Fort Props, Inc. v. American Master Lease LLC: Federal Circuit Invalidates Real Estate Investment Claims Following Bilski Precedent


Fort Props., Inc. v. Am. Master Lease LLC, No. 2009-1242 (Fed. Cir. Feb. 27, 2012) Slip Opinion

The Federal Circuit affirmed the District Court for the Central District of California, which had granted summary judgment in favor of Fort Properties. In a pre-Bilski decision, the district court had invalidated all 41 claims in American Master Lease’s (“AML”) real estate investment patent for failing to meet the subject matter eligibility requirements of 35 U.S.C. § 101 by applying the machine-or-transformation test.

Judge Prost, writing for the court, held that claims 1–31, which describe a real estate investment tool “tied to the physical world,” disclose an unpatentably abstract concept. Slip op. at 10. Following the Supreme Court’s decision in Bilski, Judge Prost held that an “abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property.” Id. at 10 (citing Bilski v. Kappos, 130 S.Ct. 3218 (2010)). Claims 32–41 contain the same ties, with an additional limitation requiring a computer to “generate a plurality of deedshares.” Id. at 11. Nevertheless, the court held that the added computer limitation did not save claims covering an abstract concept from invalidity, where such a limitation “is simply insignificant post-solution activity.” Id. at 13.

Bloomberg BNA provides a summary of the case and notes that the court identified “intricate and complex computer programming” as a distinguishing characteristic for patent eligibility. Patently-O criticizes the court for not defining “unpatentably abstract” and relying excessively on the similarities between AML’s patent and the invention in Bilski to reach its conclusion.

After AML threatened it with an infringement lawsuit, Fort Properties filed an action for a declaratory judgment of invalidity in the Central District of California. AML’s patent discloses an investment tool designed to enable property owners to buy and sell real estate while avoiding tax liability under the exception contained in 26 U.S.C. § 1031. Slip Op. at 2. Claims 1–31 disclose a method of aggregating real property, making it subject to an agreement, and issuing ownership interests to multiple parties. Claims 32–41 contain an additional limitation requiring a computer to “generate a plurality of deedshares.” Id. at 4.

AML contended that claims 1–31 disclose a patentable process and not an abstract idea, because they require a series of steps to take place in the real world with property, deeds, and contracts. Id. at 10. Fort Properties countered that the claims consist entirely of mental and abstract intellectual processes, and that, under Bilski, the claimed invention could not be transformed into a patentable process merely by being intertwined with the physical world. The court agreed with Fort Properties, analogizing the claimed invention to that in Bilski, which also disclosed an investment tool. Under Bilski, the court reasoned, connections to the physical world through real property, deeds, and contracts do not transform an abstract idea into patentable subject matter.

With respect to claims 32–41, the court discussed how limitations involving computers and the Internet affect patentability under § 101 by examining three recent cases. In Cybersource, the court held that the use of a computer “must impose meaningful limits on the claim’s scope.” Id. at 12 (quoting Cybersource Corp. v. Retail Decisions, Inc. 654 F.3d 1366, 1375 (Fed. Cir. 2011)). Applying Cybersource, the court in Ultramercial held that the claimed invention was patentable because it “required intricate and complex computer programming” and involved “advances in computer technology.” Id. (citing Ultramercial, LLC v. Hulu, 657 F.3d 1323, 1328–29 (Fed. Cir. 2011)). But in Dealertrack, the court invalidated a patent that “simply add[ed] a ‘computer aided’ limitation to a claim covering an abstract concept.” Id. (citing Dealertrack, Inc. v. Huber, Nos. 2009-1566, -1588, 2012 WL 164439 at *17 (Fed. Cir. Jan. 20, 2012)). Applying these precedents, Judge Prost held that “using a computer” is “a broad and general limitation” that does not impose meaningful limits on the claims’ scope. Id. at 13. The court concluded that claims 32–41 are not patent-eligible because the added computer limitation “is simply insignificant post-solution activity.” Id.

The judgment provides guidance with respect to patentable computer- and Internet-related claims; however, the court did not establish a generally applicable rule for patentable subject matter or supplement the method-or-transformation test beyond fact-specific comparisons with previous cases.

Elettra Bietti is a LLM student at the Harvard Law School.