Alice Corporation v. CLS Bank: How Will the Supreme Court Decide?

By Eugene T. Perez and Brian Cannon

The Supreme Court recently granted certiorari [1] in the case CLS Bank Int’l v. Alice Corp. Pty. Ltd.[2] to address the following issue:

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[3] as interpreted by this Court.[4]

The highest Court’s answer should bring some clarity, which is currently mired in a seven-opinion Federal Circuit decision that provides five different approaches to the problem.

The Patents and Claims at Issue

The case is an appeal of an en banc decision that affirmed the patent invalidity (ineligible subject matter) of a “computerized trading platform used for conducting financial transactions.”[5] The invention was a computerized escrow system in which “a trusted third party” to a business transaction would “verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.”[6] The patents at issue comprised three types of claims—claims reciting “methods of exchanging obligations between parties,” claims “drawn to data processing [computer] systems,” and claims directed to “computer-readable media.”[7]

The Federal Circuit Garnered Majority Support for Two Holdings

The Federal Circuit decision garnered majority support for two holdings:

That Alice’s method and computer medium claims were directed to patent-ineligible subject matter;[8] and
The three types of claims at issue stand or fall together.[9]

There was a five-to-five split, and therefore no majority support, as to the patent eligibility of the systems claims.[10] The District Court holding of patent-ineligibility of all claims under § 101 was therefore affirmed.

The Federal Circuit opinion provides five ways in which the Supreme Court could assess the patentability of these types of claims.

Judge Lourie’s Opinion[11]– all claims are patent-ineligible for failure to provide the requisite inventive concept

Judge Lourie’s five-judge opinion states that none of the claims are patent eligible under § 101. Lourie’s approach requires that any invention falling within one of the judicially-created exceptions to patent eligibility[12] contain “a genuine human contribution to the claimed subject matter” that is “more than a trivial appendix to the underlying abstract idea.”[13] J. Lourie calls this contribution an “inventive concept,”[14] a phrase used in other Supreme Court decisions assessing patent eligibility under § 101.[15]

According to J. Lourie, the method, medium, and system claims are patent ineligible for failure to provide an inventive concept. J. Lourie first notes that the method claims are drawn to the abstract idea of “reducing settlement risk” through the use of an escrow.[16] The limitations include “creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records [with] exchange institution accounts.”[17] But these limitations fail to provide “anything of substance to the claim,” rendering it patent ineligible.[18] The recitation of a shadow record merely “recite[s] a basic function required of any financial intermediary in an escrow arrangement—tracking each party’s obligations and performance.”[19] Similarly, “the requirement of computer implementation … lacks any express language to define the computer’s participation.”[20] The use of an exchange institution is similarly deficient.[21] The method claims, therefore, are patent-ineligible under § 101.

J. Lourie also concludes that the system and medium claims are patent ineligible under § 101. Although these claims recite a “computer readable storage medium” as a limitation, the “true substance of the claim” is directed towards “the method steps of the program code ‘embodied in the medium.’”[22] The claims, then, are directed towards patent-ineligible methods and fail § 101 analysis.

Similarly, the system claims “recite[] a computerized system configured to carry out a series of steps that mirror Alice’s method claims.”[23] Because the limitations on the system claims are essentially identical to those of the patent-ineligible method claims, the limitations “are not actually limiting in the sense required under § 101” and therefore “provide no significant ‘inventive concept.’”[24] None of the claims, therefore, are patent eligible.

Judge Rader’s Opinion[25] **– only the computer system claims are patent eligible because only the system claims provide meaningful limitations restricting the abstract idea to a particularized application**

Judge Rader’s Opinion expressly refutes Judge Lourie’s “inventive concept” requirement. He notes the breadth of § 101 and emphasizes that “whether a new process, machine, and so on is ‘inventive’ is not an issue under Section 101,”[26]

because “the 1952 [Patent] Act replaced any need for an ‘invention’ or ‘inventiveness’ measure with an objective test for ‘obviousness’ in Section 103.”[27] Because of this, “any requirement for ‘inventiveness’ beyond sections 102 and 103 is inconsistent with the language of the Patent Act.”[28] Rather, “[t]he relevant inquiry must be whether a claim includes meaningful limitations” that “tie [the] idea to a concrete reality or actual application of [the] idea.”[29] For “[c]omputer-specific limitations,” the central question is “whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something.”[30]

Under this standard, J. Rader concludes that the computer system claims are patent eligible. These claims describe “the use of a computer and other hardware specifically programmed to solve a complex problem.”[31] Furthermore, the patent specification “discloses at least thirty-two figures which provide detailed algorithms for the software with which [the] hardware is to be programmed” and contains “numerous flowcharts that provide algorithm support for the functions recited in the claims.”[32] These elements constitute additional steps that are “not inherent” to an escrow.[33] As in Diehr, “[t]he abstract idea … is not disembodied at all, but is instead integrated into a system utilizing machines.”[34] The computer system claims are therefore patent eligible under § 101.

