The Federal Circuit reversed a district court’s summary judgment ruling of invalidity of computer-related claims in CLS Bank Int’l v. Alice Corp. Pty. Ltd. The district court ruled that certain system, method, and media claims were not dircted to patentable subject matter under § 101 of the Patent Act. A split panel of the Federal Circuit reversed.
The patents at issue are directed to computerized trading platforms for exchanging obligations in which a third party settles obligations between first and second parties so as to eliminate “settlement risk”. The patents included method, system, and media claims. Representative claims from each category are set forth below.
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 credit 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.
A data processing system to enable the exchange of an obligation between parties, the system comprising:
a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and
a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.
A computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party, the computer program product comprising:
program code for causing a computer to send a transaction from said first party relating to an exchange obligation arising from a currency exchange transaction between said first party and said second party; and
program code for causing a computer to allow viewing of information relating to processing, by a supervisory institution, of said exchange obligation, wherein said processing includes
(1) maintaining information about a first account for the first party, independent from a second account maintained by a first exchange institution, and information about a third account for the second party, independent from a fourth account maintained by a second exchange institution;
(2) electronically adjusting said first account and said third account, in order to effect an exchange obligation arising from said transaction between said first party and said second party, after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and
(3) generating an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.
Federal Circuit Opinion
The district court ruled that all of the claims fell within the “abstract ideas” exception to patentable subject matter. The Federal Circuit panel, per Judge Linn, noted that the line between patent eligible subject matter and abstract ideas is an elusive one.
The court noted that performing an otherwise abstract idea on a computer does not render it patentable. That does not mean, of course, that all methods performed with a computer are patent ineligible.
It can, thus, be appreciated that a claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.
(emphasis in original). As the Supreme Court noted in Prometheus, at thieir most basic, all patent claims can be stripped down to abstractions and natural phenomona.
Patent eligibility must be evaluated based on what the claims recite, not merely on the ideas upon which they are premised.
The majority basically holds that patent claims are presumed valid and that they are only invalid when they are clearly directed only to abstract ideas.
[T]his court holds 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 then proceeded to do something that the Supreme Court in Prometheus failed to do. The majority of the court held that before determining whether a claim is directed to patentable subject matter, the court must consider the scope and content of the claims, i.e., a claim construction analysis should be undertaken. This is the only way to determine what is actually claimed.
It is inappropriate to view the claims as separate limitations–the computer implementation itself does not render them patent eligible. Instead, a review of the entire claim as a whole demonstrates that the asserted claims appear to cover the practical application of a business concept in a specific way.
Judge Prost issued a dissent where she suggested that she could not answer the patent eligibility questions of the case with absolute certainty. She would, however, rely on common sense (?) to hold that they are directed to abstract ideas. She would follow the Supreme Court’s opinion in Prometheus to inquire whether the claims include an “inventive concept” to determine whether they are patent eligible. She strongly criticizes the majority for disregarding the Supreme Court’s decision.
It now seems that patent eligibility at the Federal Circuit could turn on the panel that hears a particular appeal. It is not surprising that Judge Linn, typically a strong patent rights advocate as a former patent attorney, would uphold the claims whenever possible, while Judge Prost, typically not favoring strong patent rights, would not. This, of course, adds further uncertainty to an issue that should be quite clear if separated from questions of prior art.
Judge O’Malley joined Judge Linn in the majority.