CLS Bank Int'l v. Alice Corp.: En Banc Split on 101

Category: 101 




* This is a brief of the plurality opinion, and various dissents and concurrences. The majority opinion was a two sentence per curiam decision of the district court's findings.

** The SCOTUS granted cert. and affirmed the per curiam decision. Its analysis modified the plurality opinion below.  

By: Jesus Hernandez, Blog Editor/Contributor

TitleCLS Bank Int'l v. Alice Corp., No. 2011-1301 (Fed. Cir. May 10, 2013) (en banc, split).
Issue"a. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible “abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?" CLS Bank Int'l, Rader/Moore Op. at *4.
"b. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?" Id.
Holdinga. “[T]he following analysis should apply in determining whether a computer-implemented claim recites patent-eligible subject matter under § 101 or falls into the common law exception for abstract ideas. [Inquiry 1] The first question is whether the claimed invention fits within one of the four statutory classes set out in § 101. […] [Inquiry 2] [T]he analysis turns to the judicial exceptions to subject-matter eligibility. A preliminary question in applying the exceptions to such claims is whether the claim raises § 101 abstractness concerns at all. […] [Inquiry 3] Where bona fide § 101 concerns arise […] it is important at the outset to identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing. […] [Inquiry 4] The §101 inquiry next proceeds to the requisite preemption analysis.“ CLS Bank Int’l, at * 17-19 (emphasis/numbering added).
b. "[A]pplying a presumptively different approach to system claims generally would reward precisely the type of clever claim drafting that the Supreme Court has repeatedly instructed us to ignore. As illustrated by the obvious parallels between the method and system claims now before us, it is often a straightforward exercise to translate a method claim into system form, and vice versa." CLS Bank Int’l, at *33.

