Two Conflicting Federal Circuit Decisions Point To Need for Markman Hearing to Determine Scope of Claims Before Deciding § 101 Issues
Two recent Federal Circuit decisions point to why there should be a Markman Hearing on patent claim construction to determine the scope of claims before deciding §101 subject matter patentability. A Markman Hearing is a legal proceeding in which the court construes the meaning of the claims.
In Bancorp Services v. Sun Life, decided by the Federal Circuit on July 26, 2012, the § 101 question was raised on a summary judgment motion. The patents in Bancorp describe a system for administering and tracking the value of life insurance policies. The lower court declined to construe numerous disputed terms prior to considering invalidity under § 101, relying on the lower court decisions in Ultramercial and Fuzzysharp Technologies for authority. On appeal, the Federal Circuit said that “we perceive no flaw in the notion that claim construction is not an inviolable prerequisite to a validity determination under § 101.” Op. 11. The court noted, however, that it will ordinarily be desirable—and often necessary—to resolve claim construction disputes prior to a 101 analysis, for the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter. Ibid.
In CLS Bank International v. Alice Corporation, decided by the Federal Circuit three weeks earlier on July 9, 2012, the lower court likewise decided the § 101 question without claims construction. The patents in CLS Bank describe a system for managing and tracking stock, currency, or other trade transactions and their settlement. The parties agreed to forego a Markman claim construction hearing, agreeing instead to apply a broad claim construction favorable to the defendant to decide the § 101 question. The lower court adopted the broad construction of the claims mutually agreed to by the parties but then inexplicably “read” into each element a requirement of a computer to implement. Accepting the lower court’s reading of the claims, the Federal Circuit went on to find that the claims as a whole recited an application specific computer and to hold the claims valid under § 101 for that reason.
A comparison of the claims in both Bancorp and CLS Bank indicate that the claims in the two cases are really not that much different and illustrate why a Markman Hearing should be required before making a § 101 decision.
The claims in Bancorp included method claims reciting elements like “generating a life insurance policy” and “calculating a policy unit value,” and “storing” and “removing” fee units for the current day. The system claims recited elements like “policy generator,” a “credit calculator,” a “digital storage” for storing policy unit values, and a “debitor” for debiting accounts¹. The claims were interpreted by the lower court and Federal Circuit based on a plain reading of the recited language, leading to the holding that the claims amounted to nothing more than a general computer implementation of an abstract idea.
The claims in CLS Bank included method, system and Beauregard claims reciting elements like “creating a shadow credit record and a shadow debit record” for each party and “electronically adjust[ing] said shadow credit record or shadow debit record” to ensure the monies were available come time to settle². On a plain reading, the claims in CLS Bank are arguably no different than the claims in Bancorp. Both require a computer to implement. However, the court in CLS Bank impermissibly imported computer application specific limitations into the claims (for example, “the court can reasonably assume for present purposes that the terms ‘shadow’ credit and/or debit record and ‘transaction’ in the ‘479 patent recite electronic implementation and a computer or an analogous electronic device.” Op. 23.) As computer application specific limitations, it is not surprising that the claims were upheld by the Federal Circuit.
Precisely this kind of impermissible importing of limitations into claims is one reason the Federal Circuit was reversed by the Supreme Court in Prometheus. The Federal Circuit impermissibly imported “liquid chromotography or other manipulation” into the step of “determining the level of 6-thioguanine;” and in so doing narrowed them sufficiently to avoid preemption of a fundamental principle³. The Supreme Court didn’t buy it. Based on their plain reading of the claims, the claims were found to be so broad as to preempt the fundamental principle.
Nonetheless, the CLS Bank decision stands as an important decision in that it recognizes that software claims that are recited in a way that makes the claims application specific are patentable subject matter. It is in the impermissible reading of computer application-specific limitations into the claims where the CLS Bank case breaks down. Claims should be limited to computer application specific structure only if the claims expressly recite such application-specific limitations or a Markman claim construction process properly imports such computer application specific limitations into the claims.
One way to import application-specific computer limitations into software claims is through the use of means-plus-function language as was noted by the Dealertrack court and we discussed in our Dealertrack Blog. Another way is to draft claims to contain “physical” or “virtual” links which connect the elements to something physical or tangible. For more on “physical” or “virtual” links refer to our earlier Blogs on the topic.
Still another useful way, as we presented at the University of Dayton last June, is the following. If the “function” sought to be served by the claim is an abstract process, then a recited computer (absent specific application recitations) in that claim is likely to be characterized as a general purpose computer. In other words, the computer will likely be characterized as having a function solely as an obvious mechanism for permitting a solution to be achieved more quickly, i.e., through the utilization of a computer for performing calculations. As a general computer, the recited computer will be removed from the subject matter patentability equation; thereby leaving a claim for an abstract process which is not patentable subject matter. Hence, for claims that are likely to be characterized as having an abstract function – such as software claims, the recited computer should be recited to be application specific or the claim will likely fail 101. In these cases, the computer must play a significant part in permitting the claimed method to be performed, otherwise the claim will fail under 101.
The Juhasz Burge PC Firm can help you to better understand the effect of Bancorp and CLS Bank on your software patents. For more information regarding these cases and advice on how these decisions may affect your patents, please contact The Juhasz Burge PC Firm. Your patents may be your most important asset. To help you protect your patents contact Juhasz Burge PC, the firm committed to Guiding Your Patent Beyond The Horizon℠.
[1] The District Court for the E.D. Missouri treated all of the “process,” “system,” and “method” claims as process claims.
[2] The U.S. District Court for the District of Columbia likewise treated all the method, system, and Beauregard claims as process claims.
[3] As the Federal Circuit held, the claims do not preempt a fundamental principle because they involve a transformation. As explained by the Federal Circuit, determining the levels of 6-TG or 6-MMP in a subject necessarily [also] involves a transformation, for those levels cannot be determined by mere inspection. Some form of manipulation, such as the high pressure liquid chromatography method specified in several of the asserted dependent claims or other modification of the substances to be measured, is necessary to extract the metabolites from a bodily sample and determine their concentration.