A panel was split, briefing was about equally divided, the parties presented fundamentally opposing views, and there was no evidence that the 10 judges of the U.S. Court of Appeals for the Federal Circuit who heard arguments on Feb. 8 were close to consensus on the patent eligibility of computer-related claims (CLS Bank International v. Alice Corp., Fed. Cir., No. 2011-1301, argued 2/8/13).
Comments during oral argument from advocates and the judges failed to find agreement on the basic question of whether claims are drawn to a computer that happens to be implementing software code, or are drawn to a method implemented on a computer.
If the former, advocates of patent eligibility, such as Judge Kimberly A. Moore in this case, argued, any claim that begins with “a computing system configured to …” meets the allowance for patenting machines under 35 U.S.C. §101. But if the latter, as the appellant in the case argued, a patent ineligible method “dressed up as a system claim” cannot confer eligibility.
Patent practitioners discussing the argument with BNA after it ended saw the en banc court as about equally split.
Alice Corp. holds four patents (U.S. Patent Nos. 5,970,479; 6,912,510; 7,149,720; and 7,725,375) claiming methods and systems on the formulation and trading of risk management contracts.
As stated in expert testimony before the district court, the patent covers a “computerized trading platform for exchanging obligations in which a trusted third party, running a computer system programmed in a specific way, settles parties' obligations so as to eliminate what is variously referred to as 'Herstatt,' 'counterparty,' or 'settlement' risk--the risk that only one party's obligation will be paid, leaving the other party without its principal.”
CLS Bank International, one such “trusted third party,” challenged the subject matter patentability of the asserted claims of all four patents in a declaratory judgment action filed in 2007.
Alice countered with assertions of CLS's infringement of method claims in the '479 and '510 patents, data processing system claims in the '720 and '375 patents, and computer program product claims in the '375 patent.
The U.S. District Court for the District of Columbia concluded that the claims did not pass muster under Section 101, since they were drawn to an abstract idea--a judicial exception to patent eligibility. Alice appealed.
At the time of the appeal, the Federal Circuit had already shown disagreement on Section 101 analysis for computer-related claims. The appeals court's jurisprudence, particularly since the Supreme Court's ruling in Bilski v. Kappos, 130 S. Ct. 3218, 95 U.S.P.Q.2d 1001 (2010) (80 PTCJ 285, 7/2/10), is described in detail in this journal's article on the briefing in the instant case (85 PTCJ 443, 2/1/13) and will not be repeated here.
Before the instant case was decided, though, the Supreme Court decided Mayo Collaborative Services v. Prometheus Laboratories Inc., 132 S. Ct. 1289, 101 U.S.P.Q.2d 1961 (2012) (83 PTCJ 727, 3/23/12). The high court described a need to identify an “inventive concept” in a patent claim and tie that concept to something more than an unpatentable law of nature--also a judicial exception--with “additional steps consist[ing] of well-understood, routine, conventional activity” insufficient to confer patent eligibility.
The appeals court--Judge Richard Linn was joined by Judge Kathleen M. O'Malley in the majority--reversed the D.C. district (81 PTCJ 708, 4/1/11). The majority held that Mayo “did not directly address how to determine whether a claim is drawn to an abstract idea in the first instance.”
Instead, the majority started with the premise that Section 101 is a “coarse eligibility filter,” and that abstractness can negate patent eligibility only if it “exhibit[s] itself so manifestly as to override the broad statutory categories,” quoting the Federal Circuit's first post-Bilski opinion, Research Corporation Technologies Inc. v. Microsoft Corp., 627 F.3d 859, 97 U.S.P.Q.2d 1274 (Fed. Cir. 2010) (81 PTCJ 171, 12/10/10).
In dissent, Judge Sharon Prost faulted the majority for ignoring or at least misreading the Mayo decision.
“The majority resists the Supreme Court's unanimous directive to apply the patentable subject matter test with more vigor,” Prost said. “Worse yet, it creates an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under §101 whenever they so desire.” Referring to the majority's ultimate holding, she said that the “ 'manifestly evident' standard is more of an escape hatch than a yardstick.”
Prost particularly faulted the court for not heeding the Mayo court's instruction, to “inquire whether the asserted claims include an inventive concept.”
CLS Bank petitioned for rehearing en banc, which the court granted on Oct. 9 (84 PTCJ 990, 10/12/12). The order granting the petition also vacated the panel opinion, such that if the court were to split 5-5 in the en banc vote, the patent ineligibility judgment of the district court would stand.
The parties were joined by 45 companies and individuals contributing to briefing in the case (85 PTCJ 443, 2/1/13). Most notably, the Patent and Trademark Office authored the brief on behalf of the U.S. government. The PTO's Nathan K. Kelley, deputy solicitor, was given time to present during oral argument.
