What Happened to Judge Lourie in CLS Bank v. Alice Corp?

Chief Judge Rader’s band De Novo should play a dirge tonight.

On May 10, the Federal Circuit issued its en banc opinion in CLS Bank.  Within 48 hours, I had twice read the 135 page decision.  It may be a bullet to the head of the software industry.  Don’t take my word for it:  four different judges say so:

And let’s be clear: if all of these claims, including the system claims, are not patent-eligible, 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. If all of the claims of these four patents are ineligible, so too are the 320,799 patents which were granted from 1998-2011 in the technology area “Electrical Computers, Digital Processing Systems, Information Security, Error/Fault Handling.” Every patent in this technology category covers inventions directed to computer software or to hardware that implements software. In 2011 alone, 42,235 patents were granted in this area. This would render ineligible nearly 20% of all the patents that actually issued in 2011. If the reasoning of Judge Lourie’s opinion were adopted, it would decimate the electronics and software industries. There are, of course, software, financial system, business method and telecom patents in other technology classes which would also be at risk. So this is quite frankly a low estimate. There has never been a case which could do more damage to the patent system than this one.[1]

That parade of horribles is not entirely fair to Judge Lourie’s concurrence.  Judge Lourie based his opinion on the fact that the disputed patent is directed not just to electronics, but to an insignificant use of modern electronics to implement an arguably basic financial transaction.  I doubt that Judge Lourie would expand the holding in CLS Bank far beyond that specific fact pattern.  Nevertheless, as quoted above, the dissenting judges do not share even this much optimism.

The potential impact of CLS Bank is staggering

Now is an exhilarating, and terrifying, time to work with software patents.  If the dissenting judges are even half right, we could see a 50% decline in the business of software patents.  The decision is a threat to the livelihoods of those who work with software patents, including me.  But the effects are not limited to patent attorneys.  If the premise of the patent system is correct—that patents are a net boost to science and industry—then CLS Bank could deliver a brutal blow to our national economy.

CLS Bank has been a long time coming.  In Diamond v. Diehr, Justice Stevens failed to garner just one additional vote needed for a majority to reinforce the anti-software decisions earlier in Benson and Flook.[2]  Twenty-nine years later, he again failed to garner just another single vote for a majority to endorse a more anti-business method decision in Bilski.[3]  In separate opinions, Stevens made passionate objections in both cases.  Indeed, Stevens’ concurrence in Bilski reads like a majority opinion.  The patent bar widely suspects that Stevens only lost at the last moment when Scalia—Stevens’ conservative rival—joined merely part of the delayed, majority opinion.  If Stevens had commanded the majority in either of those decisions, each could have been the death blow that finished what Benson and Flook started.

CLS Bank comes a giant step closer to realizing Stevens’ dream.  The anti-software plurality does not quite capture a majority.  But, by securing half the votes (5 of 10), the effect is practically the same:  the patent is dead without Supreme Court intervention.  Perhaps more importantly, the dissenting five fail to unite like the dominant plurality does.  They splinter into numerous factions, fighting among themselves, while their larger agreement goes unnoticed.  Technically, the giant decision’s only precedent is limited to the single, unhelpful paragraph of the per curium opinion.  In practice, the Federal Circuit’s silence is deafening.  If anything, the splintered opinions in CLS Bank highlight what is becoming an undeniable fact:  that the United States’ law on patent eligibility, as interpreted by the Supreme Court, is fundamentally broken.

I do hope, and somewhat expect, the Supreme Court to intervene.  One can hardly imagine a Federal Circuit opinion more ripe for review than one where the dissent cries out: “the current interpretation of § 101 […] is causing a free fall in the patent system.”[4]  But Supreme Court review is not guaranteed.  After several similar cases in recent years (Bilski, Mayo[5], Myriad[6]), and twenty-nine years of silence before then, the giant of the Supreme Court may desire to slumber again.  The Court may feel that its guidance is sufficient, and trust the Federal Circuit to apply that guidance according to the facts of each case.  The Court may feel especially pleased with the outcome in CLS Bank—a dead patent.  The Court may also vacate the decision and instruct the Federal Circuit to reconsider the decision in light of new precedent, such as Myriad.  Alternatively, the Court could decline to intervene, perhaps worrying that its prior interventions did more harm than good (as CLS Bank suggests).  If the Supreme Court fails to act at all, that could finally move Congress to amend §101 to overrule the excesses of the Court’s precedent.

