AFTER CLS BANK v. ALICE - ARE SOFTWARE PATENTS DEAD?

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In CLS Bank v. Alice, the Federal Circuit again addressed that ever elusive question of what is patentable subject matter. Multiple opinions by multiple judges were given, and no single opinion represented a majority of the judges.

The patents concerned the "management of risk relating to specified, yet unknown, future events." The court described this 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." The claims were for methods, systems, and computer-readable media.

The court began by explaining that patent-eligible subject matter is a process, machine, manufacture, or composition of matter. Excluded from the foregoing are "laws of nature, natural phenomena, and abstract ideas." The court recognized that 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."

According to the court, "[w]hat 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." But what the court provided seems far from what they said was needed.

The court identified some long-standing principles. The "requirement for substantive claim limitations beyond the mere recitation of a disembodied fundamental concept has 'sometimes' been referred to as an 'inventive concept.'" [A] person cannot truly 'invent' an abstract idea or scientific truth. He or she can discover it, but not invent it." "[T]hat human contribution must represent more than a trivial appendix to the underlying abstract idea." "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."

In this particular case, the court found the claims to merely be 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." The analysis therefore turns to whether the balance of the claim adds "significantly more." "Apart from the idea of third-party intermediation, the claim's substantive limitations require creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. None of those limitations adds anything of substance to the claim."

The court further explained its rationale. "[T]he 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. . . . Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility. In short, the requirement for computer participation in these claims fails to supply an "inventive concept" that represents a nontrivial, non-conventional human contribution or materially narrows the claims relative to the abstract idea they embrace."

Even the records being generated according to the claims were insufficient in the court's view. "Nor does requiring the supervisory institution to create and adjust a 'shadow credit record' and a 'shadow debit record' narrow the claims from the realm of abstraction. . . . [T]he claim uses extravagant language to recite a basic function required of any financial intermediary in an escrow arrangement--tracking each party's obligations and performance. . . . [T]he steps relating to creating a 'shadow record' and then obtaining and adjusting its balance are insignificant '[pre]-solution activity.'"

"Finally, providing end-of-day instructions to the exchange institutions to reconcile the parties' real-world accounts with the day's accumulated adjustments to their shadow records is a similarly trivial limitation that does not distinguish the claimed method. . . . Whether the instructions are issued in real time, every two hours, or at the end of every day, there is no indication in the record that the precise moment chosen to execute those payments makes any significant difference in the ultimate application of the abstract idea."

The court left us with the following for guidance:
"[W]hen § 101 issues arise, the same analysis should apply regardless of claim format: Does the claim, in practical effect, place an abstract idea at risk of preemption? And, if so, do 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? Or, is it merely a Trojan horse designed to enable abstract claims to slide through the screen of patent eligibility?

© Michael Shimokaji 2013
The contents of this article represent the opinions of the author and not those of the author's law firm or clients.

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