Patent Watch: CLS Bank Int'l v. Alice Corp.

Alerts / July 17, 2012

[W]hen -- after taking all of the claim recitations into consideration -- it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.

On July 9, 2012, in CLS Bank Int'l v. Alice Corp., the U.S. Court of Appeals for the Federal Circuit (Linn,* Prost, O'Malley) reversed the district court's summary judgment that U.S. Patents No. 5,970,479, No. 6,912,510, No. 7,149,720 and No. 7,725,375, which related to 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, were invalid for lack of patentable subject matter. The Federal Circuit stated:

The Patent Act defines patent eligible subject matter broadly: "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." Section 101 is a "dynamic provision designed to encompass new and unforeseen inventions." . . . "Congress intended statutory subject matter to 'include anything under the sun that is made by man.'" It is true, however, that not everything can be patented. The Supreme Court has explained that "laws of nature, physical phenomena, and abstract ideas" fall outside the scope of § 101, and are reserved to the public domain. [T]hese exceptions to statutory subject matter are "implicit" in the statute. "Such discoveries are 'manifestations of . . . nature, free to all men and reserved exclusively to none.'" In practice, these three exceptions should arise infrequently and should not be understood to subvert the patent's constitutional mandate "[t]o promote the Progress of Science and useful Arts."

Here, the district court exercised its discretion to entertain a challenge to the validity of the patents in suit under 35 U.S.C. § 101. The district court's decision ultimately turned on, and thus this appeal is primarily directed to, the issue of whether the claimed inventions fall within the "abstract ideas" exception to patent eligibility. . . . The abstractness of the "abstract ideas" test to patent eligibility has become a serious problem, leading to great uncertainty and to the devaluing of inventions of practical utility and economic potential. "A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right." This court has also attempted to define "abstract ideas," explaining that "abstract ideas constitute disembodied concepts or truths which are not 'useful' from a practical standpoint standing alone, i.e., they are not 'useful' until reduced to some practical application." More recently, this court explained that the "disqualifying characteristic" of abstractness must exhibit itself "manifestly" "to override the broad statutory categories of patent eligible subject matter." Notwithstanding these well-intentioned efforts and the great volume of pages in the Federal Reporters treating the abstract ideas exception, the dividing line between inventions that are directed to patent ineligible abstract ideas and those that are not remains elusive. "Put simply, the problem is that no one understands what makes an idea 'abstract.'"

Several decisions have looked to the notion of "preemption" to further elucidate the "abstract idea" exception. . . . While every inventor is granted the right to exclude, or "pre-empt," others from practicing his or her claimed invention, no one is entitled to claim an exclusive right to a fundamental truth or disembodied concept that would foreclose every future innovation in that art. [T]he essential concern is not preemption, per se, but the extent to which preemption results in the foreclosure of innovation. Claims that are directed to no more than a fundamental truth and foreclose, rather than foster, future innovation are not directed to patent eligible subject matter under § 101. No one can claim the exclusive right to all future inventions.

The mere implementation on a computer of an otherwise ineligible abstract idea will not render the asserted "invention" patent eligible. On the other hand, where the "addition of a machine impose[s] a meaningful limit on the scope of a claim," and "play[s] a significant part in permitting the claimed method to be performed, rather than function[ing] solely as an obvious mechanism for permitting a solution to be achieved more quickly, i.e., through the utilization of a computer for performing calculations," that machine limitation renders the method patent eligible. It can, thus, be appreciated that a claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.

Patent eligibility must be evaluated based on what the claims recite, not merely on the ideas upon which they are premised. In assessing patent eligibility, a court must consider the asserted claim as a whole. It is inappropriate to dissect the claim into old and new elements and then to ignore the presence of the old elements in the analysis. This is particularly true in a process claim because a new combination of steps in a process may be patentable even though all the constituents of the combination were well known and in common use before the combination was made. The 'novelty' of any element or steps in a process, or even of the process itself, is of no relevance in determining whether the subject matter of a claim falls within the § 101 categories of possibly patentable subject matter.

In light of the foregoing, this court holds that when -- after taking all of the claim recitations into consideration -- it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101. It would undermine the intent of Congress to extend a judicially-crafted exception to the unqualified statutory eligibility criteria of § 101 beyond that which is "implicitly" excluded as a "fundamental truth" that is "free to all men and reserved exclusively to none." Unless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible "abstract idea" under 35 U.S.C. § 101.

Alice's asserted claims are directed generally to the exchange of obligations between parties using a computer. . . . Determining whether Alice's claims are directed to nothing more than a fundamental truth or disembodied concept requires this court to consider the scope and content of the claims. For the purpose of deciding patent eligibility at the district court, the parties agreed to a broad claim construction that was favorable to Alice. . . . We find no basis to question the district court's assumption, for the purposes of this motion, that all of Alice's asserted claims require a computer system. Although computer implementation indicates that these claims would likely satisfy the "machine" prong of the machine-or-transformation test, the mere fact of computer implementation alone does not resolve the patent eligibility question. Indeed, almost every method in the Digital Age can be implemented on a specially-programmed computer. . . . The asserted claims appear to cover the practical application of a business concept in a specific way, which requires computer implemented steps of exchanging obligations maintained at an exchange institution by creating electronically maintained shadow credit and shadow debit records, and particularly recite that such shadow credit and debit records be held independently of the exchange institution by a supervisory institution; that start-of-the-day balances be obtained from the exchange institution; that adjustments be made to the credit records based on only certain specified allowed transactions under the "adjusting" limitation; that such adjustments be made in chronological order; that at the end of the day, instructions be given to the exchange institution to reflect the adjustments made on the basis of the permitted transactions; and that such adjustments affect irrevocable, time invariant obligations placed on the exchange institution. . . . The claim limitations can be characterized as being integral to the method, as "play[ing] a significant part in permitting the method to be performed," and as not being token post-solution activity. It is clear, moreover, that the limitations requiring specific "shadow" records leave broad room for other methods of using intermediaries to help consummate exchanges, whether with the aid of a computer or otherwise, and, thus, do not appear to preempt much in the way of innovation. [T]he presence of these limitations prevents us from finding it manifestly evident that the claims are patent ineligible under § 101. In such circumstances, we must leave the question of validity to the other provisions of Title 35. Accordingly, this court holds that Alice's method, system, and product claims are directed to statutory subject matter under § 101.

If you have questions about the material presented above, please contact Dr. Lawrence M. Sung ( or 202.861.1537) or any member of our Intellectual Property Team.

See information regarding Baker Hostetler's Patent Litigation and IP Prosecution and Portfolio Management practices.

Baker & Hostetler LLP publications are intended to inform our clients and other friends of the Firm about current legal developments of general interest. They should not be construed as legal advice, and readers should not act upon the information contained in these publications without professional counsel. The hiring of a lawyer is an important decision that should not be based solely upon advertisements. Before you decide, ask us to send you written information about our qualifications and experience. © 2012 Baker & Hostetler LLP