Federal Circuit divided on business method patentability

The US Court of Appeals for the Federal Circuit failed to agree on the patentability of computerised business methods in the patent dispute between CLS Bank and Alice Corp on May 10.

The court had to decide whether four of Alice’s patents, which relate to computer-implemented methods for conducting financial transactions, are valid.

CLS brought the case to the District Court for the District of Columbia in 2007. Alice responded with a counterclaim, alleging CLS infringed the patents in question. By 2011, the patents were found to be invalid, as they cover abstract ideas.

In 2012 the decision was reversed by the Federal Circuit, which ordered a rehearing en banc.

The May 10 ruling means the district court ruling holds, and that CLS may continue to operate using the business methods without making payments to Alice.

However the panel was divided on the case, with five of the 10 judges finding the methods to be too abstract to be patented, and seven different opinions were released.

No opinion claimed support from the majority, though seven of the 10 judges agreed the method and computer-readable medium claims are not eligible for patentability. The case may go to the Supreme Court.

Chief Judge Rader said in the judgment: “No portion of any opinion issued today other than our per curiam judgment garners a majority. The court is evenly split on the patent eligibility of the system claims. Although a majority of the judges on the court agree that the method claims do not recite patent eligible subject matter, no majority of those judges agrees as to the legal rationale for that conclusion.

“Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.”

Writing in the judgment, Judge Moore predicted dire consequences: “If all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents,” she said.

She added in a footnote: “There has never been a case which could do more damage to the patent system than this one.”

The difference of opinion in part concerns the interpretation of 35 U.S.C. 101 (Section 101), which states any new or useful process, machine, manufacture or composition of matter may be patented.

Judge Lourie said: “What 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.”

He said Section 101 becomes difficult to apply as a differentiation must be made between “claims that would tie up laws of nature, natural phenomena, or abstract ideas,” and “claims that merely ‘embody, use, reflect, rest upon, or apply’ those fundamental tools.”

It must be decided whether computerising the method is inventive enough to be patentable, or simply a “trivial appendix” to an abstract idea.

“Abstract methods do not become patent-eligible machines by being clothed in computer language,” Lourie said.

Steven Auvil, partner at Squire Sanders in Cleveland, said that Section 101 is “pretty clear on its face.”

“The statute seems to answer the question of whether the particular claims at issue in this case were eligible for patent protection – they are, but there’s a judicial exception that limits the eligibility to exclude from those categories inventions that are abstract in nature,” he added.

The case’s outcome will affect hundreds of thousands of existing patents, as well as many in the pipeline, he said.

He suggested it may be necessary for Congress to weigh in on the decision, in an uncharacteristic move: “Congress typically hasn’t acted in that way in the past to protect particular categories of invention,” he said.

In the Bilski v Kappos case of 2010, the Supreme Court found Bilski’s method of hedging risks in commodities trading was unpatentable, on the grounds that it “is not implemented on a specific apparatus,” but “merely manipulates an abstract idea.”