CLS Bank: Software Patents at Risk?
By Lee Vail
On May 10, 2013, the Federal Circuit, sitting en banc, handed down its opinion in CLS Bank Int’l v. Alice Corp., No. 2011-1301, slip op. (Fed. Cir. May 10, 2013). The majority of the Federal Circuit judges agreed on little other than that the method and computer-readable medium claims involved in the dispute were patent ineligible. Essentially, Alice Corporation owned patents that the Federal Circuit found to be nothing more than abstract ideas based on use of escrow accounts and record keeping associated with the settling of transactions. However, the Court failed to agree on the reasoning as to why such claims were ineligible subject matter with the judges evenly split regarding the eligibility of comparable computer systems claims.
The panel of ten Federal Circuit Justices was so fractured in their reasoning that the “decision” constitutes six separate opinions. In the most basic sense, the Judges agreed that prior Supreme Court precedent require that patent claims containing abstract ideas must have meaningful limitations. However, a group of five Judges (Lourie, Dyk, Prost, Reyna, and Wallach) rejected patent eligibility of the computer system claims, concluding that incorporation of the method into a computer program was an insufficient limitation. This opinion drew heavily from the Supreme Court’s language in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1298 (2012), a case which ultimately invalidated a process patent dealing with the treatment of Crohn’s Disease by monitoring transformations occurring in the human patient’s body. In Mayo, the Court invalidated the patent through the use of a judicially created exclusion by ruling that the process was based on a law of nature. Although it was proposed that the Mayo claims contained other non-law of nature elements such as administering drugs and measuring the results, the court was unpersuaded, holding:
[these] step[s] tells doctors to engage in well-understood, routine, conventional activity previously engaged in by scientists who work in the field. Purely “conventional or obvious” “[pre]-solution activity” is normally not sufficient to transform an unpatentable law of nature into a patent-eligible application of such a law. 132 S.Ct. at 1298.
With Mayo in mind, the Federal Circuit noted that routine and conventional steps are insufficient limitations to an otherwise patent ineligible subject matter (i.e., laws of nature, natural phenomena, and abstract ideas) to overcome the judicially created exclusion. Lourie Slip op. at 20-21. Since, computers are routinely adapted with software to perform all sorts of tasks, this opinion carries the implication that the inclusion of a computer within the claim is not a substantive limitation. Lourie Slip op. at 36-37. This implication seems to contradict long standing caselaw which has held that new computer software indeed creates a new computer. In re Alappat, 33 F.3d 1526 (Fed. Cir 1994). The opinion of the five Judges strongly denote their belief that recent Supreme Court decisions may have overturned Alappat and, in light of the possible overruling of Alappat, that the incorporation of a computer program into a computer, relying on an abstract idea, is not patent eligible. Lourie Slip op. at 37. If this viewpoint is allowed to stand, all computer programs, which at a basic level rely to some degree on one of the three judicially excluded criteria, may be excluded from patent protection.
A second group of four Judges (Rader, Linn, Moore, and O’Malley) were no less than horrified by the majority opinion. These Judges stressed that the scope of patent eligibility under 35 U.S.C. §101 is intended to be broadly interpreted while the judicially created exceptions are limited. In a dissenting-in-part opinion, these Judges cut to the chase about the potentially devastating outcome of their counterpart’s holding, stating:
[a]nd let’s be clear: 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 methods, financial system, and software patents as well as many computer implemented and telecommunications patents. Moore (dissenting-in-part) Slip op. at 2.
These Judges view the judicially created exceptions as being limited, especially when applied to a machine such as a computer. These judges would hold patent eligible a claim wherein a “computer plays a meaningful role . . . and the claim does not pre-empt virtually all uses of an underlying abstract idea.” Rader (concurring in part) Slip op. at 2. In the end, Judge Newman generally disagreed with all of the other nine judges by concluding that all the claims were patent eligible. His vote brought the vote for patent eligibility for the computer system claim up to five, resulting in an overall tie on the issue.
In conclusion, Chief Judge Rader of the Federal Circuit, in apparent frustration, criticized the Supreme Court for their decisions in various cases including Parker v. Flook, 437 U.S. 584 (1978), Bilski v. Kappos, 130 S.Ct. 3218 (2010), and Mayo. In a last adage, Chief Justice Radar advised: “When all else fails, consult the statute.” Radar (additional reflections) Slip op. at 2-3. Until a final decision on this matter is handed down by the Supreme Court, the status of computer system claims that contain judicially excluded subject matter (i.e., a majority of computer system claims) is completely up in the air.