By Tony Dutra
Patent claims on buying and selling real estate properties without incurring a tax liability are not patent eligible under 35 U.S.C. §101, the U.S. Court of Appeals for the Federal Circuit ruled Feb. 27 (Fort Properties Inc. v. American Master Lease LLC., Fed. Cir., No. 2009-1242, 2/27/12).
Affirming a lower court's ruling invalidating the claims under Section 101, the court first likened the invention to the claims rejected by the U.S. Supreme Court in its Bilski decision.
Ten of the claims also required use of a computer to implement the investment instrument, but that did not change the court's decision. The court recited holdings from three recent Federal Circuit decisions to distinguish computer use as “merely insignificant post-solution activity” versus patent eligible “advances in computer technology.”
American Master Lease LLC owns a patent (6,292,788) describing methods that allow property owners to buy and sell properties without incurring tax liability. Claims 1-31 describe the elements of creating a real estate investment instrument. Claims 32-41 contain an additional limitation, using a computer to “generate a plurality of deedshares.”
Fort Properties Inc. filed a declaratory judgment action in the U.S. District Court for the Central District of California, seeking a judgment of noninfringement. When AML counterclaimed, Fort Properties sought summary judgment that the ‘788 patent was invalid as not directed to patent eligible subject matter under Section 101.
Judge Andrew J. Guilford analyzed all 41 claims using the Federal Circuit's then-definitive machine or transformation (MoT) test. He found neither prong satisfied and granted summary judgment in favor of Fort Properties. 609 F. Supp. 2d 1052 (C.D. Cal. 2009).
After the lower court's decision, the U.S. Supreme Court said that the MoT test could be a useful tool to assess patent eligibility, but that it was not an exclusive test. Bilski v. Kappos, 129 S. Ct. 2735, 95 USPQ2d 1001 (2010).
Judge Sharon Prost first noted the high court's Bilski decision, but affirmed the lower court's judgments nonetheless.
The court looked at the claims lacking the computer use limitation and determined that they were similar to the claims held patent ineligible as abstract ideas in Bilski.
“Specifically, like the invention in Bilski, claims 1-31 of the ‘788 patent disclose an investment tool, particularly a real estate investment tool designed to enable tax-free exchanges of property,” the court said. “This is an abstract concept.”
The court also cited two pre-Bilski Federal Circuit opinions for support:
The claims in both the Schrader case and the Comiskey case involved physical activities in the real world, the court noted, as does the real estate investment instrument at issue here. However, the court said, “Under Bilski, this abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property.”
The court then turned to post-Bilski Federal Circuit opinions to address Claims 32-41.
More specifically, the court here said, the Ultramercial use of the computer was not as “merely insignificant post-solution activity; rather, the invention itself involved ‘advances in computer technology.' ”
The use of the computer in the AML claims paralleled the claims in Dealertrack, the court said. Indeed, the court pointed to AML's own comments during patent prosecution, including that the limitation “using a computer” in its claims merely meant “operating an electronic device that features a central processing unit.”
The court thus concluded that the computer “does not ‘impose meaningful limits on the claim's scope,' ” citing CyberSource. It therefore rejected those claims as invalid under Section 101.
Senior Judge Alvin A. Schall and Judge Kimberly A. Moore joined the opinion.
Arianna Frankl of Cole, Schotz, Meisel, Forman & Leonard, New York, represented Fort Properties. Donald M. Falk of Mayer Brown, Palo Alto, Calif., represented AML.
The Fort Properties court distinguished Section 101 patent eligibility related to computer use in a patent claim on four grounds, all of which can be seen to work against the patent applicant in this particular case.
However, are the court's other recent opinions—CyberSource, Ultramercial, and Dealertrack—in sync on those four grounds, as to both computer and internet use?
CyberSource's patent (6,029,154) claimed a “method and system for detecting fraud in a credit card transaction between [a] consumer and a merchant over the Internet,” and Dealertrack (6,587,841 and 7,181,427) “a computer-aided method and system … for processing credit applications over electronic networks.”
Generally, then, inasmuch the claims at issue in both Cybersource and Dealertrack thus required “specific application to the Internet and a cyber-market environment,” that ground alone appears insufficient to distinguish those cases of patent ineligibility from the claims found patent eligible in Ultramercial. That would further make it difficult to discern how the patents in Cybersource and Dealertrack could use computers and the internet as “merely insignificant post-solution activity” while the third did not.
The CyberSource court, however, characterized the claims at issue in that case as fraud detection, and said that “an unpatentable mental process for collecting data and weighing values does not become patentable by tossing in references to internet commerce.”
The Dealertrack court similarly eliminated “computer-aided” as a meaningful claim limitation. “The undefined phrase ‘computer aided' is no less abstract than the idea of a [credit] clearinghouse itself.”
Whether any of the claims at issue in CyberSource, Ultramercial, or Dealertrack represents an “advance in computer technology” is open to question and possibly a misnomer. All are directed to software and network functions. Perhaps the court meant to refer to “advances in internet applications” more specifically. It is unclear, though, why internet advertising might be an advance while internet credit handling is not.
Finally, and perhaps most telling for patent applicants, the instant court identified “intricate and complex computer programming” as a distinguishing characteristic for the patent eligibility of the Ultramercial claims. Indeed, the CyberSource panel pointed to the challenger's argument that the claims at issue in its case “could literally be performed on a piece of paper or in one's mind.”
Though the court is undoubtedly not finished with its Section 101 jurisprudence on these issues, it would seem advantageous for a patent applicant to limit claim scope to internet use and to add at least one limitation that ties the invention to internet processing, not a mere replication of a real world function into the internet application context.
Opinion at http://pub.bna.com/ptcj/091242Feb27.pdf