United States: Fractured Court Holds Computer-Implemented System, Method, And Computer-Readable Media Claims Invalid Under 35 U.S.C. § 101

In CLS Bank International v. Alice Corp., No. 11-1301 (Fed. Cir. May 10, 2013) (en banc), the Federal Circuit, upon consideration en banc, affirmed the district court's grant of SJ in favor of CLS Bank International and CLS Services Ltd. (collectively "CLS Bank"), finding that method and computer-readable media claims directed to risk management for computerized trading are not eligible subject matter under 35 U.S.C. § 101.  No majority of the judges, however, agreed as to the legal rationale for that conclusion.  In addition, the Court was evenly split on the patent eligibility of the system claims. 

Alice Corporation Pty. Ltd. ("Alice") is the owner of the patents-in-suit, which include U.S. Patent Nos. 5,970,479 ("the '479 patent"); 6,912,510 ("the '510 patent"); 7,149,720 ("the '720 patent"); and 7,725,375 ("the '375 patent").  The four related patents-in-suit are directed to "the management of risk relating to specified, yet unknown, future events."  Slip op. at 3 (citation omitted).  Specifically, the patents-in-suit include system, method, and media claims directed to a computerized trading platform that enables a trusted third party to settle obligations between first and second parties in a manner that eliminates a "settlement risk" associated with a transaction.

CLS Bank sued Alice, seeking DJ of noninfringement, invalidity, and enforceability as to the '479, '510, and '720 patents.  Alice filed a counterclaim, alleging infringement of the '479, '510, and '720 patents.  CLS Bank subsequently moved for SJ, contending that the asserted claims of the '479, '510, and '720 patents are invalid under 35 U.S.C. § 101.  Alice opposed and cross-moved for SJ.  Following the Supreme Court's grant of certiorari in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc), cert. granted sub. nom. Bilski v. Doll, 129 S. Ct. 2735 (June 1, 2009), the district court denied the parties'
cross-motions for SJ as to subject matter eligibility without prejudice.

In the meantime, the '375 patent issued and Alice filed amended counterclaims additionally asserting that CLS Bank infringed the claims of the '375 patent.  After the Supreme Court's decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010), the parties renewed their cross-motions for SJ, and CLS Bank added invalidity contentions under § 101 with regard to the '375 patent.  The district court granted CLS Bank's motion for SJ and denied Alice's cross-motion, holding that the asserted claims of the patents-in-suit were invalid for failing to claim patent-eligible subject matter under § 101.  Alice appealed.

On appeal, in a per curiam decision, a majority of the Federal Circuit affirmed the district court's decision that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101.  An equally divided Court affirmed the district court's holding that the asserted system claims are not directed to eligible subject matter under the same statute.

Judge Lourie wrote a concurring opinion, which Judges Dyk, Prost, Reyna, and Wallach joined.  Before reviewing foundational § 101 precedent, Judge Lourie explained the basic steps in a patent-eligiblity analysis:  (1) ask whether the claimed invention falls within one of the statutory categories, i.e., is a process, machine, manufacture, or composition of matter.  If not, the claim is ineligible under § 101; (2) if so, determine whether the claim is drawn to a patent-ineligible law of nature, natural phenomenon, or abstract idea?  If so, the claim is not patent eligible.

"[W]e conclude that the district court correctly held that the asserted claims drawn to methods, computer-readable media, and systems are not patent eligible and are hence invalid under § 101."  Lourie Concurrence at 23.

"[I]f 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."  Moore Dissent-in-Part at 2.

Turning first to the asserted method claims, Judge Lourie found claim 33 of the '479 patent representative.  Claim 33 recites a method for facilitating a previously arranged exchange between two parties requiring the use of "shadow records" maintained by a third-party "supervisory institution."  Lourie Concurrence at 25.  The shadow records mirror the parties' real-world accounts held at their respective "exchange institutions."  Id.  Although claim 33 does not expressly recite any computer-based steps, the parties agreed that the recited shadow records and transactions require computer implementation.

Judge Lourie found that claim 33 of the '479 patent recites a process and questioned whether that process amounts to no more than a patent-ineligible abstract idea.  Judge Lourie explained that the concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a "disembodied" concept that, standing alone, is not patent eligible.  Id. at 26.  Judge Lourie's analysis, therefore, turned to whether the balance of claim 33 adds "significantly more."  Id.  Judge Lourie found nothing in the asserted method claims represents "significantly more" than the underlying abstract idea for purposes of § 101.  Id. at 25-26.  Accordingly, Judge Lourie found that the method claims of the patents-in-suit are drawn to patent-ineligible subject matter and invalid under § 101.

Judge Lourie further concluded that the computer-readable medium claims of the asserted patents are merely method claims in the guise of a device and thus do not overcome the Supreme Court's warning to avoid permitting a "competent draftsman" to endow abstract claims with patent-eligible status.  Id. at 31.  Turning to the asserted system claims of the patents-in-suit, Judge Lourie concluded that they represent nothing more than a "Trojan horse" designed to enable abstract claims to slide through the screen of patent eligibility.  Id. at 33-34. 

