Federal Circuit, though divided, creates momentum toward resolution of the patent eligibility of software with these takeaways:

  • Being “new and useful” are not enough for software patent eligibility: the question is whether “new and useful” software taken as a whole and excluding extra-solution activity amounts to human ingenuity,
  • The 101 preemption analysis for determining subject matter patentability centers on the “practical, real-world effects of the claim,”
  • Seven of 10 judged the Beauregard and method claims invalid,
  • Five of 10 judged the system claims invalid, and
  • It is the concurring opinion that garnered the most votes of five of 10 judges compared to the four votes garnered by the dissent and the separate opinion of Judge Newman.

 

On May 10, 2013, the en banc federal circuit handed down its highly anticipated decision in the software patent case of CLS Bank.  The court struck down four software patents under 101 as patent in-eligible; affirming the lower court and effectively reversing an earlier panel decision of the federal circuit.

The CLS Bank patents provided a very good vehicle for the federal circuit to evolve the jurisprudence on 101 in the wake of Bilski.  The patents in both cases are directed to similar subject matter of hedging — to manage commodity risk in Bilski and financial risk in CLS Bank. The patents differ, however, in two respects. Unlike Bilski, where the method claims were devoid of structure, the method claims in CLS Bank recited structure inherently or expressly.  For example, the step of “adjusting” the shadow records in claim 33 of the ‘479 patents inherently recited structure.  The step of “electronically adjust[s]” the shadow records in the method claims of the ‘510 patent expressly did. CLS Bank, Concurring Op., at 25.  In addition, Bilski only included method claims. CLS Bank also included Beauregard and system claims.

It is in these differences that the jurisprudence of the en banc court in CLS Bank has made its mark. While there is no majority opinion, the en banc concurring decision written by Judge Lourie and garnering votes of five of the ten judges is the most influential of the opinions written. This concurring decision provides guidance on the sufficiency of recited structure to patent eligibility of a method claim. In addition, this concurring decision provides guidance on the spillover effect of Bilski to non-method claims. The importance of this concurring decision of five of ten judges in CLS Bank on the evolution of the 101 debate generally and on the subject matter patentability of software specifically cannot be overstated.

In a strongly worded dissent by Judge Moore, joined by Chief Judge Rader and Judges Linn and O’Malley, the naysayers predict that the CLS Bank decision is the beginning of the end of software patents. As Judge Moore pronounced “[a]nd let’s be clear: 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.  CLS Bank, Dissenting Op., at 2. In what must be hyperbole, Judge Moore even boldly proclaimed that “[i]f all of the claims of these four patents are ineligible, so too are the 320,799 patents which were granted from 1998-2011 in the technology area “Electrical Computers, Digital Processing Systems, Information Security, Error/Fault Handling.” Id. These pronouncements and proclamations are nonsense. The CLS Bank decision is not about striking down all software patents.  Rather it is about denying patentability where there is no human invention.

Ten judges participated in the decision and seven of the ten judged the method and Beauregard claims invalid. Only five of ten judged the system claims invalid. An evenly divided decision on the judgment, under court law, means affirmation of the lower court judgment. The Dissent points out that no one opinion garnered a majority of the court, as though that gives little weight to the concurring decision. However, the concurring decision written by Judge Lourie and joined by four other judges, hence garnering five votes, certainly carries more weight of things likely to come than the concurrence-in-part, dissent-in part decision, authored by Chief Judge Rader and joined by only three other of ten judges, hence garnering only four votes; the dissenting decision written by Judge Moore  and garnering those same four votes; and the separate concurring-in-part, dissenting-in-part decision written by Judge Newman.

The tenor of the dissent evidences high tension between the judges on the subject matter patentability of software patents. If the final remarks of Chief Judge Rader, reminiscing about the days when he and Judge Lourie, who authored the per curiam decision, once saw more eye to eye on this issue, is any indication, the 101 debate is far from being over.  Additional Reflections of Chief Judge Rader, at 3.

