for meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application. Lourie Op. at 16. The starting point for analyzing whether a claim preempts an abstract idea is to unambiguously identify that “abstract idea” represented in the claim. Lourie Op. at 18 and 25.
This is a great starting point for accused infringers, because carried to its extreme, all inventions are unpatentable because all inventions can be reduced to some abstract idea. This is the same as finding the “gist” or “heart” of the invention, which is improper for the same reasons. Rader Op. at 35. So, it comes as no surprise that Judge Lourie finds the abstract idea to be “reducing settlement risk by effecting trades through a third-party intermediary (here, the supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange – i.e., a form of escrow.” Lourie Op. at 25. There you have it, Alice is simply claiming a form of escrow. There are no other meaningful limitations that save the method claims and computer readable claims from the abstract idea of an escrow. A total of eight Judges find the method and computer readable medium claims patent ineligible, but for different reasons. Judges Linn and O’Malley take issue with this – which I’ll get back to shortly.
A major issue is with the system claims. Judge Lourie simply notes that they recite the same features as the patent ineligible method and computer readable medium claims. Lourie Op. at 33-34. The mere addition of generic computer components encompassing the same functional features as the method claims are tantamount to the clever claims drafting that the Supreme Court instructed the courts to ignore. Id. “Abstract methods do not become patent-eligible machines by being clothed in computer language.” Lourie Op. at 37-38.
However, as Judges Linn and O’Malley put it, “[t]he ‘abstraction’ [Judge Lourie] ferrets from his own reading of the method claims…works much like a computer virus to infect his analysis of all of the claims, regardless of their limitations…[Judge Lourie] actually strips the claims of their detail and limitations – in direct contravention of the Supreme Court’s admonitions…” Linn Op. at 9.
Judges Rader, Linn, Moore and O’Malley take a completely different approach to the whole §101 analysis. They lay out certain principles that must be followed:
- First, they remind us that we’re talking about judicial exceptions to a broad §101 statute enacted by Congress. Rader Op. at 5-11. This is important because “one of the principles that must guide our inquiry is that judge-made exceptions to properly enacted statutes are to be narrowly construed.” Rader Op. at 24 (emphasis added). Judge Lourie makes no effort to narrowly construe the judge-made exception for abstract ideas.
- There is a presumption of validity that applies even to challenges under §101, which can only be overcome by clear and convincing evidence of ineligibility. Rader Op. at 26 (emphasis added). Although Judge Lourie also recognizes a presumption of validity under a §101 challenge (Lourie Op. at 22-23), there is no discussion or finding of any clear and convincing evidence of ineligibility.
- Don’t start by distilling the “abstract idea,” “gist,” or “heart” of the invention. A claim cannot 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. The claim as a whole must be considered. “A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.” Rader Op. at 13.
- Judge Lourie incorrectly dismisses In re Alappat because “the world of technology has changed” and the “Supreme Court has spoken since Alappat on the question of patent eligibility.” Lourie Op. at 37-38. There is no time limit on Alappat. And, patent eligibility is determined as of the patent’s filing date – not whether technology has changed such that technology today would make what’s claimed from the early 1990s patent ineligible. Rader Op. at 20, fn. 4. Claims also do not become abstract simply through passage of time. Moore Op. at 6.
Quite the contrary, the principles of Alappat are right on point. The combination of machine and software “creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software.” Rader Op. at 27. As Judge Lourie would have it, “At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility.” Lourie Op. at 27. However, “[i]f a computer can do what a human can in a better, specifically limited way, it could be patent eligible…even an increase in speed alone may be sufficient to result in a meaningful limitation.” Rader Op. at 29, fn.7. All that is required is that the claims tie an otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something. Rader Op. at 21. For instance, an inventor could claim the abstract idea of translating Chinese into English through a combination of circuitry, transistors, capacitors, and other tangible electronic components. Such complex, interrelated machine components would squarely fit within the broad categories of §101, without any concern about claiming an abstract idea. Well, the fact that innovation has allowed these machines to move from vacuum-tube-filled specialized mechanical behemoths, to generalized machines changed by punch cards, to electronically programmable machines that can fit in the palm of one’s hand, does not render them abstract. Rader Op. at 28-29.
With these principles in mind, the court must examine each system claim as a whole, and despite falling within the plain language of §101, whether there is clear and convincing evidence showing that a claim to a computer-implemented invention is barred from patent eligibility by reason of the narrow judicial prohibition against claiming an abstract idea. Here, the system claims include at least four separate structural components: a computer, a first party device, a data storage unit, and a communications controller coupled via machine components to the computer and the first party device. The patent discloses at least 32 figures which provide detailed algorithms for the software with which such hardware is to be programmed. As one example, Figure 16 details the confirmation algorithm which includes creating transactions in the payment shadow file, checking for successful consideration payment, determining the required consideration amount being available in the payment shadow file, and electronically adjusting accounts after ensuring that the first and/or second parties have adequate value in their accounts. Rader Op. at 30-34. “Labeling this system claim an ‘abstract concept’ wrenches all meaning from those words, and turns a narrow exception into one which may swallow the expansive rule (and with it much of the investment and innovation in software).” Rader Op. at 34. There are also means-plus-function elements recited in dependent claims that are limited to the specific algorithms disclosed in the specification for performing the recited function. Moore Op. at 13-14.