Judge Rader, concurring-in-part and dissenting-in-part, explained that the relevant inquiry in the § 101 analysis must be whether a claim as a whole includes "meaningful limitations" that restrict it to an application, rather than merely an abstract idea.  Rader Concurrence-in-Part and Dissent-in-Part at 2.  When making such an inquiry, Judge Rader emphasized that a court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims. 

In drawing a line between claims that do and do not include such "meaningful limitations," Judge Rader identified useful "guideposts" within the Supreme Court's own case law.  Id. at 17.  In particular, with respect to computer-implemented inventions, Judge Rader explained that where a claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not preempt virtually all uses of an underlying abstract idea, the claim is patent eligible.

Applying these guideposts to the patents-in-suit, Judge Rader found that the asserted system claims recite complex interrelated machine components that squarely fit within the terms of § 101 and involve nothing theoretical, highly generalized, or otherwise abstract.  For at least these reasons, Judge Rader, joined by Judges Moore, Linn, and O'Malley, would affirm that the asserted system claims are patent eligible. 

Turning to the asserted method claims, Judge Rader found that each method claim as a whole embraces using escrow to avoid risk of one party's inability to pay, i.e., an abstract concept.  Thus, Judge Rader and Judge Moore would affirm that the asserted method and media claims are not eligible for patenting, but for reasons different than those articulated by Judge Lourie.  Judges Linn and O'Malley wrote separately with regard to these latter claims.  For these reasons, Judge Rader, joined by Judges Moore, Linn, and O'Malley, would remand for additional proceedings.

Judge Moore, dissenting-in-part, observed that her colleagues erroneously apply Prometheus's "inventive concept" language by stripping away all known elements from the asserted system claims and analyzing only whether what remains, as opposed to the claim as a whole, is an abstract idea.  Moore Dissent-in-Part at 6.  According to Judge Moore, the only way to determine if Alice's asserted system claims are merely directed to an abstract idea is to analyze each claim as a whole, looking at the language of the claims.  Applying such an approach, Judge Moore concluded that the asserted system claims are directed not to an abstract idea, but to a specific machine configured to perform certain functions, and, as such, Judge Moore concluded that the asserted system claims are patent eligible under § 101.  Judge Moore cautioned that "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."  Id at 2.

Judge Newman, concurring-in-part and dissenting-in-part, observed that the Court's irresolution concerning § 101 affects not only the Court and the trial courts, but also PTO examiners and agency tribunals, and all who invent and invest in new technology.  In view of the present impasse, Judge Newman proposed that the Court return to the time-tested principles of patent law and recommended that the Court hold that (1) § 101 is an inclusive statement of patent-eligible subject matter; (2) the form of the claim does not determine § 101 eligibility; and (3) experimental use of patented information is not barred. 

Judges Linn and O'Malley, in a dissenting opinion, emphasized that the method, media, and system claims of the patents-in-suit must rise and fall together, not because they are tainted by the same abstract concept, but because the record makes clear that they are grounded by the same meaningful limitations that render them patent eligible.  In Judges Linn and O'Malley's view, no intellectually sound way exists to distinguish the method claims as construed by the district court from the system claims.  Thus, Judges Linn and O'Malley found the asserted system claims, as well as the method and media claims, patent eligible.

Judge Rader, in an additional reflection, counsels us that "[w]hen all else fails, consult the statute!"  Rader Additional Reflections at 4.

Judges: Rader (concurring-in-part and dissenting-in-part, with additional reflections), Newman (concurring-in-part and dissenting-in-part), Lourie (concurring), Linn (concurring-in-part and dissenting-in-part), Dyk (concurring), Prost (concurring), Moore (concurring-in-part and dissenting-in-part), O'Malley (concurring-in-part and dissenting-in-part), Reyna (concurring), Wallach (concurring)
[Appealed from D.D.C., Judge Collyer]

This article previously appeared in Last Month at the Federal Circuit, June 2013

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Events from this Firm
22 Jan 2019, Webinar, Washington, DC, United States

As part of Strafford Publications’ webinar series, Finnegan partners Shana Cyr and Mark Feldstein will provide essential updates on FDA practice and patent law relating to biologics and biosimilars.

27 Jan 2019, Other, Washington, DC, United States

Finnegan is a sponsor of the Association of Corporate Patent Counsel Winter Meeting. Finnegan partner Erika Arner will join the panel discussion “PTAB Review & Litigation.”

27 Jan 2019, Other, Florida, United States

Finnegan is a sponsor of the Association of Corporate Patent Counsel Winter Meeting. Finnegan partner Erika Arner will join the panel discussion “PTAB Review & Litigation.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions