By Michael Borella —

On May 10, the Federal Circuit handed down a much anticipated en banc ruling regarding the patent
eligibility of computer-implemented inventions under 35 U.S.C. § 101.  In a per
curiam opinion that is perhaps the most important § 101 jurisprudence since
the Supreme Court's Bilski v. Kappos
and Mayo v. Prometheus decisions, a
plurality of judges set forth procedures for determining whether claims that
recite an abstract idea or a law of nature meet the requirements of this
section.  While the overall effect of
this case remains to be seen and is likely to be a subject of heated debate, this
decision has the potential to impact both patent litigation and prosecution.

In 2007, CLS Bank filed a declaratory judgment action against Alice Corp.,
contending that, among other things, Alice's U.S. Patents Nos. 5,970,479,
6,912,510, and 7,149,720 were invalid under § 101.  Alice filed counterclaims alleging
infringement of these three patents.  Later, Alice's U.S. Patent No. 7,725,375 was added to the mix, and the
parties respectively asserted invalidity and infringement contentions for this
patent as well.

All four patents are from the same family and "share
substantially the same specification."  The plurality described the claimed subject matter as:

[A]
computerized trading platform used for conducting financial transactions in
which a third party settles obligations between a first and a second party so
as to eliminate "counterparty" or "settlement" risk . . .
.  Settlement risk refers to the risk to each party in an exchange that only one
of the two parties will actually pay its obligation, leaving the paying party
without its principal or the benefit of the counterparty's performance.  Alice's
patents address that risk by relying on a trusted third party to ensure the
exchange of either both parties' obligations or neither obligation.

Between the four patents, method, computer-readable medium
(CRM), and system claims were asserted.  The
parties stipulated that all claims, including the method claims, require "a
computer including at least a processor and memory" and electronic
implementation, even though the representative method claim analyzed by the
Federal Circuit did not literally recite such a requirement.

The District Court held that all asserted claims failed to meet
the requirements of § 101, and thus were invalid.  Particularly, the District Court concluded
that the method claims were directed to an unpatentable abstract idea, and that
the CRM and system claims would similarly preempt all practical applications of
this idea, despite those claims falling under a different statutory category.

On appeal, a Federal Circuit panel reversed the District Court
on all counts, holding that all claims, including the method claims, were patent
eligible under § 101.  CLS petitioned the
full Federal Circuit for review, which was granted.  Sitting en
banc, seven of the ten judges overruled the panel and affirmed the District Court's ruling regarding the method and CRM claims.  However, this majority did not agree on the
rationale for their conclusion.  Further,
five of the judges found that the system claims were unpatentable, while the
other five concluded that these claims passed muster under § 101.  Additionally, eight of the judges indicated
that the method, CRM, and system claims must rise or fall together.  Consequently, the precedential value of his
decision, especially with respect to the system claims, may be limited.

Below, Judge Lourie's plurality concurrence is discussed.  Joining him were Judges Dyk, Prost, Reyna,
and Wallach.  The other concurrences and dissents
will be examined in subsequent posts.

Judge Lourie admitted the difficulty of analyzing patentability
under § 101, and acknowledged the need for a more practical approach to this
analysis:

While simple
enough to state, the patent-eligibility test has proven quite difficult to
apply.  The difficulty lies in
consistently and predictably differentiating between, on the one hand, claims
that would tie up laws of nature, natural phenomena, or abstract ideas, and, on
the other, claims that merely embody, use, reflect, rest upon, or apply those
fundamental tools.  For example, deciding
whether or not a particular claim is abstract can feel subjective and
unsystematic, and the debate often trends toward the metaphysical, littered
with unhelpful analogies and generalizations. 
What is needed is a consistent, cohesive, and accessible approach to the
§ 101 analysis — a framework that will provide guidance and predictability for
patent applicants and examiners, litigants, and the courts.  (Citation omitted.)

Judge Lourie then turned to the inevitable overview of Supreme
Court decisions impacting § 101 as guideposts for this analysis.  In an example of judicial foreshadowing, he
viewed Benson, Flook, Deihr, and Bilski through the lens of Prometheus.  In particular, he focused on the judicial
exception to patentable subject matter when the claims at issue incorporate
abstract ideas or laws of nature.  Then,
he applied Prometheus's approach for
analyzing such claims, with special concern for whether a claimed invention
would effectively preempt other uses of any potentially abstract idea recited
therein.

Particularly, Judge Lourie set forth a four-step analysis for
patent eligibility under § 101 based heavily on Prometheus.  These steps are
as follows:

1)  Determine "whether the claimed invention
fits within one of the four statutory classes set out in § 101."  In other words, is the invention directed to
a process, machine, manufacture, or composition of matter?

2)  Determine whether "the
claim pose[s] any risk of preempting an abstract idea."  Or, does the claim incorporate an abstract
idea?

3)  If an abstract idea
is implicated by the claim, then "identify and define whatever fundamental
concept appears wrapped up in the claim so that the subsequent analytical steps
can proceed on a consistent footing." 
Judge Lourie indicates that carrying out claim construction activities
prior to this step may be helpful, but is not required.

4)  Finally, "[w]ith
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."

Judge Lourie refers to this final step as "inventive
concept" analysis.  He explicitly
states that this "balance of the claim" — the human contribution — need
not require inventiveness in the same sense that claims must be novel and
non-obvious under sections 102 and 103, respectively.  However, he does not clearly differentiate
how this inventive concept analysis would differ in practice from, say, an
obviousness analysis.  Instead he asserts
that:

An "inventive
concept" in the § 101 context refers to a genuine human contribution to
the claimed subject matter . . . .  [A] person cannot truly "invent" an
abstract idea or scientific truth.  He or she can discover it, but not invent
it.  Accordingly, an "inventive concept" under § 101 — in contrast to
whatever fundamental concept is also represented in the claim — must be a product
of human ingenuity.

