Federal Circuit expands patent-eligibility for business methods — at least for now

A recent Federal Circuit decision could significantly expand patent-eligibility for business methods and software under 35 U.S.C. §101.  However, a vigorous dissent written by a judge who participated in a potentially conflicting decision in 2011 suggests that the Court has not yet settled the question of when a process  will be considered patentable rather than a patent-ineligible abstract idea.

In CLS Bank International v Alice Corporation Pty. Ltd. (No. 2011-1301, Fed. Cir. 7/9/2012), the three-judge panel of Judges Linn, Prost and O’Malley assessed the eligibility of claims directed to a method and for exchanging credit debit obligations.  One of the method claims was:

33.  A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these [sic] transactions that do not result in the value of the shadow debit record being less than the value of the shadow debit record at any time, each said adjustment taking place in chronological order; and

(d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

The lower court found this claim, along with corresponding system and computer-readable medium claims, to be merely directed to “abstract ideas”  (or computer implementations of abstract ideas) and thus invalid under 35 U.S.C. §101 .

However, the Federal Circuit panel reversed that decision– and in the process issued some broad statements about patent-eligibility of business processes and software.  Specifically, the Court held 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.

The Court also stated:

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.  . . . Because mere computer implementation cannot render an otherwise abstract idea patent eligible . . . the analysis here must consider whether the asserted claims (method, system and media) are substantively directed to nothing more than a fundamental truth or disembodied concept without any limitation in the claims tying that idea to a specific application.”

This language in the CLS Bank decision could become  a significant barrier for those seeking to find software and business method patents invalid under 35 U.S.C.  §101 .  Unless it is “manifestly evident” that a claim is directed to an abstract idea, CLS Bank says that the claim is patent-eligible.  However, a vigorous dissent authored by a judge who participated in last year’s potentially conflicting Cybersource v. Retail Decisions opinion suggests that the patent-eligibility question is not yet settled.

In the dissent, Judge Prost questioned whether the method claim listed above actually required a computer implementation, as well as whether it recited anything more than the act of performing as an intermediary in a financial transaction.   The dissent also noted that “[j]ust a few months ago, the Supreme Court reversed us in a §101 case for a second time in its last three terms, hinting (not so tacitly) that our subject matter patentability test is not sufficiently exacting.”

Earlier this year, the Supreme Court ordered the Federal Circuit to reconsider its decision in Ultramercial v. Hulu, in which the Court found certain software claims to be patent-eligible.  The majority’s opinion in CLS Bank  hints that the Court will maintain its prior decision in that case.  But the spirited dissent, along with the fractured Federal Circuit precedent, suggests that such an outcome is not yet certain.

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