Federal Circuit Split on Computer Method, Media, System Claims in En Banc CLS Ruling

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By Tony Dutra  


Computer method and computer-readable medium claims on the formulation and trading of risk management contracts are not eligible for patents under 35 U.S.C. §101, a split U.S. Court of Appeals for the Federal Circuit, deciding en banc, ruled May 10 (CLS Bank International v. Alice Corp. Pty. Ltd., Fed. Cir., No. 2011-1301, 5/10/13).

The court was divided 5-5 as to whether the computer system claims at issue were patent eligible.

The case presented the court with questions that would affect thousands of software and business method patents, and the result appears to leave some of those questions unresolved.

The court's per curiam opinion is one paragraph. Six opinions covering 135 pages were filed, with five judges filing a concurrence, four judges joining three opinions that dissented in part or entirely, and Judge Pauline Newman dissenting separately. Chief Judge Randall R. Rader also filed “additional reflections.”

According to Judge Alan D. Lourie's concurring opinion,  

[though] no single opinion issued today commands a majority, seven of the ten members, a majority, of this en banc court have agreed that the method and computer-readable medium claims before us fail to recite patent-eligible subject matter. In addition, eight judges, a majority, have concluded that the particular method, medium, and system claims at issue in this case should rise or fall together in the §101 analysis.  



Rader, though, said, “nothing said beyond our [per curiam] judgment has the weight of precedent.”

Judge Kimberly A. Moore, in one of the opinions dissenting in part, criticized the “staggering breadth” of Lourie's opinion. “If the reasoning of Judge Lourie's opinion were adopted, it would decimate the electronics and software industries,” she said. “There has never been a case which could do more damage to the patent system than this one.”

She invited the Supreme Court to take the case given the “irreconcilably fractured” Federal Circuit.

Risk Management System and Method Claims

The case involves four patents (U.S. Patent Nos. 5,970,479; 6,912,510; 7,149,720; and 7,725,375) held by Alice Corp.

As stated in expert testimony before the district court, the patents cover 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.

Judge Rosemary M. Collyer of 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.

'Coarse Filter' vs. 'Inventive Concept.'

The Federal Circuit had already shown disagreement on Section 101 analysis for computer-related claims, particularly since the Supreme Court's ruling in Bilski v. Kappos, 130 S. Ct. 3218, 95 U.S.P.Q.2d 1001 (2010) (124 PTD, 6/30/10).

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) (55 PTD, 3/22/12). 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.

In the instant case, a Federal Circuit panel--Judge Richard Linn was joined by Judge Kathleen M. O'Malley in the majority--reversed the D.C. district court. 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) (235 PTD, 12/9/10).

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.”

Prost particularly faulted the court for not heeding the Mayo court's instruction, to “inquire whether the asserted claims include an inventive concept.”

Two Questions in En Banc Rehearing

CLS Bank petitioned for rehearing en banc, which the court granted on Oct. 9 (195 PTD, 10/10/12). It asked for briefing on two questions:

• What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?

• In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for §101 purposes?


The parties were joined by 45 companies and individuals contributing to briefing in the case. Most notably, the Patent and Trademark Office authored a brief on behalf of the U.S. government.

Oral argument was held Feb. 8. Given the split on the court during that session, the split in the opinions was inevitable.

Concurrence Sets Out Basic Concepts

“Short and unadorned, §101 appears deceptively simple on its face, yet its proper application to computer-implemented inventions and in various other fields of technology has long vexed this and other courts,” Lourie said to begin the analysis in the five-judge concurring opinion.

Lourie's opinion relied primarily on assessing “the practical likelihood of a claim preempting a fundamental concept” as the proper approach to determining whether a computer-based invention is drawn to an ineligible abstract idea.

Though he agreed that Congress intended a broad approach to patent eligibility, he said that inventions “still must surmount various substantive and procedural hurdles that stand between patent eligibility and a valid patent.” He recited the three judicially created exceptions--laws of nature, natural phenomena, and abstract ideas--as providing one such hurdle, but cautioned against “applying the judicial exceptions too aggressively.”

Lourie identified “common themes that run through” five Supreme Court decisions: Gottschalk v. Benson, 409 U.S. 63, 175 U.S.P.Q. 673 (1972); Parker v. Flook, 437 U.S. 584, 198 U.S.P.Q. 193 (1978); Diamond v. Diehr, 450 U.S. 175, 209 U.S.P.Q. 1 (1981); Bilski; and Mayo.