Clearly, these system claims do not claim a disembodied abstract idea of an escrow. Instead, the system claims go beyond merely claiming an escrow by integrating transactions in a data processing system that includes a data storage unit coupled to a computer which has been modified by software to receive transactions, adjust records, and generate electronic instructions according to specific structural limitations in both software and hardware formats. The abstract idea of an escrow can be conducted without the claimed system. Even conducting an escrow with a computer, there are other ways it could be done without the claimed system (no preemption). Rader Op. at 35-36. Stated differently, the use of a computer is not inherent in conducting an escrow. There is also no clear and convincing evidence as of the critical time that the claimed functional features are inherent in an escrow. Rader Op. at 36. As such, Judges Rader, Linn, Moore and O’Malley find the system claims patent eligible under §101.
In a general sense, a general purpose computer would pass muster under §101. “Why, then, would claiming the same computer with specific programming (thus creating a special purpose computer), transform a patent-eligible machine into a patent-ineligible abstract idea? A claim to a computer running particular software is no less a claim to a computer.” Moore Op. at 9. If Alice’s system claims “do not clear the §101 hurdle, then the abstract idea exception will be an insurmountable bar for innovators of software, financial systems and business methods, as well as for those in the telecommunications filed. Every software patent makes a computer perform different functions – that is the purpose of software. Each software program creates a special purpose machine, a machine which did not previously exist (assuming the software is novel). The machine ceases to be a general purpose computer when it is running the software. It does not, however, by virtue of the software it is running, become an abstract idea.” Moore Op. at 14.
For the same reasons the systems claims are patent eligible, Judges Linn and O’Malley also find the method claims and computer readable claims patent eligible. There was no claims construction at the district court. There was no Markman hearing. This en banc review follows from a summary judgment determination of §101 patent ineligibility before any briefing on claims construction even started. Linn Op. at 2. As for claims construction, the parties (more importantly, CLS Bank) stipulated that the method claims are narrowed by incorporation of all electronic aspects of the system claims. Linn Op. at 8. CLS Bank also stipulated to a claims construction favorable to Alice. Linn Op. at 3. Based on the parties’ stipulations and agreements, the trial court construed, for the purposes of the summary judgment motion from which this en banc rehearing arises, the method and media claims to require all the computer-implemented limitations of the system claims. Linn Op. at 11-12. Based on this procedural history, Judges Linn and O’Malley finds all the claims patent eligible for the same reasons the system claims are patent eligible.
Judge Newman would also find all the claims patent eligible. Newman Op. at 14. However, Judge Newman proposes ditching the failed §101 ventures into abstraction, preemption, and meaningfulness. Newman Op. at 13. Both Judges Newman and Rader emphasize sticking with the statute. Newman Op. at 3-4; Rader Reflections at 4. Section 101 is an inclusive statement of patent eligible subject matter. It should not be used to impose an initial arbitrary bar on patentability based on “abstractness” and “preemption” that are nebulous concepts requiring legal gymnastics to figure out. Substantive considerations of patentability should be left to 35 USC §§112, 102, and 103. Newman Op. at 4. “Moreover, to inject the patentability test of ‘inventiveness’ into the separate statutory concept of subject matter eligibility makes this doctrine again ‘the plaything of the judges who, as they became initiated into its mysteries, delighted to devise and expound their own ideas of what it meant; some very lovely prose resulting.’” Rader Reflections at 5 (citing Giles S. Rich, Principles of Patentability, 28 Geo. Wash. L. Rev. 393, 404 (1960)).
Only Congress can step in to refine software patent law, if necessary (see, e.g., Linn Op. at 12-14). Until that happens, we still have (or some would say “are stuck with”) the Supreme Court’s decisions regarding patent eligibility under §101. As for this case, although this is an en banc decision, the only “judgment” by the Federal Circuit in this case is the one-paragraph Per Curiam Judgment in which a majority of the court agrees that Alice’s method and computer readable medium claims recite patent ineligible subject matter (but without majority agreement as to the legal rationale for that conclusion), and the court is evenly split (5-5) regarding the patent eligibility of the system claims (thereby affirming, by default, the lower court’s holding of patent ineligibility of the system claims). Recently confirmed Judge Taranto did not participate, and the other two presidential nominees (Raymond Chen and Todd Hughes) are still awaiting Senate confirmation. Without a majority supporting any one of the other 6 separate opinions, where does this leave us with this en banc decision? “[T]hough much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our [per curiam] judgment has the weight of precedent.” Rader Op. at 2, fn.1.
Since nothing other than the one paragraph Per Curiam Judgment is precedent, it may be business as usual for patent practitioners, PTO examiners, and district court judges until some more objective and clear guidance on the “abstract ideas” analysis for patent ineligibility under §101 is provided, perhaps in another Federal Circuit decision (maybe in the Supreme Court’s remand of Ultramercial v. Hulu to the Federal Circuit for further consideration in light of Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)) or by another Supreme Court decision (maybe by taking up this case). With two dozen amici curiae briefs submitted prior to this decision, there is certainly plenty of interest in the industry for more/better guidance.
About the Author
John Kong is a partner with Westerman Hattori Daniels & Adrian, LLP, a Washington, DC, based law firm that specializes in all facets of patent practice, including litigation, prosecution and post-grant practice before the United States Patent and Trademark Office PTAB. John's technical background is as a Computer Scientist, and he represents clients with respect to electrical and computer related inventions, including semiconductor devices, operating systems, encryption protocols, neural networks, flat panel displays, touch panel displays, LCDs, LEDs and other related technologies.