At oral argument, the advocates and the judges essentially disagreed because they approached the issue from different starting points, highlighted in a colloquy between Judge Moore and Mark A. Perry of Gibson, Dunn & Crutcher, Washington, D.C., representing CLS Bank.
Moore read verbatim the 216-word long Claim 26 of the '375 patent, with a preamble: “A data processing system to enable the exchange of an obligation between parties.” “That doesn't sound like just a method with a computer,” she said, pointing to four distinct computer elements.
When Perry said those were basic computer components, Moore leafed through multiple pages in the specification describing the elements as well as multiple flow charts describing the algorithm. “This is so far from a method claim …,” Moore said, leaving the sentence unfinished.
Perry's reference to a Sun Sparc computer as being “off-the-shelf” not only did not satisfy Moore, it encouraged her to make her point more forcefully. She asked, “How is a Sun Microsystem an abstract idea?” And, since there is no question that a Sun machine is patent eligible, she said, why would adding software to a Sun machine turn it into something that was not patent eligible?
Perry's view was that the claims were not drawn to a machine, despite the preamble of Claim 26. He said they were drawn to the electronic adjustment of payment and “shadow” records.
Judge Alan D. Lourie showed a clear preference for that view, distinguishing computer claims “qua computer” versus method claims where the system is “appended to” the method.
With Perry in clear agreement, Lourie said, “Here, we start with the methods.”
“I thought we started with the claims,” Moore said to Perry, but clearly addressing her colleague.
Linn, who even though he is now a senior judge is allowed to participate in the en banc consideration because he was on the panel, now got involved. He asked whether Perry would change his mind if the claim specifically referred to “hard-wired electrical circuitry.”
Perry did not budge. “This is just a method claim dressed up as a system claim,” he said, suggesting that no amount of “dressing up” would change its character.
The Federal Circuit, in In re Alappat, 33 F.3d 1526, 31 U.S.P.Q.2d 1545 (Fed. Cir. 1994) (48 PTCJ 309, 8/4/94), ruled that “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.”
After Perry's repeated reliance on the Supreme Court's decision in Mayo, Judge Kathleen M. O'Malley asked him, “Did Mayo overturn Alappat?”
Perry hedged. He said Alappat produced “the right outcome,” but that the issue there was a method for improving computer technology, which he said, was also the case in Research Corporation Technologies v. Microsoft. In contrast here, he said, the computer is not necessary, since it is possible to perform the method steps claimed without a computer.
During his rebuttal time, though, Linn pointedly asked why Perry had not used the Mayo term, “inventive concept,” to buttress his arguments.
Perry turned away from the term, pointing to language from Mayo qualifying it: “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the natural law itself.” He said the question should be whether the claims are drawn to something “significantly more” than an abstract idea, “and let's not get confused” with a discussion on the implications of an “inventive concept.”
Perry further pointed to the actions at the PTO related to the claims at issue here. He said that Alice's initial application included claims without reference to computer systems, and the PTO rejected them as abstract. Alice then amended the claims by adding a computer and, in keeping with PTO policy of the time, the agency then granted the claims.
First, he said, that proves that the claims are drawn to an abstract idea. And second, Mayo changed the law in such a way that the PTO now agrees that simply adding a computer does not confer patent eligibility.
The PTO's Kelley followed Perry and confirmed the change in the agency's guidelines for Section 101 analysis. Kelley said that the PTO now has “a clear understanding that bright line tests are not workable,” and that the office is wary of allowing “the draftsman's art” to change the analysis.
Moore now challenged Kelley the same way she challenged Perry. She distinguished “insignificant actions”--method steps--added to the claims in Mayo compared to the Alice claims specifically claiming a computer system.
“If it truly is a system claim,” Kelley said, “I may agree.” But he was clearly skeptical, and he took a swipe at Moore's reliance on the level of detail in Claim 26 in his response. Kelley suggested that it was in fact the art of the claim draftsman here to “just add a system--however detailed--to [attempt to] make it patent eligible.”
Judge Pauline Newman appreciated the PTO's decision not to lay out bright line tests, but still questioned where the line is between abstract and concrete, asking “Where does 101 fit in?”
Kelley noted that, in compact prosecution of patent applications at the PTO, the examiner looks at all patentability issues at the same time it assesses Section 101. But he rephrased the question as, “How do we separate the details of a claim [compared to] its form?” And he answered it by reference to the PTO's multi-factor guidance in two documents, one published after each of the Bilski (80 PTCJ 416, 7/30/10) and Mayo (84 PTCJ 395, 7/13/12) decisions.
