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Federal Circuit Revisits Patentable Subject Matter Following Prometheus
By Jeffery Habenicht – Edited by Dorothy Du

CLS Bank Int’l v. Alice Corp. Pty. Ltd, No. 2011-1301 (Fed. Cir. July 9, 2012)
Slip opinion

The Federal Circuit reversed the D.C. District Court’s decision to grant summary judgment against Alice Corporation (“Alice”). CLS Bank Int’l v. Alice Corp. Pty. Ltd, No. 2011-1301, slip op. at 2, 6–7 (Fed. Cir. July 9, 2012). The district court had held that Alice’s patents were invalid for failure to claim patentable subject matter. CLS Bank Int’l v. Alice Corp., 768 F. Supp. 2d 221 (D.D.C. 2011).

The Federal Circuit held that Alice’s patents were patentable under § 101 because they were directed to “practical applications of invention.” Slip op. at 2. The court found that the “abstractness of the ‘abstract ideas’ test” set forth in Bilski II rendered the test overly “elusive.” Id. at 13–15 (citing Bilski v. Kappos, 130 S. Ct. 3218 (2010)). The court grappled with the difficulty of ensuring that overly broad patents do not unduly foreclose subsequent innovation, while taking care not to improperly ignore “meaningful limit[s]” on patent scope. Id. at 18–20 (quoting SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333 (Fed. Cir. 2010)). In order to address this difficulty, the Federal Circuit set forth a new test—perhaps better described as a presumption—for patentability: So long as “it is not manifestly evident that a claim is directed to a patent ineligible abstract idea,” that claim should survive a § 101 inquiry. Id. at 20.

In so holding, the Federal Circuit introduced another jigsaw-piece to the puzzle that is patentable subject matter. Given the Supreme Court’s recent interest in the topic, this opinion could serve as a vehicle for further clarification regarding the theoretical limits of § 101.

Thompson Reuters provides an overview and analysis of the case. Patently-O explores the differences between the majority opinion and the dissent, and suggests that the dissent may hew closer to Supreme Court precedent.

Alice owns four patents that cover “a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk.’” Slip op. at 2. Settlement risk arises when two parties agree to conduct a transaction but one party fails to reciprocate in complying with its obligation. See id.

The patents contain both method claims and system claims. Id. at 3–4. The method claims involve (1) creating “shadow” records for both parties, (2) obtaining the relevant information at the beginning of a day, (3) updating the records throughout the day as transactions occur, and (4) instructing an exchange institution to exchange credits or debits in accordance with the recorded transactions. Id. at 3–6. The system claims involve executing this method by using “a data processing system” comprised of “a data storage unit” and “a computer.” Id. at 4–5.

In applying its new test to these facts, the Federal Circuit found that not only were the patents limited by the requirement of computer implementation, but also that “the asserted claims appear to cover the practical application of a business concept in a specific way.” Id. at 26. The court placed importance on the fact that the steps involved “shadow” credits and debits and placed limitations on the types of transactions that would adjust those values. Id. The court claimed that these limitations “leave broad room for other methods of using intermediaries to help consummate exchanges.” Id. at 27. Thus, these limitations are sufficient to survive § 101 analysis.

Judge Prost dissented, arguing that the majority’s opinion ignored the Supreme Court’s precedent—most recently in Prometheus—instructing the Federal Circuit to “apply the patentable subject matter with more vigor.” Dissent at 1–2 (citing Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012); Bilski, 130 S. Ct. 3218; WildTangent, Inc. v. Ultramercial, LLC, (No. 11-962), 2012 WL 369157 (2012), granting cert., vacating, and remanding Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011)). Judge Prost argued that if the claims were properly construed—by removing the “jargon”—the patents did not involve any “inventive concept.” Id. at 3, 5.

This case is significant because of its position in the broader evolution of patentable subject matter jurisprudence. In Prometheus, the Supreme Court appeared to tighten the requirements for overcoming a § 101 challenge. This case, however, reverses that trend. Absent clarification by an en banc decision or the Supreme Court, district courts may face continued confusion going forward.

Jeffrey Habenicht is a 2L at Harvard Law School.

Posted On Jul - 22 - 2012 Comments Off

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