Will the Court provide guidance now on where to draw the preemption-defining boundary line?
On December 6, 2013, the Supreme Court granted certiorari in Alice Corp. v. CLS Bank Intl., placing the issue of patent-eligible software, recited computer structure, and business method claims before the Supreme Court, once again.
For more than two years, the Supreme Court has clarified in no uncertain terms, through its major decisions on § 101, the appropriate analysis to use in determining whether or not a claim covers patent eligible matter. The message from the Supreme Court in Bilski, Prometheus, and 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 en banc CLS Bank decision embraced that message in the concurring decision. This opinion may just as well have been authored by the Supreme Court itself.
While perhaps not getting the decision entirely right, for the reasons discussed below, the en banc court decision appeared to be a step in the right direction. Yet, instead of embracing and building upon this decision, the patent community and the dissenting judges of the federal circuit have responded to the decision with heavy criticism, and in some cases, even throwing it aside as a per curium decision with no precedential value.
What the federal circuit got right
Five concurring judges (out of 10 on the panel) agreed with the analytical tools provided by the Supreme Court: first identify the abstract principle and its scope and then determine whether the recited steps that manipulate the abstract principle preempt the abstract principle. CLS Bank, Concurring Op, at 25, 26 Once the general computing structure was stripped away from the claims as insignificant extra-solution activity, all that remained was the abstract principle, which is not enough.
Applying these analytical tools, these five judges struck down four software patents under § 101 as patent ineligible, affirming the lower court and effectively reversing an earlier panel decision of the federal circuit.
Why then grant certioari? What’s missing in the federal circuit decision?
It is hard to understand why the Court would bother to hear this case, since at first glance it appears that all they can do is reiterate what has been said three times previously in Bilski, Mayo, and Myriad, not counting remands such as Ultramercial. Yet, while aligning well with the jurisprudence of the Supreme Court on subject matter patentability, the federal circuit decision has one glaring shortcoming that also highlights a shortcoming of the Supreme Court precedent. The Supreme Court makes clear in Bilski, Prometheus, and Myriad what to do to determine whether a claim preempts an abstract idea. But then the Court never really explains 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 has become a matter of subjective guesswork by lower courts and is ripe for inconsistent decisions. This subjectivity arises in software cases since it is unclear when recited computer structure in a process claim is meaningful and when it amounts to extra-solution activity.
CLS Bank provides the Court with an ideal vehicle to answer the question that lower courts have been unable to address so far: where to draw the preemption-defining boundary line (i.e., the line within which matter is patent eligible and outside of which it preempts a fundamental principle, and is thus, patent ineligible).
The close similarity in subject matter of the CLS Bank and Bilski patent claims allows for a holding decided primarily on legal instead of technology differences. Both are directed to the subject matter of hedging — to manage commodity risk in Bilski and financial risk in CLS Bank. Further, unlike in Bilski, the patent claims in CLS Bank include system and product claims that recite computer structure. Hence, CLS Bank will allow the Court to address the spill-over effect of Bilski to system and product claims (Beauregard claims in this case) wherein general computing structure is recited to implement a patent ineligible process.
In Diehr, the Court stated that “insignificant post-solution activity will not transform an unpatentable principle into a patentable process. To hold otherwise would allow a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection.” 450 U.S. 175, at 192, 193 (1981). CLS Bank may have provided the Court with the perfect opportunity to put this dicta to the test.
The grant of certiorari may also allow the Court to heal the rift between the judges on the federal circuit by providing guidance behind which the federal circuit judges can hopefully unite in charting a pathway forward for addressing § 101 questions.
— see our prior blog on CLS Bank —
Seeking a preemption-defining boundary
Since 2010, we have advocated a test that would provide practitioners and the courts with a guideline for accurately drawing that preemption-defining boundary line, to wit, 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” is all about determining whether or not software data manipulates something real, that is to say, physical or tangible objects. According to this test, the manipulation can occur physically, as in Diehr (e.g., 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, as in Morse, by manipulating data that represents physical or tangible objects (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).
— read more on the “physical and virtual links test” —
In the CLS Bank concurring decision of five judges, the court’s momentum is inching closer to a “physical and virtual test” when explaining, “[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 lie in the claim having manipulated something real; which after all is what the physical and virtual links test is all about. The “physical and virtual links test” provides guidance the Court could use for determining when recited computer structure is meaningful in a process that is otherwise patent ineligible.
It is now for the Supreme Court to decide.