Federal Circuit Attempts to Provide Guidance for Business Method Patent Eligibility
The Federal Circuit and the U.S. Supreme Court do not seem to agree on much these days when it comes to patent law, and in particular, the thorny question of whether something qualifies as "statutory subject matter" under the Patent Statute. "Statutory subject matter" refers to whether something is the type of thing that can be patented, regardless of whether it is sufficiently new.
In its 2009 Bilski decision, the Supreme Court affirmed that business methods may be patentable (i.e., they are not per se unpatentable). However, the Court invalidated the claims at issue as being improperly drawn to an "abstract" principle. Unfortunately, the Court provided little guidance for determining whether something is "abstract" and under what circumstances business methods would pass statutory subject matter muster. In our April newsletter, we discussed the Prometheus decision in which the Supreme Court struck down medical diagnostic patent claims for lacking statutory subject matter. In that case, the Court adopted an analytical approach that many patent practitioners took issue with, as it disaggregated the elements of patent claims and then asked whether the "new" elements were "abstract."
The Federal Circuit continues to strive for workable and predictable rules in determining whether something qualifies as statutory subject matter. Last week, in CLS Bank Int'l, et al., v. Alice Corp. Pty. Ltd., (Case No. 2011-1301), the Court upheld business method patent claims directed to a computerized trading platform for exchanging obligations in which a third party settles obligations between a first party and a second party. The claimed invention seeks to eliminate "settlement risk," i.e., the risk that one party's obligation will be paid, leaving the other party without its principal.
The Court held that "The abstractness of the 'abstract ideas' test to patent eligibility has become a serious problem, leading to great uncertainty and the devaluing of inventions of practical utility and economic potential." Slip Opinion at 13-14. The Court again re-iterated the principle that the mere implementation of an abstract idea on a computer will not render an invention patentable and distinguished that scenario from one in which the computer limitations "play a significant role in permitting the claimed method to be performed, rather than functioning solely as a obvious mechanism for permitting a solution to be achieved more quickly." Slip Opinion at 18.
In an apparent rebuttal to the Prometheus decision, the Federal Circuit cited a portion of the Supreme Court's earlier decision in the Diehr case which held that "It is inappropriate to dissect [a patent] claim into old and new elements and then to ignore the presence of the old elements in the analysis," which is the approach that the Prometheus opinion endorses. Slip Opinion at 19. Also in an apparent response to Prometheus, the Federal Circuit held that it is improper to paraphrase or "distill" claim language to mere generalities in an effort to reduce it to unpatentable abstract principles:
Any claim can be stripped down, or simplified, removing all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. But nothing in the Supreme Court's precedent, nor in ours, allows a court to go hunting for abstractions by ignoring the concrete, palpable, tangible, and otherwise not abstract invention the patentee actually claims.
Slip Opinion at 19.
In addition, the Federal Circuit has now apparently heightened the standard for denying patent protection for lack of statutory subject matter, holding that a patent claim is not impermissibly abstract for purposes of subject matter eligibility "[u]nless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or a disembodied concept, with no limitations in the claim attaching that idea to a specific application . . . ." Id. at 21.
So, where does CLS leave clients seeking to patent business methods? In CLS, the Federal Circuit evaluated the various claim limitations to see to what extent they implicated the use of a computer. Much of the case's outcome was based on claim constructions that ascribed computerization requirements to claim elements that did not otherwise facially require them. Under CLS the key to surviving a statutory subject matter challenge appears to lie in linking individual system components or method steps to part of the computer's structure, e.g., a data base stored on a storage medium, a program stored on a storage medium and executed by the CPU, interaction between computerized components in carrying out the steps of the invention, etc.
The CLS opinion distinguished the Bilski claims as lacking computer limitations that play a significant part in the performance of the invention. However, the dissent (by Judge Prost) found this distinction unpersuasive and the majority opinion irreconcilable with the Prometheus decision. The majority opinion also suggests that it may be important to emphasize the computerized implementation of the business method in the specification to avoid the suggestion that computer hardware claim limitations are merely "clever drafting" intended to cosmetically define an invention so as to be deemed statutory subject matter.
We have not yet seen a Supreme Court decision that applies the abstract principle test of Bilski and Prometheus to uphold a business method claim's validity. On their facts, it is somewhat difficult to reconcile the outcomes of Bilski and CLS. Thus, whether and under what circumstances the Supreme Court would actually find a business method to be patentable remains to be seen.