First and foremost, he said, is the abiding concern of preemption, “that claims should not be coextensive with a natural law, natural phenomenon, or abstract idea; a patent-eligible claim must include one or more substantive limitations that, in the words of the Supreme Court, add 'significantly more' to the basic principle, with the result that the claim covers significantly less.”

Second, Lourie said, a patent claim draftsman's art must not be allowed to circumvent the exception with “highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity.”

And third, he said, bright line rules are “often impractical and counterproductive when applied to §101,” so the court must instead provide “a flexible, pragmatic approach.”

Identify Abstract Idea, Then Analyze Preemption

The concurring judges consequently presented a two-step approach to Section 101 analysis:

• Assuming the claim falls within one of the four statutory classes--process, machine, manufacture, or composition of matter--determine whether an exception applies. If the abstract idea exception is implicated, “identify and define whatever fundamental concept appears wrapped up in the claim.”

Lourie noted that the Federal Circuit's precedent does not require claim construction prior to a Section 101 analysis, but he said such construction “may be especially helpful” to unambiguously identify the idea.

• The preemption analysis comes next, he said. “With the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”

The opinion tied the “inventive concept” of the Mayo opinion to such substantive limitations. “An 'inventive concept' in the §101 context refers to a genuine human contribution to the claimed subject matter,” Lourie said. Echoing Mayo, he added, “Limitations that represent a human contribution but are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility.”

Lourie used the Mayo facts as an example, which is particularly relevant because he wrote the Federal Circuit opinion in that case--twice--that the high court overturned. And he countered the view of stakeholders who said the Mayo opinion came close to requiring novelty and obviousness analysis in the Section 101 context.

He said that Mayo's use of the terms “routine” and “conventional” was meant “to indicate what qualities added to a natural law do not create patent-eligible subject matter.” In contrast, he said, analysis under Sections 102 and 103 looks at “whether particular steps or physical components together constitute a new or nonobvious invention.”

The concurring opinion identified two other considerations worth noting.

First, the judges said that Section 101 is not such a “threshold test” that a district court must address patent eligibility first. They left it to the discretion of the lower courts to manage their dockets and noted that, in fact, “another section of the Patent Act might provide a clearer and more expeditious path to resolving a dispute.”

Second, the concurrence said that the statutory presumption of patent validity applies equally when a patent is challenged on Section 101 grounds.

Method Patent Claims at Hand Fail

Applying the analytical approach described above to the patent claims at issue here, the concurring opinion affirmed the lower court's judgment of patent ineligibility as to all the claims.

Representative method Claim 33 of the '479 patent is drawn to a process, Lourie said, and the abstract idea implicated is “reducing settlement risk by effecting trades through a third-party intermediary through … a form of escrow.” And the limitations of the claim do not add “significantly more,” he said.

A requirement for implementation on a computer “lacks any express language to define the computer's participation,” he said, rendering that limitation insignificant post-solution activity relative to the abstract idea.

Alice had touted its use of “shadow records” as significant, but Lourie disagreed, saying they were “no more than the necessary tracking activities of a supervisory institution.”

Finally, end-of-day settlement is “a similarly trivial limitation that does not distinguish the claimed method,” he said.

The method claims were, accordingly, drawn to patent ineligible subject matter, the concurring opinion concluded.

Computer-Readable Medium, System Claims Fall Too

Claims 39-41 of the '375 patent were written as so-called Beauregard claims, with software on computer-readable media such as a disk or other data storage device.

“[U]nder §101 we must look past drafting formalities and let the true substance of the claim guide our analysis,” Lourie said. Determining that Beauregard claims “are merely method claims in the guise of a device,” he said that they, too, were ineligible under Section 101.

Representative system Claim 1 of the '720 patent is drawn to a “data processing system,” including a data storage unit and a computer, “tangible devices” that distinguish these claims, he said.

However, Lourie said, “The computer-based limitations recited in the system claims here cannot support any meaningful distinction from the computer-based limitations that failed to supply an 'inventive concept' to the related method claims.” He acknowledged that some system claims could “incorporate sufficient additional limitations, computer-based or otherwise, to transform that [ineligible] idea into a patent-eligible application,” but he provided no such examples.

In any case, Alice's system claims did not incorporate sufficient limitations, he concluded, so they were patent ineligible as well.

Prost and Judges Timothy B. Dyk, Jimmie V. Reyna, and Evan J. Wallach joined the concurring opinion.

Rader's Opinion Would Allow System Claims

The opinion written by Rader would hold that the system claims were patent eligible.