The CLS Bank decision of the five concurring judges, while not a majority nonetheless carries the most momentum, as the decision garnering the most votes; and should be heralded by the patent community. For more than two years now, the Supreme Court has stated in no uncertain terms in major decisions on 101, the appropriate analysis to use to determine whether a patent covers patent eligible matter. The message by the Supreme Court in each of Bilski, Prometheus, and most likely to be the message in Myriad, is that a claim taken as a whole and excluding extra-solution activity must be tailored narrowly enough to encompass only a particular application of a fundamental principle (i.e., a law of nature, natural phenomena, or an abstract idea) rather than to preempt the principle itself.  Ibid.; Bilski, v. Kappos, 130 S. Ct. 3218, 3231 (2010); Gottschalk v. Benson, 409 U.S. 63, 72 (1972); Parker v. Flook, 437 U.S. 584 (1978); Diehr, 450 U.S. 175, 185 (1981). For perhaps the first time, the Federal Circuit has embraced that message in the CLS Bank concurring decision in a way that the opinion could just as well have been authored by the Supreme Court itself.  More particularly, the five CLS Bank concurring judges were in agreement to use the analytical tools provided by the Supreme Court to first identify the abstract principle and its scope and then determine whether the recited steps that manipulate the abstract principle preempts the abstract principle. CLS Bank, Concurring Op, at 25, 26  In the CLS Bank concurring opinion, once the general computing structure was stripped from the claims as insignificant extra solution activity, all that remained was the abstract principle; which is not enough.

It May Be New and Useful, But Is It An Invention?

A key take-away from the Supreme Court precedent in Bilski, Prometheus, and likely Myriad, once decided, is that these patents fail not because they were not “new and useful.” Rather they fail because they did not satisfy the “inventive” prong of the “[w]hoever invents or discovers any new and useful” requirements of 101. The five CLS Bank concurring judges captured that concept in their concurring decision when explaining that:

“[a]n “inventive concept” in the § 101 context refers to a genuine human contribution to the claimed subject matter… The underlying notion is that a scientific principle … reveals a relationship that has always existed.” Flook, 437 U.S. at 593 n.15. From that perspective, a person cannot truly “invent” an abstract idea or scientific truth. He or she can discover it, but not invent it. Accordingly, an “inventive concept” under § 101—in contrast to whatever fundamental concept is also represented in the claim—must be “a product of human ingenuity.” See Chakrabarty, 447 U.S. at 309.” Ibid., at 21.

Practitioners should make note from their explanation that “inventiveness” under 101 is different from 102 and 103. As the concurring opinion explains, “[w]e do not read the Court’s occasional use of that language in the § 101 context as imposing a requirement that such limitations must necessarily exhibit “inventiveness” in the same sense as that term more commonly applies to two of the statutory requirements for patentability, i.e., novelty and nonobviousness. See 35 U.S.C. §§ 102, 103.”  Ibid., at 19  This reasoning squares well with what the Supreme Court appears to be saying  on this point.

The Dissent, however, continues in endeavors to narrow the “inventiveness” requirement. In the words of the Dissent:

“[t]he Supreme Court’s reference to “inventiveness” in Prometheus must be read as shorthand for its inquiry into whether implementing the abstract idea in the context of the claimed invention inherently requires the recited steps.” CLS Bank Concurring-in-part, Dissenting-in-part Op., 23

According to the Dissent:

“[i]f to implement the abstract concept, one must perform the additional step, then the step merely separately restates an element of the abstract idea, and thus does not further limit the abstract concept to a practical application.” Ibid., at 23, 24.

While it may be true that one reason an additional step is lacking human inventiveness is because it may restate an element of the abstraction that is not the only reason. Surely, the term “extra-solution” activity coined by the Court in Flook to describe a non-inventive step may include things broader than the abstract principle itself. In fact, it includes things like general purpose computers, as in Benson, which are real and not an abstraction.

The reasoning the Dissent uses to try to limit the “inventiveness” requirement to is transparent. The Dissent wants to put as much distance as it can between the general purpose computing structure recited in the system claims and the inventiveness requirement. The concurring decision of the five judges seems to get it right with Supreme Court jurisprudence when it explains that “analyzing patent eligibility, in contrast, considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself. (emphasis added) CLS Bank, Conccuring Op., at 22. The general purpose computing structure recited in the system claims are just that.