Procedural History"Alice Corporation (“Alice”) appeals from the grant of summary judgment in favor of declaratory judgment plaintiffs CLS Bank International and CLS Services, Ltd. (collectively, “CLS”) by the United States District Court for the District of Columbia holding that certain claims of Alice’s U.S. Patents […] are invalid under 35 U.S.C. § 101. […] On July 9, 2012, a panel of this court reversed, holding that the claims at issue, including claims drawn to methods, computer-readable media, and systems, were all patent eligible under § 101. […] CLS filed a petition for rehearing en banc, which was granted on October 9, 2012." CLS Bank Int'l, at *1-2.
Caveat: "No portion of any opinion issued today other than our Per Curiam Judgment garners a majority. The court is evenly split on the patent eligibility of the system claims. Although a majority of the judges on the court agree that the method claims do not recite patent eligible subject matter, no majority of those judges agrees as to the legal rationale for that conclusion. Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent." CLS Bank Int’l, Rader/Moore Op. at n1 (emphasis added).
Legal Reasoning (Majority Op.: Lourie, Dyk, Prost, Reyna, Wallach)
Method Claims
Claim LanguageA method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of: (a) creating a shadow credit record and a shadow debit record for each stakeholder party […]; (b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record; (c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party's shadow credit record or shadow debit record, […] ; and (d) at the end-of-day, the supervisory institution instructing ones of the exchange institutions to exchange credits or debits to the credit record and debit record […].” CLS Bank Int'l, at *24 (emphasis added).
[Inquiry 1]: Statutory Class"Claim 33 plainly recites a process. The issue presented then becomes whether that process amounts to no more than a patent-ineligible abstract idea." CLS Bank Int'l, at *25.
[Inquiry 2]: Abstractness /Preemption Concerns Raised"The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a “disembodied” concept, In re Alappat, 33 F.3d 1526, 1544 (Fed. Cir. 1994) (en banc), a basic building block of human ingenuity, untethered from any real-world application. Standing alone, that abstract idea is not patent-eligible subject matter." CLS Bank Int'l, at *25-26.
[Inquiry 3]: ID the Fundamental Concept"The methods claimed here draw on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary (here, the supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow." CLS Bank Int'l, at *25.
[Inquiry 4]: Preemption Analysis"The analysis therefore turns to whether the balance of the claim adds 'significantly more.' Apart from the idea of third-party intermediation, the claim’s substantive limitations require creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. None of those limitations adds anything of substance to the claim." CLS Bank Int'l, at *26.
Beauregard Claims
Claim Language"A computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party, the computer program product comprising: program code for causing a computer to send a transaction from said first party relating to an exchange obligation arising from a currency exchange transaction […]; and program code for causing a computer to allow viewing of information relating to processing, by a supervisory institution, of said exchange obligation, wherein said processing includes (1) maintaining information about a first account for the first party [...]; (2) electronically adjusting said first account and said third account, in order to effect an exchange obligation […]; and (3) generating an instruction to said first exchange institution and/or said second exchange institution […]." CLS Bank Int'l, at *29-30 (emphasis added).
Equivalency of Method Claims and Beauregard Claims"Here, although the claim’s preamble appears to invoke a physical object, the claim term 'computer readable storage medium' is stated in broad and functional terms— incidental to the claim—and every substantive limitation presented in the body of the claim […] pertains to the method steps of the program code 'embodied in the medium.' Therefore, claim 39 is not 'truly drawn to a specific computer readable medium, rather than to the underlying method' of reducing settlement risk using a third-party intermediary." CLS Bank Int'l, at *30.
"Of course, all claims are normally to be considered separately, but discrete claims reciting subject matter only nominally from different statutory classes may warrant similar substantive treatment under § 101 when, in practical effect, they cover the same invention. That may be particularly apparent where, as here, a claim presents a physical recitation of an abstract method, and parallel claims from the same patent family claim that same abstract method in the same or similar terms." CLS Bank Int'l, at *31.
System Claims
Claim Language"A data processing system to enable the exchange of an obligation between parties, the system comprising: a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party […]; and a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, […]; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record […]." CLS Bank Int'l, at *32 (emphasis added).
Equivalency of Method Claims and System Claims"[A]pplying a presumptively different approach to system claims generally would reward precisely the type of clever claim drafting that the Supreme Court has repeatedly instructed us to ignore. As illustrated by the obvious parallels between the method and system claims now before us, it is often a straightforward exercise to translate a method claim into system form, and vice versa. That much has long been recognized. See In re Johnston, 502 F.2d 765, 773 (CCPA 1974) (Rich, J., dissenting) (noting that “[e]very competent draftsman” knows how to cast method claims “in machine system form”)." CLS Bank Int’l, at *33.
"The computer-based limitations recited in the system claims here cannot support any meaningful distinction from the computer-based limitations that failed to supply an “inventive concept” to the related method claims. […] Instead of wholly implied computer limitations, the system claims recite a handful of computer components in generic, functional terms that would encompass any device capable of performing the same ubiquitous calculation, storage, and connectivity functions required by the method claims." CLS Bank Int’l, at *36.
Conclusion"As described, we agree with the district court and conclude that the asserted method, computer-readable medium, and system claims of Alice’s ’479, ’510, ’720, and ’375 patents are invalid under § 101 for failure to recite patent-eligible subject matter." CLS Bank Int’l, at *38.
