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Vedder Thinking | Articles When Judges Collide: En Banc CAFC Fails to Clarify Law Regarding Patent Subject Matter Eligibility

Newsletter/Bulletin

On May 10, 2013, the Court of Appeals for the Federal Circuit (CAFC) issued its decision in CLS Bank International v. Alice Corp., which many had hoped would clarify the law as to what constitutes patent-eligible subject matter, particularly with regard to “software” or “business method” inventions. Instead, the only conclusion reached was to affirm the trial court’s holding that none of the claims was directed to patent-eligible subject matter. In coming to this result, however, no majority was reached as to the proper legal basis for assessing subject matter eligibility. As stated by Chief Judge Rader, “[T]hough much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.”

The Alice Corporation’s patents include claims that may be categorized as method, computer-readable media (CRM) and system claims, each encompassing Alice’s escrow technique for “exchanging obligations in which a trusted third party settles obligations between a first party and a second party in order to eliminate ‘settlement risk.’” In affirming the district court’s decision, five of the judges (Lourie, Dyk, Prost, Reyna and Wallach) asserted that all of the claims were ineligible for patent protection due to the “abstractness” of the method claims. They then extended that reasoning to the CRM and system claims by “[looking] past the drafting formalities and [letting] the true substance of the claims guide [their] analysis.”

Staking out what might be considered a “middle ground” position, Chief Judge Rader and Judge Moore asserted that the system claims embraced patent-eligible subject matter, but not the method and CRM claims. Noting that Congress intended 35 U.S.C. § 101 to be broadly inclusive of patent-eligible subject matter, and that the judicially created exceptions to subject matter eligibility are narrow, the two judges opined that the system claims encompassed patent-eligible subject matter because they clearly recite computer hardware elements. Interestingly, despite their recognition that claims should be analyzed as a whole, these judges felt that neither the method nor the CRM claims passed eligibility muster because the individual method steps, as recited, were “inherent” in the general concept of an escrow and, thus, fatally abstract.

At the other end of the spectrum, Judges Newman, Linn and O’Malley believed that all of the claims embraced eligible subject matter. Judge Newman viewed Section 101 as intended to be broadly inclusive and unaffected by the particular form of a given claim. She also dismissed as unfounded fears that allegedly overbroad patents might prevent research, in light of existing “experimental use” case law. Focusing more on the actual record of the trial court, Judges Linn and O’Malley relied on the parties’ stipulations that all of the claims required computer implementation. On this basis, and adopting the legal standards propounded by Chief Judge Rader, they had little difficulty in finding patent-eligible subject matter in the method and CRM claims.

Because the court was not able to offer any clarity as to what constitutes eligible subject matter, and, indeed, appeared to further muddy the waters in this regard, it can be anticipated that patent-eligible subject matter, particularly in the context of computer-implemented inventions, will remain a contentious area of patent law for the foreseeable future.

If you have questions about CLS Bank International v. Alice Corp., or for more information on protecting electrical and computer inventions or enforcing electrical and computer patents, please contact Christopher P. Moreno at +1 (312) 609 7842 or your Vedder Price attorney.