What Software Is Patentable? Federal Court To Consider In CLS Bank Rehearing

Editor’s note: Anthony Lombardi practices litigation and patent prosecution at Finnegan, Henderson, Farabow, Garrett & Dunner, LLP. He also provides strategic counseling to clients regarding pre-litigation, portfolio development, patent monetization, and licensing activities.

Software patents continue to command the spotlight. The Federal Circuit today will hold an en banc rehearing of a prior decision, CLS Bank International v. Alice Corporation, in which a three-judge panel ruled that an invention related to a computerized trading platform constituted patent-eligible subject matter. This rehearing by the full Court is poised to draw a dividing line between software that is patent-eligible subject matter and software that only implements abstract ideas—subject matter which is not eligible for a patent.

At the end of a patent, numbered sentences called claims define the scope of protection afforded by the patent. Only combinations of features that appear in the claims are protected by the patent, and the claims must meet certain legal requirements. For example, patent claims cannot cover something already known or obvious variants of known subject matter. The subject matter of patent claims must also meet certain requirements specified in section 101 of the patent laws, which reads:

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 therefore, subject to the conditions and requirements of this title.

How to decide whether software is patent-eligible subject matter under section 101 lies at the heart of the CLS Bank rehearing.

Set For Rehearing: CLS Bank v. Alice Corp.

In taking up CLS Bank for a rehearing by the full Court, the Federal Circuit vacated its July 9, 2012, panel decision. That decision, which reversed a lower district court, found Alice Corporation’s invention patent-eligible subject matter.

Alice Corporation’s asserted patents relate to a computerized trading platform. The platform allows two parties to exchange obligations, such as stock trades, which are then settled by a trusted third party. The trusted third party oversees the settlement duties in order to mitigate or eliminate the risk of having only one of the parties’ obligations paid while leaving the other party with a loss by exchanging—or not exchanging—both parties’ obligations.

Although Alice Corporation’s asserted claims were directed to different statutory categories (i.e. the asserted claims were written in method, system, and computer‑readable-medium claim formats), the Court viewed the claims collectively, all requiring computer implementation. Nevertheless, in the panel decision, the Court said mere implementation on a computer of an otherwise abstract idea will not render an invention patent-eligible subject matter.

The Court then focused on deciding whether the asserted claims captured no more than an abstract idea—that is, “nothing more than a fundamental truth or disembodied concept without any limitation in the claims tying that idea to a specific application.” In analyzing the asserted claims, the Court found that the lower district court, which had ruled the claims patent‑ineligible, improperly distilled the claims down to the fundamental concept of using an intermediary to facilitate a simultaneous exchange of obligations to minimize risk.

In the Court’s view, the computer-related aspects of the claims—including features related to electronically maintained credit and debit records—played a significant part in the performance of a specific and practical application of a business concept in a specific way. Although the use of a computer in the claims was less substantial than that of other machines in other industrial uses, the Court concluded that the specific computer-related features prevented a finding that it was “manifestly evident” that the claims were directed to patent-ineligible abstract ideas.

In a dissenting opinion, Judge Prost wrote that she would have found the asserted claims directed to patent-ineligible abstract ideas. In her view, based on Supreme Court precedent, for a claim to constitute patent-eligible subject matter, it must include an “inventive concept.” Judge Prost criticized the majority for failing to inquire whether the asserted claims included an “inventive concept” and improperly devising a new approach to evaluate patent eligiblity, i.e. a “manifestly evident” approach.

In the CLS Bank rehearing tomorrow morning, the Federal Circuit will consider what test it should adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea. In addition, the Court will consider whether the presence of a computer in a patent claim lends patent eligibility to an otherwise patent-ineligible idea and whether it should make any difference whether a computer-implemented invention is claimed as a method, a system or a storage medium.

Potential Ramifications Of The Rehearing

The question of software patent eligibility is not new to the courts, for it has presented an ongoing source of debate. Indeed, just weeks after the CLS Bank decision, in a unanimous panel decision on July 26, 2012, the Federal Circuit decided Bancorp Services, L.L.C. v. Sun Life Assurance Co. of Canada. There it ruled that an invention related to administering and tracking the value of life-insurance policies is a patent-ineligible abstract idea.  The Federal Circuit framed the test in Bancorp as whether a computer was “integral” to what the Court viewed as an otherwise patent‑ineligible process. In reaching a conclusion opposite to that of CLS Bank, the Court wrote that Bancorp’s invention used a computer only for a basic function—the performance of repetitive calculations—without imposing meaningful limits on the scope of its claims.

The CLS Bank rehearing has the potential to clarify the dividing line between software inventions that are patent-ineligible abstract ideas and those that are not. As the CLS Bank and Bancorp cases illustrate, locating that dividing line has been elusive. Although recent Federal Circuit decisions have indicated that the mere presence of a computer is not sufficient to make an abstract idea patent eligible, the degree and significance of computer involvement appears to hold some sway in deciding whether or not an idea is patent eligible. But how much and what kind of detail is required of computer‑related features to qualify software inventions as patent‑eligible subject matter remains unclear.

The test that emerges from the CLS Bank rehearing later this year may ultimately undergo Supreme Court review amid an ongoing debate over software patentability. Critics of software patents contend that too many software inventions are not new and claim simple, known ideas. According to these critics, software patents stifle innovation, cause costly litigation, and create market barriers for smaller companies unable to afford litigation. They cite these perceived consequences as reasons to restrict software patents or do away with them altogether.

Proponents of software patentability argue that the courts should apply section 101 broadly to cover modern technologies, software included. They point to the Constitution, which provides Congress with the power “[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.” Nothing in that mandate, proponents say, excludes software from inventors’ discoveries. Instead, they argue that patents prompt innovation and, without patents, companies cannot justify spending money on new products.

A ban on software patents is not the answer to improving patent quality, say proponents. They point to other provisions of the patent laws—those that exclude known and obvious technology—as the proper mechanisms for preventing patents from being granted on lackluster ideas. If an invention is not new or is an obvious variant of known technology, proponents say, then the invention is not patentable for those reasons, but the courts should not exclude software—which is increasingly important to modern life and products—from patent eligibility.

Cases such as CLS Bank present the courts with the challenge of addressing this ongoing debate while balancing, on the one hand, the prohibition against patenting ideas that are abstract and, on the other, ideas that are patent eligible. How the courts will strike that balance for software remains unresolved.