Dissent-in-Part/Concur-in-Part Op.: "RADER, Chief Judge, LINN, MOORE, and O’MALLEY, Circuit Judges, as to all but part VI [method claim analysis], concurring-in-part and dissenting-in-part. RADER, Chief Judge, and MOORE, Circuit Judge, as to part VI.1 [method claim analysis]." CLS Bank Int’l, Rader/Moore Op. at *1 (emphasis added).
Dissent of [Inquiry 3]"Any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. Such an approach would 'if carried to its extreme, make all inventions unpatentable because all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious.' […] A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims." CLS Bank Int’l, Rader/Moore Op. at *13.
Dissent of Ineligibility of System Claims"Specifically, the claimed data processing system is limited to an implementation of the invention that includes at least four separate structural components: a computer, a first party device, a data storage unit, and a communications controller coupled via machine components to the computer and the first party device. The claim further limits the system by requiring a structural configuration that 'receive[s],' 'electronically adjust[s],' and 'generate[s]' according to the specific requirements of the system. These are traditional hardware claims and the ’375 Patent discloses at least thirty-two figures which provide detailed algorithms for the software with which this hardware is to be programmed." CLS Bank Int’l, Rader/Moore Op. at *31.
"It would be improper for the court to ignore these limitations and instead attempt to identify some 'gist' or 'heart' of the invention." CLS Bank Int’l, Rader/Moore Op. at *35.
Concurrence of Ineligibility of Method Claims [Part VI]"[E]ach step individually recites merely a general step inherent within the concept of an escrow, using a third party intermediary in this fashion. While the claim certainly limits use of an escrow to the context of this particular field, that attempted limitation is not enough. […] [W]e note that the method claims do not mention a computer. […] Even so, the district court assumed 'the single fact' that the 'method claims are implemented by computer . . . .' […] Putting to the side whether this construction was correct, […], even assuming the method claims require use of a computer in some unspecified way, this implicit reference to computer 'implementation' is not, by itself, enough. To sum up, the claim as a whole embraces using an escrow to avoid risk of one party’s inability to pay—an abstract concept." CLS Bank Int’l, Rader/Moore Op. at *41.
Dissent-in-Part Op.: "Dissenting-in-part opinion filed by MOORE, Circuit Judge, in which RADER, Chief Judge, and LINN and O’MALLEY, Circuit Judges, join." CLS Bank Int’l, Rader/Linn/O'Malley Op. at *1.
Dissent of Equivalency of Method, System, and Beauregard Claims"The Supreme Court has taken a number of our recent decisions and, in each instance, concluded that the claims at issue were not patent-eligible. See Bilski, Prometheus, Myriad (under consideration). Today, several of my colleagues would take that precedent significantly further, lumping together the asserted method, media, and system claims, and holding that they are all patent-ineligible under § 101. Holding that all of these claims are directed to no more than an abstract idea gives staggering breadth to what is meant to be a narrow judicial exception." CLS Bank Int’l, Rader/Linn/O'Malley Op. at *2.
"[A] claim to a structurally defined machine is more than a method claim rewritten in system form. It is a practical application of the underlying idea, limited to the specific hardware recited and the algorithms disclosed to perform the recited functions." CLS Bank Int’l, Rader/Linn/O'Malley Op. at *9.
"Looking at these hardware and software elements, it is impossible to conclude that this claim is merely an abstract idea. It is a pure system claim, directed to a specific machine configured to perform certain functions. Indeed, the computer covered by this claim is a tangible item that you could pick up and put on your desk. It is not a method claim simply disguised as a machine claim, nor does it incorporate the computer elements in an insignificant way." CLS Bank Int’l, Rader/Linn/O'Malley Op. at *13.
Dissent-in-Part/Concur-in-Part Op.: "NEWMAN, Circuit Judge, concurring in part, dissenting in part." CLS Bank Int’l, Newman Op. at *1.
Concurrence on Equivalency of Method, System, and Beauregard Claims"I propose that the court make clear that patent eligibility does not depend on the form of the claim, whether computer-implemented innovations are claimed as a method or a system or a storage medium, whether implemented in hardware or software. Patent eligibility does not turn on the ingenuity of the draftsman." CLS Bank Int’l, Newman Op. at *4.
Dissent of Inquiry [2-4]"The court should […] abandon its failed section 101 ventures into abstraction, preemption, and meaningfulness."CLS Bank Int’l, Newman Op. at *12-13.
"I share the majority view that all of the claims stand or fall together. [However,] I would hold that the system, the method, and the media claims are eligible under section 101, and would remand to the district court for determination of patentability under the substantive provisions of the statute." CLS Bank Int’l, Newman Op. at *14.
Dissenting Op.: "LINN and O’MALLEY, Circuit Judges, dissenting from the Court’s judgment." CLS Bank Int’l, Linn/O'Malley Op. at *1.
Dissent of Ineligibility of Method Claims [also addressing Part VI of Rader/Moore Op.]"We must look then to the construction posited by Alice at the summary judgment stage to understand the claims before us. It is undisputed that Alice claimed that 'the entirety of Alice’s method [as recited in the ’479 and ’510 patents]—including the ‘adjusting’ step that effectuates the claimed exchange of obligations—must be performed electronically using a computer and memory.'" CLS Bank Int’l, Linn/O'Malley Op. at *3-4 (emphasis added).
"[B]arring an actual construction of the claims, we must assume the method claims are just as specific as the system claims, and merit the same treatment we afford those latter claims." CLS Bank Int’l, Linn/O'Malley Op. at *8.
Dissent of [Inquiry 3] and Equivalency of Method and System Claims"By starting with a paraphrased abstraction of the claims and excluding the record evidence regarding the meaning of the claims, Judge Lourie preordains the method claims ineligible. Judge Lourie then reads into the system claims the same abstraction he felt damned the method claims." CLS Bank Int’l, Linn/O'Malley Op. at *9.
Additional Op.: "Additional Reflections of Chief Judge Rader." CLS Bank Int’l, Rader Op. at *1.
On 101 as a defense to infringement"[T]he statute does not list Section 101 among invalidity defenses to infringement. See 35 U.S.C. § 282 (while invalidity for failing to meet a “condition of patentability” is among the authorized defenses, Section 101 is not a “condition of patenta- bility”)." CLS Bank Int’l, Rader Op. at *4-5.
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