Unfortunately, the patent is not the only thing that died in CLS Bank.  The other thing that died is § 101 of the Patent Act (not to mention § 100(b)).  Earlier, the Court recognized both the breadth of the statute, and the Congressional intent motivating that breadth:

As this Court recognized over 20 years ago in Chakrabarty, the language of § 101 is extremely broad. “In choosing such expansive terms as `manufacture’ and `composition of matter,’ modified by the comprehensive `any,’ Congress plainly contemplated that the patent laws would be given wide scope.”[7]

In contrast, in recent years, the Supreme Court has interpreted § 101 not broadly, but restrictively, because, for example, the more liberal approach “would make the ‘law of nature’ exception to § 101 patentability a dead letter.”[8]  But that logic is upside down.  The “letter” that the Court must keep alive is the simple statute, not unworkable judicial exceptions.  Those exceptions apply the statute in the exact opposite manner (restrictively) than it was intended (liberally).  Just as the Statute of Liberty is a clarion call to new and foreign peoples that the United States welcomes them into a land of freedom, §101 was intended to be a clarion call to inventors who make new and foreign inventions—especially those that Congress could not foresee when drafting the statute.  In aggressively applying the judicial exceptions to the statute, the Court, and now the Federal Circuit, has made the statute itself a dead letter.

What about Judge Lourie?

The first thing that any student of the Federal Circuit likely notices when reading CLS Bank is that Judge Lourie not only joined the dominant concurrence, but he also wrote the opinion.  The same Judge Lourie who wrote the first opinion in Mayo[9], after which the Supreme Court asked the Federal Circuit to reconsider, and who then wrote the second opinion in Mayo[10].  The same Judge Lourie who wrote the first opinion in Myriad[11], after which the Supreme Court asked the Federal Circuit to reconsider, and who then wrote the second opinion in Myriad[12].  All of those opinions interpret §101 broadly.  Although the Supreme Court requested that the Federal Circuit reconsider its opinion in both cases, Judge Lourie’s later opinions essentially reinforced his original conclusions without revision.  The Supreme Court finally reversed Judge Lourie in Mayo[13] and will likely do so in Myriad.  This is the same Judge Lourie who, 20 years ago, joined Judges Rich, Newman, and Rader to interpret §101 broadly in the en banc Alappat decision.[14]  As Judge Rader notes in his CLS Bank opinion, this is the same Judge Lourie who joined him and Judge Newman to interpret §101 broadly in Arrhythmia Research Tech.[15]  This is also the same Judge Lourie who recently joined Judge Rader in Ultramercial to interpret §101 broadly.[16]

I am not cherry picking Judge Lourie’s decisions.  To my knowledge, his only notable opinion in the opposite direction is Bancorp., which is the exception that proves the rule.[17]  Judge Lourie has consistently interpreted §101 broadly, as Congress intended, in case after case.  He has shown bravery in defending the Congressional intent of that statute, and its sound policy, despite resistance from the Supreme Court.  Now, Judge Lourie switches sides.  To those whose livelihoods depend on software patents, this reversal stings.

So what happened to Judge Lourie?  I’ll tell you what happened:  Justice Breyer and the Supreme Court wore him down.  After public criticism of the Federal Circuit’s § 101 jurisprudence in Justice Breyer’s opinion in Metabolite[18], and public criticism of Judge Lourie’s own opinions in the Supreme Court’s Bilski decision (Judge Lourie had joined the majority opinion), the vacating of his original Mayo decision, the reversal by the Supreme Court of his second Mayo opinion, and the granting of certiorari from his Myriad decision—Judge Lourie decided to toe the line.

As Judge Newman observes, the decision in CLS Bank utterly fails to unify patent law and provide predictable guidance to the lower courts.[19]  But we should not blame the Federal Circuit for that failure.  That specialized court, which Congress entrusted with administering and unifying patent law,[20] has been broken by a generalist Court that lacks the Federal Circuit’s specific expertise in that area.  Despite the best intentions, a circuit judge can only take so many reversals before capitulating.  Judge Lourie makes clear that, in deciding CLS Bank, he felt bound by Supreme Court precedent:  “Not only has the world of technology changed, but the legal world has changed.”[21]  Judge Lourie felt compelled to obey the Supreme Court—but I doubt that he liked it.

Judge Lourie’s decision here is like Chief Justice Robert’s decision in the ObamaCare case.[22]  There the Chief Justice crossed the aisle from conservatives to liberals in order to uphold ObamaCare.  Among much speculation about Roberts’ motivation, a popular theory is that he joined the liberals to preserve the integrity of the Court and avoid backlash from the Executive and Legislative branches.  A similar concern might have motivated Judge Lourie in CLS Bank to cross the aisle toward those judges who apply Supreme Court guidance on §101 more aggressively.

The wearing down of Judge Lourie fits within a more disturbing trend at the Federal Circuit: a diminishing of patent rights in view of Supreme Court resistance.  In the roughly fifteen years following the creation of the Federal Circuit in 1982, under the firm grip of Chief Judge Markey, there was a Golden Age of strong and uniform patent protection.  I’m saddened to see Judge Lourie joining the newest judges on the Federal Circuit, Judges Reyna and Wallach, both of whom have little background in patent law.  Although Judge Lourie crossed the aisle just now, that moment can mark the culmination of a trend—the Supreme Court’s encroachment on the Federal Circuit’s administration of patent law—that began long ago.