Rader spent a considerable amount of time justifying the view that Section 101 was intended to be very broad, relying primarily on a review of the record surrounding passage of the 1952 Patent Act.

“After deliberate effort, the 1952 Act replaced any need for an 'invention' or 'inventiveness' measure with an objective test for 'obviousness' in Section 103,” he concluded.

He described the judicial exceptions in similar terms as did Lourie, but as to overcoming an exception, he said, “The relevant inquiry must be whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea.”

Rader also looked through the Supreme Court's opinions in the same five cases Lourie referenced, but he pointed out further that O'Reilly v. Morse, 56 U.S. (15 How.) 62 (1853), best known for Samuel Morse's claim on electromagnetism that was not allowed, also allowed a broad claim on “making use of the motive power of magnetism.”

He further concluded that Mayo v. Prometheus rejected the additional steps of a claim only to the extent that “anyone wanting to use the natural law would necessarily use.” He said that Lourie's reference to the “inventive concept” of Mayo improperly “injects an 'ingenuity' requirement into the abstract exception inquiry.”

As to the system claims, he said, “the fact that a claim is limited by a tie to a computer is an important indication of patent eligibility”:  

The key to this inquiry is whether the claims tie the otherwise abstract idea to a specific wayof doing something with a computer, or a specific computerfor doing something; if so, they likely will be patent eligible, unlike claims directed to nothing more than the idea of doing that thing on a computer. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology.  


Consequently, Rader said that “a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea.”

In the instant case, using system Claim 26 of the '375 patent as representative, Rader identified “computer and other hardware specifically programmed to solve a complex problem.” He cited detail in the specification on both hardware and software.

“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),” he said.

Moore and the original panelists Linn and O'Malley joined the opinion written by Rader to the extent that the system claims should have been held patent eligible.

Rader and Moore Reject Method, Medium Claims

Only Moore joined Rader in the rest of his opinion, which addressed the method claims. In this Section VI of the opinion, Rader noted that Alice conceded that the method and medium claims rise and fall together, so he reviewed the method claims only.

Though he reviewed method Claim 33 of the '479 patent as did Lourie, Rader conducted the analysis in the context of searching for the specific application rather than a general concept. He said the claim “in effect claims the abstract concept of an escrow” because “the recited steps are inherent in an escrow and [are] claimed at a high level of generality.”

“Thus, like Judge Lourie, we would hold the method claims in this case are not eligible under Section 101, but would do so for different reasons than he articulates,” Rader and Moore concluded.

Moore Contrasts Alappat

Moore then added a dissenting-in-part opinion, joined by Rader, Linn, and O'Malley, to give a separate reason for finding the system claims patent eligible.

Referring to the Supreme Court's holding in Bilski, she said, “if meaningfully tying a method to a machine can be an important indication of patent-eligibility, how can a claim to the machine itself, with all its structural and functional limitations, not be patent-eligible?”

Moore relied substantially on the Federal Circuit's 1994 decision in In re Alappat, 33 F.3d 1526, 31 U.S.P.Q.2d 1545 (Fed. Cir. 1994). In that case, she said, the court held that computer programming “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.”

“Judge Lourie's opinion completely repudiates Judge [Giles S.] Rich's approach in Alappat,” Moore said. “The two are not reconcilable.”

Lourie responded in his opinion, saying that relying on Alappat is a “fallacy” in this case.

“The Supreme Court has spoken since Alappat on the question of patent eligibility, and we must take note of that change,” he said. “Abstract methods do not become patent-eligible machines by being clothed in computer language.”

Newman Bemoans Court's Failure

Newman essentially viewed the court's multiple opinions in the case as a failure.

“[W]e have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation,” she said.

Newman made two primary points. She contended that all attempts to find a standard for analysis under Section 101 have failed because “Section 101 is not the appropriate vehicle for determining whether a particular technical advance is patentable; that determination is made in accordance with the rigorous legal criteria of patentability.”

She would hold that “an inclusive listing of the 'useful arts' ” is the only threshold of Section 101, and that analysis under the other patentability sections of the Patent Act would “eliminate claims that are 'abstract' or 'preemptive.' ”

And Newman contended that the reason Section 101 has become contentious of late is based on a misconception of patent enforceability:  

This section 101 issue appears to have its foundation in a misunderstanding of patent policy, for the debate about patent eligibility under section 101 swirls about concern for the public's right to study the scientific and technologic knowledge contained in patents. The premise of the debate is incorrect, for patented information is not barred from further study and experimentation in order to understand and build upon the knowledge disclosed in the patent.  



