United States: The CLS Bank Case: Patent Protection And Computer-Implemented Business Method Inventions

CLS Bank Int'l. v. Alice Corp. Pty. Ltd., No. 2011-1301 (Fed. Cir. May 10, 2013) (en banc), a computer-implemented business method patent case, was decided en banc on May 10, 2013 by the US Court of Appeals for the Federal Circuit (CAFC). The one-paragraph holding affirmed the District Court's prior decision that certain computer-implemented systems, media and method claims from patents in the same patent family were directed to "patent ineligible" subject matter under 35 U.S.C. 101, and, therefore, invalid and unenforceable. The patents at issue in the case were US 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).

Despite the one-paragraph holding, the 10 judges who heard the case issued five separate opinions explaining their reasoning in the sharply divided split-decision. Although the opinion (which required 135 pages) does not have precedential value, it does provide some insight into the tension among the judges over the eligibility for patenting computer-implemented business method inventions. The purpose of this commentary is not to review the intricacies of the case but to look at the practical implications it presents for financial industry members seeking to patent their product offerings.

Under the patent laws, §101 is the gatekeeping section. (The US Patent Office has examination guidance and training materials available on its site.) You have to pass its "entrance test" before the US Patent Office will consider patenting your invention. This section has been a troublesome hurdle for inventors seeking to patent computer-implemented business method inventions. §101 states:

There are judicially-created exceptions to §101:

As a factual background, CLS filed an action against Alice Corporation seeking a declaratory judgment of noninfringement, invalidity and unenforceability of its '479, '510, and '720 patents. Alice Corporation answered and counterclaimed, alleging infringement of the three patents. After the suit was filed, the Patent Office issued the '375 patent and Alice Corporation added it to its counterclaim. The patent claims are directed to "conducting financial transactions using a third party to settle obligations between a first and second party to mitigate settlement risk." Like many computer-implemented business method patents, the patents included three distinct claim set types: system claims, method claims and media claims. "Media claims" cover storage media that contain the executable computer program for carrying out a method. Many times, claims of this type begin with the phrase "a computer-readable medium for...."

The 10 judges issued five separate opinions analyzing the patent eligibility of the various claim sets to qualify under §101. There was no majority opinion but the bidding was as follows:

1. Opinion 1: Five judges joined in finding the system, media and method claims were patent ineligible. (Lourie (writer), concurring Dyk, Prost, Reyna, Wallach)
2. Opinion 2: Four judges joined in finding the system claims were patent eligible, but two of these judges (Rader and Moore) found that the media and method claims were patent ineligible. (Rader (Chief) (writer), Moore, Linn, O'Malley)
3. Opinion 3: Four judges joined in finding that the system claims were patent eligible but provided little discussion with regard to the patent eligibility of the media and method claims. (Moore (writer), Rader (Chief) Linn, O'Malley)
4. Opinion 4: Two judges joined in finding the media and method claims were patent eligible. (Linn (writer) and O'Malley)
5. Opinion 5: One judge found the system, media and method claims were patent eligible. (Newman)

We believe this split of opinion on the patent eligibility of three claim set types should be of great interest to financial industry members who are considering the investment of valuable resources to seek and receive patent protection from the Patent Office. This is because after making such a considerable investment, a court could reverse the Patent Office. This reversal would not be on the merits of the novelty or nonobviousness of the claimed invention compared to what is known in the world, but that the claimed subject matter was patent ineligible from the beginning. The patent would be unenforceable against the infringing competitor the financial industry member is seeking to enjoin from further infringement.

As an initial matter, the belief by a majority of judges (eight) in CLS is that the system, media and method claims should rise and fall together needs a bit more explanation. We believe the majority is saying that the same set of analysis factors should be used to evaluate whether system, media or method claims are patent eligible. We don't believe that if method claims of a patent are found ineligible, the system and media claims of that patent are automatically ineligible. This view is consistent with past practices of the courts in which the application of analysis factors for patent eligibility of different claim set types in a patent can result in different results.

The significant disagreement among the judges regarding the appropriate tests for analyzing eligibility of the claimed subject matter adds to the confusion of the split. It was the application of the varying tests that helped create the disparate conclusions reached by the various groups of judges.

The judges on Opinion 1 fit all of claim set types at issue under the "abstract idea" exception to Section 101 and found all of the claims to be patent ineligible. The judges on Opinions 2 and 3 expressed their disagreement with this approach in writing that the system claims should be patent eligible.

Also, the judges on Opinions 2 and 3 concluded that the structural features and physical components (and the functionality) of the system claims recited a particular combination that resulted in a brand-new machine—"a special purpose computer." The analysis of the judges rendering Opinions 2 and 3 emphasizes the reason why two types of claims (system and method claims) may result in different conclusions as to patent eligibility when the appropriate analysis/test are applied. (Read about US 7,725,375 and US 5,970,479.)

The judges who wrote Opinions 2 and 3 would consider this comparison of system and method claims shows that the structural features/components and their functionality recited in '375 Claim 26 distinguish it from the method '479 Claim 33 even if an "abstract idea" analysis is used. They would consider that the system claim's recitation of specific structural limitations/components are not trivial differences to what is recited in the method claim, thus even if the method claim were found patent ineligible, that finding should not apply to the system claim.

A month after the CLS decision, the CAFC rendered its opinion in Ultramercial, Inc. v. Hulu, LLC, No. 2010-1544 (Fed. Cir. Jun 21, 2013). Judge Rader (Chief) wrote the opinion; he was joined by Judges Lourie and O'Malley. Judge Lourie wrote Opinion 1 in the CLS case while Judge Rader wrote Opinion 2 in the CLS case. In Ultramercial, the method claims were found patent eligible. Judge Lourie—who found the CLS patent claims ineligible under §101—found that the Ultramercial claims were eligible because even applying the "abstract idea" test that he applied in CLS, the method claims required more than the "abstract idea."

The opinion rendered in CLS in view of the subsequent finding in Ultramercial provides financial industry members some guidance in making a determination of whether to make the investment to seek patent protection for computer-implemented inventions that could be considered business methods. We believe that institutions should seek to protect their important computer-implemented inventions; however, we recommend:

1. applications should include at least one set of system claims, one set of method claims, and one set of media claims to provide a range of scope;
2. system claims should include not only structural features/components and functional features but also an arrangement of them to show they are reciting a "specially configured computer;"
3. method and media claims (or at least one set of them) should be more in line with the method claim recited above from Ultramercial: the claim should recite specific, clear, definitive method steps for the invention and not end in just "instructing" something to be done, but end in some action being done or accomplished.

We believe these actions will better position financial institutions to insulate themselves from (a) an initial patent ineligibility rejection of the claims by the Patent Office and (b) a patent ineligibility counterclaim by a defendant in a patent infringement action where the institution seeks to enforce its patent.

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.