Compared to novelty and non-obviousness analyses "which
consider whether particular steps or physical components together constitute a
new or nonobvious invention," Judge Lourie states that the inventive
concept analysis "considers whether steps combined with a natural law or
abstract idea are so insignificant, conventional, or routine as to yield a
claim that effectively covers the natural law or abstract idea itself."  But, in practice, this distinction may easily
become blurred, and seems to advocate that claims be considered piecemeal under
§ 101 rather than as a whole.

Furthermore, at first blush, Judge Lourie's differentiation
between discovery and invention seems like an aesthetically pleasing dichotomy — after all, one could say that Pythagoras didn't invent the Pythagorean Theorem, but he did discover it.  However, Judge
Lourie went on to point to four potentially subjective factors that would weigh
against whether the human contribution to the claimed invention rises to such a
level that the claim as a whole meets § 101 requirements:

1)  Is the human contribution necessary to every
practical use of the abstract idea and therefore is not truly limiting.

2)  Does the human
contribution "amount to more than well-understood, routine, conventional
activity previously engaged in by researchers in the field?"

3)  Does the human
contribution consist of token or trivial limitations, such as insignificant
post-solution activity?

4)  Is the human
contribution a "field-of-use limitation . . . where the claim as written
still effectively preempts all uses of a fundamental concept within the stated
field?"

Applying this approach to the patents in suit, Judge Lourie
found that all claims failed under § 101.  The representative method claim was found to be directed to the
reduction of settlement risk using a third-party intermediary.  As such, Judge Lourie concluded that this
claim recited an abstract idea — a "disembodied concept, a basic building
block of human ingenuity, untethered from any real-world application."  Therefore, he turned to whether the remaining
aspects of the claim added anything of substance.  He concluded that they did not.

Notably, this method claim did not recite any required physical
structure.  It did not include a memory,
a processor, transmitters or receivers, or any other computer component or
peripheral.  Despite the parties'
stipulation that the claim was computer implemented, Judge Lourie indicated
that such a limitation was "insignificant post-solution activity" and
that "simply appending generic computer functionality to lend speed or efficiency
to the performance of an otherwise abstract concept does not meaningfully limit
claim scope for purposes of patent eligibility."  Thus, he concluded that "[a]s in Bilski, upholding Alice's claims to
methods of financial intermediation would pre-empt use of this approach in all
fields, and would effectively grant a monopoly over an abstract idea."

Judge Lourie similarly found the representative CRM claim
unpatentable as well, despite its recitation of a tangible article of
manufacture, which would ostensibly be a physical device.  This claim essentially recited the invention
of the method claim, but in CRM form. 
Judge Lourie asserted that "under § 101 we must look past drafting
formalities and let the true substance of the claim guide our analysis."  Applying this analysis he concluded that the
CRM claim was actually drawn to "the underlying method of reducing
settlement risk using a third-party intermediary," and that it was merely
a method claim in the guise of a device claim.  He further warned that one should not allow a competent draftsman to "endow
abstract claims with patent-eligible status."

The representative system claim also fell under Judge Lourie's
analysis.  This claim recites ample
structure — including a data storage unit and a computer that receives data,
performs operations on the data, and generates an instruction to an "exchange
institution."  Nonetheless, Judge
Lourie found that the similarity between the method and system claims required
application of the same abstract idea analysis for both.  In this case, the question was whether "the
limitations of the claim, including any computer-based limitations, add enough
beyond the abstract idea itself to limit the claim to a narrower,
patent-eligible application of that idea." 
Viewing the "generic" computer structure recited by the claim
sufficient to "encompass any device capable of performing the same
ubiquitous calculation, storage, and connectivity functions required by the
method claims," Judge Lourie found that they did not because this
structure did not provide a significant "inventive concept."  Summing up, he wrote that:

We are not
here faced with a computer per se.  Such
are surely patent-eligible machines.  We
are faced with abstract methods coupled with computers adapted to perform those
methods . . . .  Abstract methods do not become patent-eligible machines by being
clothed in computer language.

In order to properly seek protection of their inventions,
Applicants need to understand the requirements of § 101.  Despite the plurality's cry for "a
consistent, cohesive, and accessible approach to the § 101 analysis," at
best, a handful of dirt has been tossed into already muddied waters.  Judge Lourie's procedures for § 101 analysis
allow significant opportunities for subjectivity on the part of the fact
finder.  As a result, an Applicant's best
practice for obtaining suitable protection of its computer-implemented
technologies remains unclear.  A more
detailed discussion of the open questions coming out of this decision will be
the subject of future posts.

CLS
Bank Int'l v. Alice Corp. (Fed.
Cir. 2013) (en banc)
Opinion for the court per
curiam; concurring opinion by Circuit Judge Lourie, joined by Circuit
Judges Dyk, Prost, Reyna, and Wallach; concurring-in-part and
dissenting-in-part opinion by Chief Judge Rader, joined by Circuit Judge Moore,
and by Circuit Judges Linn and O'Malley as to all but part VI of that opinion;
dissenting-in-part opinion by Circuit Judge Moore, joined by Chief Judge Rader
and Circuit Judges Linn and O'Malley; concurring-in-part and dissenting-in-part
opinion by Circuit Judge Newman; dissenting opinion by Circuit Judges Linn and
O'Malley; additional reflections by Chief Judge Rader.