The Dissent analogizes the recited structure in the CLS Bank system claims to a machine combination with circuitry, transistors, capacitors, and other tangible electronic components precisely arrayed to accomplish the function of translating Chinese to English. CLS Bank Concurring-in-part, Dissenting-in-part Op.at 28. As the Dissent explains, “[t]hese complex interrelated machine components would squarely fit within the terms of Section 101 and involve nothing theoretical, highly generalized, or otherwise abstract.”  Ibid., at 29. The analogy is inapro since not one of the computing structures in the system claims in CLS Bank is recited with the kind of structural detail existing in the analogized assembly. In fact, even the assembly of machine or electronic components in the analogy used by the Dissent would fail 101 if that assembly contained only the sparce claim limitations found in the computing structure recited in the claims of CLS Bank.

The Dissent relies heavily on the extensive architecture and interrelationship of components description in the specification in arguing that the recited computing structure is not a general computer; rather it is a specific application of a general computer. Ibid., at 31-34. The details pointed to by the Dissent in arguing the computing structure to be specific are recited in none of the claims before the court, expressly or by claim construction of the court. Indeed, this part of the Dissent’s opinion flies in the face of the court’s own precedent concerning the impermissible importation of limitations into claims.

The CLS Bank decision of the five concurring judges aligns well with the jurisprudence of the Supreme Court on subject matter patentability and should be commended. The concurring decision does have one shortcoming, however, which is the same one as in the Supreme Court precedent. The Supreme Court precedent makes clear what you need to do to determine whether a claim preempts an abstract idea. But the Court never really tells you where to draw the line that defines whether a claim has preempted an abstract idea or not. In other words, “when do recitations in a claim preempt the abstract idea and when do they not?” For that reason, drawing the preemption line becomes a matter of subjective guesswork based on the specifics of the case and decider and is ripe for inconsistent decisions. It is largely for this reason that the patent community has been reluctant to more quickly embrace the Supreme Court’s jurisprudence.

A Real-World “Physical or Virtual Links” Test

An amicus brief filed by The Juhasz Burge PC Firm in this CLS Bank case, describes one  guideline, that “is not a bright line,” provides guidance on where to draw the preemption line, and that the CLS Bank concurring judges appears to be inching toward accepting.

Since 2010, we have advocated a “physical or virtual links” test that provides practitioners with good guidelines for more accurately drawing that preemption defining boundary line  – towit, that line within which an invention is eligible patent matter and without which an invention is not. The physical and virtual links test makes it possible to draw that preemption line with more predictability; something not possible using only the tools the Supreme Court has provided.

The physical and virtual links test, simply put, is this:  the clue to the patentability of software may lie in the “manipulation” by the data (e.g., the electrical data or signals generated by the software instructions) of physical or tangible objects either physically (i.e., by a “physical link”) as in Diehr ( i.e. , the electrical data or signals generated by the software instructions are manipulating in this case physical [not tangible] objects of a “mold” and a “press” through the steps of “loading of the mold” and “opening of the press”) or virtually (i.e., by a “virtual link”), that is to say, by electrical signals or data generated by the software instructions representing physical or tangible objects as in Morse (e.g., opening or closing of a physical telegraphic switch or manipulation of tangible sound, light, etc., such as on-off tones, lights, or clicks in telegraphic use).

The physical and virtual links test is all about software data manipulating something real, that is to say, manipulating physical or tangible objects. The manipulation can occur physically, as in Diehr, or virtually, that is to say, by manipulating data that represents physical or tangible objects, as in Morse. In the CLS Bank concurring decision of five judges, the court’s momentum is inching closer to the physical and virtual test when explaining that, “[t]he § 101 preemption analysis centers on the practical, real-world effects of the claim.” Concurring Op., at 20  The “practical, real-world effects” of the claim lies in the claim having manipulated something real; which after all is what the physical and virtual links test is all about.

The patents in CLS Bank failed because the software only manipulated abstract things. The predictions of the Dissent will not come to pass. Software patents that manipulate something real do and will continue to survive.

About The Juhasz Burge PC Firm

The Juhasz Burge PC Firm is a patent and intellectual property (IP) protection, counseling, licensing and litigation firm. Combining deep patent/IP experience, broad capabilities across a wide spectrum of industries and technologies, and extensive expertise in strategic counseling, The Juhasz Burge PC Firm collaborates with clients to help them better see, understand and realize the potential strategic value from their patents and intellectual property.

Paul R. Juhasz has written extensively on matters of software patents, including the Bilski software patent decision and including an amicus brief filed in the CLS Bank case.