Daily Alert

En banc Patentable subject matter

Earlier today, the U.S. Court of Appeals for the Federal Circuit released its en banc decision in CLS Bank International v. Alice Corporation on the patentability of computer related inventions. The panel of ten judges wrote seven sets of reasons but a majority affirmed the lower court decision that the asserted system, method and computer-readable media claims were not directed to eligible subject matter.

The decision (PDF) was an en banc decision following the CAFC’s earlier decision which had found the claims patent eligible. Today’s decision replaced that earlier decision and affirms the lower court decision.

The patents at issue (US5,970,479, US6,912,510, US7,149,720, and US7,725,375) all related to “the management of risk relating to specified, yet unknown, future events.” The lead reasons identified Claim 33 of the ‘479 as a representative claim:

33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

The lead decision (with 5 judges) summarized the issue as follows:

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.(page 9)

The lead reasons stated that the claims:

But whether long in use or just recognized, abstract ideas remain abstract. The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter.

The analysis therefore turns to whether the balance of the claim adds “significantly more.” (page 26)

The lead reasons does not attribute much significance to the computer implemented aspects:

First, the requirement for computer implementation could scarcely be introduced with less specificity; the claim lacks any express language to define the computer’s participation. In a claimed method comprising an abstract idea, generic computer automation of one or more steps evinces little human contribution.

Judge Moore (in which Chief Judge Radar, and Judge Linn and O’Malley joined), writing in dissent-in-part says:

Holding that all of these claims are directed to no more than an abstract idea gives staggering breadth to what is meant to be a narrow judicial exception. 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. (page 89)

Chief Judge Rader concludes with some “additional reflections” concluding in part:

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.
As I start my next quarter century of judicial experience, I am sure that one day I will reflect on this moment as well. I can only hope it is a brighter reflection than I encounter today. (page 135)
The lead reasons began by stating:

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. (page 9)

We will have to see if this decision (and its 7 sets of concurring and dissenting reasons) provides this guidance.

Some commentary on the decision is available from Patently-O and InventiveStep.