That was insufficient for Moore, though.
Reacting to the earlier discussion about Alappat, Kelley said, “We reject the notion that adding a general purpose computer plus software … alone makes [a claim] patent eligible.”
“So then software patents are dead,” Moore said.
Kelley rejected that conclusion. He distinguished as unpatentable claims where an abstract idea “is behind” the claim. His time was up, though, before he had a chance to explain that term.
Adam L. Perlman of Williams & Connolly, Washington, D.C., represented patent holder Alice. He took challenging questions from different judges than had queried Perry.
Judge Evan J. Wallach asked whether, if some object is patent eligible, and one throws it over a balcony, can one claim gravity?
“I do not think you can claim gravity,” Perlman said, “but we haven't claimed anything like that.”
Judge Jimmie V. Reyna noted Alice's admission that it was theoretically possible that the calculations and other actions performed by the computer in Alice's claims could be performed by humans. Reyna focused on the end goal: the abstract idea of minimizing risk in international banking transactions.
But Perlman would not limit claim construction to the end goal. He insisted that the important characteristic of the computer in Alice's claims was the way it achieved the end result, not the end result alone.
As Perry was confronted with the extreme of computer involvement in Claim 20 of the '375 patent, Perlman was questioned about the lack of computer references at all in Claim 33 of the '479 patent. CLS Bank actually had conceded that the claims should be construed to include use of a computer, since “shadow records” were assumed to be electronically stored.
However, O'Malley clearly seemed to want to find a distinction between the claims. She even questioned whether the court was bound by the parties' stipulations so far, or whether the court could construe Claim 33 de novo.
Judge Timothy B. Dyk, however, was probably the most vocal critic of Alice's claims, as he pursued what was essentially a preemption argument.
The first patent at issue here claims priority to 1993, but a later decision by an international banking standards body recommended the use of shadow records in a way--doing “end-of-the-day netting”--that, apparently, must infringe the patents. Dyk repeated the same question to Perlman at least three times: “Is there any way of doing end-of-the-day netting without infringing [Alice's patents]?”
Each time, Perlman pointed to other means of conducting the transactions, but Dyk clearly put value on the fact that only one was the standard in the industry, and that was the one covered by Alice's claims.
Finally, O'Malley gave Perlman a chance to describe Alice's preferred test, at which point Perlman relied on the “significantly more” standard from Mayo. His only examples of when a computer is not playing a “significant role” in a claim, though, were when the computer is “simply there to do calculations faster or … to print out the result [of its calculations].”
That led to more jousting between Moore and Lourie, now with Perlman in the middle. Lourie wanted Perlman to defend Claim 33 in light of that admission, but Moore said that would be looking at the patents claim-by-claim, contrary to CLS's argument that the abstract idea as a method is the overriding basis of each claim.
“This court may be split 5-5,” Robert R. Sachs of Fenwick & West, San Francisco, told BNA after the argument ended.
Clearly a supporter of analyzing each claim as a whole and without any over-arching concept applying to all claims, Sachs chastised the PTO's Kelley for suggesting that one must “look behind the claim.” “You have to understand the big picture, certainly,” he said, “but it still always comes back to the claim language.”
Sachs was no more pleased with the discussion of what constitutes “significantly more” to make a claim patent eligible. “That sounds like another 'I know it when I see it' test,” he said. “It's not a sound fundamental framework.”
Leigh J. Martinson of McDermott Will & Emery, Boston, agreed. “I'm more of a strict constructionist and believe you start with the words of the claims themselves,” he told BNA. Ultimately, he said, “it's a battle of form over substance.”
Martinson would not commit to a prediction, but he suspected the court was leaning towards adhering to its historical focus on the claim language. “I could see the en banc panel going that way in order to set it up for the Supreme Court to chime in,” he said.
“Based on the questioning, it appears likely that the court's decision will be divided,” according to George Beck of Foley & Lardner, Washington, D.C. “In the event that the court holds that the patent claims at issue are patent eligible, it will be challenging to reconcile such decision with [Mayo], and make it more likely that the Supreme Court will decide to review the Federal Circuit's decision.”
As to his personal preference, he said, “I tend to agree with the view that assessment of patent eligibility should focus on the specific wording of the claims, particularly, whether they are drawn to the categories defined by the patent statute.”
But again, he characterized the Supreme Court in Mayo as “inviting a court to assess the invention as a whole in reference to other conditions of patentability, such as novelty and non-obviousness, when considering patent eligibility.”
Should the high court take the case, Beck clearly indicated that Alice should be concerned. “It appears that the Supreme Court's recent decisions reflect particular discomfort with patents with broad claims or those drawn to business methods.”
By Tony Dutra