written by James Klobucar, Esq., Patent Attorney at Gearhart Law
The Supreme Court recently accepted another patent law case directed to software inventions (i.e. computer-implemented inventions) by adding Alice Corporation Pty. Ltd. v. CLS Bank International to its docket. At issue, is whether claims to computer-implemented inventions, including claims to systems and machines, processes, and items of manufacture, are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101. The case was initially filed by CLS Bank International in May 2007 and passed through various courts over the years. Eventually, the Federal Circuit for the U.S. Court of Appeals, sitting en banc, found the claims in the asserted patent(s) in question to be invalid, however, the Justices could not agree on the applicable standard by which to invalidate, which prompted the Supreme Court to step in and clarify the lower court’s position.
In this case, Alice asserted four different, but related patents against CLS. The patents pertain to “the management of risk relating to specified, yet unknown, future events.” More specifically, the patents focused on using a reputable third party to oversee and facilitate financial transactions through a computerized platform which absolves various financial settlement risks including only one party paying their financial obligation. Thus, the third party can ensure both parties oblige or neither party obliges. Alice asserts that their methodology is tied to a particular system, while CLS argues that such a methodology is an abstract idea not patentable under U.S. patent law.
Per 35 U.S.C. § 101, "whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." It is important to note that this section only defines matter that is patent eligible, not necessarily patentable. Further while these qualifications are interpreted broadly, laws of nature, natural phenomena, and abstract ideas are explicitly disqualified from being patentable. Thus, it would seem the language of Section 101 is fairly clear, however, its application, especially with regard to computer implemented inventions, has been anything but.
A representative claim of the asserted methodology is as follows:
Claim 33. A 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 to be held independently by a supervisory institution from the exchange institutions;
(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, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; 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 of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.
The above claim merely recites a process which leads to the question whether that process is patentable or merely an abstract idea as CLS claims. The Federal Circuit, in part, agreed with CLS in that this broad, non-technical claim is nothing more than a “basic concept of protecting against risk” and the addition of a computer to provide generic functions does nothing to limit the claim and therefore does not satisfy Section 101 as patentable. Included in this assessment were also claims to a computer readable medium and data processing. The problem with this ruling from the Federal Circuit is that there was no majority opinion; however, 7 out of 10 Justices agreed the claims were invalid under Section 101. The Justices authored a number of concurring and dissenting opinions on why the claims were or were not valid. With no clear voice on such an important matter as patent eligibility, the Supreme Court rightfully granted certiorari and will hear the case in the coming months to hopefully further clarify the Federal Circuit’s position.
Lyle Denniston, Court to rule on patent rights, SCOTUSblog (Dec. 6, 2013, 12:35 PM), http://www.scotusblog.com/2013/12/court-to-rule-on-patent-rights/