Federal Circuit Deems Software Patent Ineligible, Provides Little Certainty

May 17, 2013
Post by Blog Staff

In its recent en banc decision inCLS Bank v. Alice Corp, the Federal Circuit has affirmed the finding of subject matter ineligibility of Alice Corp's method and software for management of risk in financial transactions through use of a third party intermediary. The ten-member panel produced seven different decisions, but did not produce any majority opinion. However, seven judges agreed that the method and computer-readable medium claims were patent ineligible. Additionally, eight of the ten determined that the claims should rise or fall under § 101 regardless of claim type.

In the plurality opinion written by Judge Lourie, the court examined Supreme Court precedent on the issue of patent eligible subject matter. Utilizing these precedents, the Federal Circuit proposed an "integrated approach" to § 101 problems—patents should not be allowed to preempt the fundamental tools of discovery; courts should avoid overly formalistic approaches to subject-matter eligibility that invites manipulation by patent applicants; courts should use a flexible, claim-by-claim approach that avoids rigid line-drawing. The analysis asks the following questions:

- Does the claimed invention fall into one of the four statutory classes (process, machine, manufacture, composition of matter)?

- Does the claimed invention meet a judicial exception to patent eligibility (law of nature, natural phenomena, abstract idea)?

- What is the fundamental concept at issue in the claim?

- Will the patenting of the idea preempt the whole idea or does the claim provide enough limitations to limit the scope of the patent grant?

- Is the human contribution more than a trivial addition or tangential, routine, well-understood, conventional limitation?

Under this analysis, the plurality determined that the abstract idea claimed in Alice Corp's patent was not rendered patent eligible because the added limitations were nothing more than "insignificant post-solution activity." They refused to reward the clever use of extravagant language to make the claims sound more limited with terms like "shadow record." Ultimately, the five judge plurality concluded that adding existing computer technology to an abstract idea does not render it patent eligible.

Judge Rader's opinion, concurring-in-part and dissenting-in-part, differed slightly in his proposed analysis for subject matter eligibility. He focused on whether the limitations in the claim restrict the abstract idea to a concrete reality or actual application of the idea. He noted that if the claim covers all practical applications of an abstract idea, it is not meaningfully limited. In contrast to Judge Lourie's opinion, Judge Rader found that when a claim is limited by the requirement for a computer, that is an important indication of patent eligibility. Ultimately, where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention and the claim does not preempt virtually all uses of an underlying abstract idea, the claim is patent eligible. For these reasons, Judge Rader deemed Alice Corp's system claims to be patent eligible.

Judge Newman filed an opinion concurring with the majority that the claims should rise or fall together, but dissenting in her opinion that all of the claims are patent eligible. She indicated her concern over the uncertainty surrounding subject matter eligibility, which she believed was not remedied by this en banc decision. She proposed that the court return to the time-tested principles of patent law and abandon its failed § 101 ventures into abstractions, preemption, and meaningfulness. In response to the concern of preemption of experimentation and innovation, Judge Newman stated that the court should reaffirm the long-standing rule that study and experimentation are not infringement.

There continues to be uncertainty regarding the patentability of various types of software inventions. The fragmented opinions of the en banc panel indicate that despite their desire for a clear, consistent approach to section 101 that provides certainty and guidance to applicants and examiners alike, the issue of software patent eligibility is far from resolved.

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