Thus she said, “The court should confirm that experimental use of patented information is not barred.”

She criticized her court for contradicting Federal Circuit precedent and limiting the experimental use exception in Embrex Inc. v. Service Engineering Corp., 216 F.3d 1343, 1349, 55 U.S.P.Q.2d 1161 (Fed. Cir. 2000).

“The courts, the press, and the public, have been led down a path that is contrary to patent principles,” Newman said. “Let us remove the doubts we have sown.”

She concluded that system, method, and media claims stand or fall together, but determined that, under the “coarse filter” she supported in prior post-Bilski cases and expanded upon here, she would hold all of Alice's claims patent eligible.

Linn and O'Malley Fault Disregard of Record

Linn and O'Malley, the majority in the original panel, filed a dissenting opinion with the same conclusion as Newman's, but with different reasoning. They cited a “flaw” in Lourie's opinion and Section VI of Rader's opinion in misconstruing the record in this case.

Because the district court never held a Markman hearing, “no determination has ever been made regarding how one of skill in the art would understand the claims as of the date of issuance,” the judges said. “And, no careful assessment of the intrinsic record or prosecution history has ever occurred; much of this was never even made a part of the trial record.”

Accordingly, they said, at the summary judgment stage, the court was bound by Alice's claim construction. Alice claimed electronic implementation--through a computer--of four different steps central to the use of shadow records and making adjustments between them.

Linn and O'Malley criticized Lourie, Rader, and Moore for construing the method claims more broadly than this construction by Alice--to which CLS stipulated--would allow. In particular, they faulted Rader and Moore for distinguishing the scope of the method and system claims.

“[B]arring an actual construction of the claims, we must assume the method claims are just as specific as the system claims, and merit the same treatment we afford those latter claims,” Linn and O'Malley said.

The judges further criticized Lourie's “tak[ing] it upon himself to construe the claims, giving the method claims their broadest possible interpretation in the process. … By starting with a paraphrased abstraction of the claims and excluding the record evidence regarding the meaning of the claims, Judge Lourie preordains the method claims ineligible.”

Linn and O'Malley agreed in the Rader and Moore dissents that the system claims were patent eligible and, based on the record here, considered the method claims with the same rationale. “[A]ssuming the presence of all the computer-based limitations in the written description, none of these claims are unduly pre-emptive,” they concluded.

Finally, they addressed several amicus briefs that “express[ed] concern regarding the proliferation and aggressive enforcement of low quality software patents.” They made clear that was not the judiciary's responsibility:  

Congress can, and perhaps should, develop special rules for software patents. It could, for instance, limit their life by limiting the term of such patents. … Or, Congress could limit the scope of software patents by requiring functional claiming. … Or, it could do both, or devise some other rule. But broadening what is a narrow exception to the statutory definition of patent eligibility should not be the vehicle to address these concerns. While Congress may, this court may not change the law to address one technological field or the concerns of a single industry.


Rader's 'Additional Reflections.'

Finally, the chief judge wrote separately to express “additional reflections.”

He reflected on a panel decision--Lourie and Newman served with him--in Arrhythmia Research Technology Inc. v. Corazonix Corp., 958 F.2d 1053, 22 U.S.P.Q.2d 1033 (Fed. Cir. 1992).

Rader noted the struggle Newman had in authoring that opinion when, to him, “this case was easy.” In a concurrence there, Rader said, “when all else fails …, consult the statute.”

And he wrote now to repeat that phrase. He looked at the list of cases since Bilski where his colleagues have rendered arguably inconsistent opinions, and then he listed reasons why the plain language of the Patent Act leads to the conclusion that Section 101 should rarely affect patent eligibility. He further limited to “universal constants” those things that would be excepted as natural laws and natural phenomena.

Rader concluded:  

I enjoy good writing and a good mystery, but I doubt that innovation is promoted when subjective and empty words like “contribution” or “inventiveness” are offered up by the courts to determine investment, resource allocation, and business decisions. Again, it is almost … well, “obvious” … to note that when all else fails, it makes sense to consult the simplicity, clarity, and directness of the statute.  


Mark A. Perry of Gibson, Dunn & Crutcher, Washington, D.C., represented CLS Bank. Adam L. Perlman of Williams & Connolly, Washington, D.C., represented patent holder Alice. Nathan K. Kelley, deputy solicitor, represented the PTO.


Text is available at http://www.bloomberglaw.com/public/document/CLS_Bank_International_v_Alice_Corporation_Docket_No_1101301_Fed_.