The method and medium claims, though, are not meaningfully limited and are therefore not patent eligible under § 101. A representative method claim recites two steps:

Creating shadow credit and debit records for the parties to the transaction; and
Obtaining the values for the previously created accounts to allow for their later manipulation.[35]

These steps are not meaningful limitations because “each step individually recites merely a general step inherent within the concept of an escrow.”[36] The medium claims were not separately analyzed because the parties had stipulated that the medium and method claims would rise or fall together.[37]

Judge Linn’s Opinion – based on the record before the court, all patent claims are patent-eligible because the same meaningful limitations are common to all

Judge Linn’s Opinion[38] concludes that all claims are “grounded by the same meaningful limitations” and are therefore patent eligible. [39] Based on the record before the court, Judge Lourie further emphasizes that all claims “must rise and fall together.”[40] The District Court did not perform claim construction at the summary judgment stage of the case. Rather, the District Court adopted Alice’s construction of the patent claims, which was that all claims must be performed using a computer.[41] During oral argument, CLS Bank confirmed that “every limitation and electronic process that appears in the system claims must be read into the method claims.”[42] The record, then, precludes parsing of the claims—they must rise or fall together.

While claim construction is typically reviewed de novo, such review is nevertheless dependent on the record before the court.[43] Where, as here, the interdependence of the claims is established as a fact in the record, the court should rely on that fact in conducting its analysis.

It is likely that Judge Linn would have reached the same conclusion even if the District Court had not adopted Alice’s claim construction.[44] Judge Linn notes that “the specific functionality described in the [patent] figures applies just as much to [the method claims] as to the system claims.”[45] One such figure is common to three of Alice’s patents, which collectively cover all three types of claims.[46] J. Linn, then, would likely find all claims patent eligible even if he chose to approach the record in the same manner as the other judges.

Judge Rader’s “Additional Reflections” – simplify the § 101 analysis by returning to the plain meaning of the statute

The Federal Circuit’s CLS Bank opinion concludes with a section entitled “Additional Reflections by Chief Judge Rader.”[47] Therein, Judge Rader describes his early experience with the case Arythmia Research Tech. v. Corazonix Corp., in which he was surprised by his colleagues’ struggles to apply the Freeman-Walter-Adele analysis to assess the patent eligibility of a computer algorithm under § 101.[48] In concurrence, J. Rader proposed an alternative approach: “When all else fails … consult the statute.” At the time, he felt that prior Supreme Court and CCPA precedent “vindicated the proposition that ‘all else had failed,’” and that the all-inclusive, sweeping language of § 101 allowed the patent-eligibility of such software without the need for “intellectual acrobatics” or “laborious analysis.”[49]

J. Rader suggests that recent § 101 jurisprudence provides another historical context in which all else has failed and the best approach is to “consult the statute!”[50] By this, J. Rader seems to mean that § 101 should be understood as a list of the types of “inventions and discoveries” that are eligible for patent protection, nothing more.[51]

In the “Additional Reflections” section, J. Rader provides no additional analysis of the patent-eligibility of Alice’s claims.

Judge Newman’s Opinion – Simplify the § 101 analysis by affirming both the plain meaning of the statute and that experimental use of patented information is permitted. Under this standard, all claims are patent-eligible under § 101.

After expressing her frustration with the “judicial deadlock” of the present case and the “distortions flowing from inconsistent precedent on section 101,” Judge Newman suggests that the Federal Circuit make three affirmations regarding § 101.[52] These affirmations are:

The court should hold that section 101 is an inclusive statement of patent-eligible subject matter.
The court should hold that the form of the claim does not determine section 101 eligibility.
The court should confirm that experimental use of patented information is not barred.[53]

The first two affirmations suggest that J. Newman is in agreement with J. Rader’s “Additional Reflections.”[54] The third affirmation suggests a desire to take J. Rader’s reflections further.

J. Newman’s third affirmation is motivated by her belief that “the debate about [§ 101 eligibility] swirls about concern for the public’s right to study the scientific and technologic knowledge contained in patents.”[55] This debate would diffuse “on clarification of the right to study and experiment with the knowledge disclosed in patents.”[56] Her solution is “that the court reaffirm the long-standing rule that study and experimentation are not infringement, whether the experimentation is for basic or applied purposes.”[57] J. Newman argues that this affirmation is sound patent policy that is consistent with judicial precedent.[58]

In addressing the case at issue, J. Newman writes two brief paragraphs stating that the claims “rise or fall” together and should all be held patent eligible under § 101.[59]

Will the Supreme Court Provide a Different and Final Answer?

It is possible that the Supreme Court will provide a sixth, distinct answer.

It will be interesting to see how the Supreme Court interprets Mayo, which is cited by Judges Lourie and Rader to support very different outcomes.[60]

It will also be interesting to see how Assoc. for Molecular Pathology v. Myriad Genetics, Inc. factors into the Supreme Court’s decision. Myriad held that claims directed towards naturally-occurring genomic DNA are not patent eligible under § 101, but claims to non-naturally-occurring cDNA are patent eligible.[61] In the CLS Bank decision, decided one month before Myriad, Judge Moore lamented, “[i]t has been a very long time indeed since the Supreme Court has taken a case which contains patent eligible claims.”[62] Myriad, then, may form an important part of the Supreme Court’s analysis, even though it involves a different area of technology than CLS Bank.[63]

See: http://www.supremecourt.gov/Search.aspx?FileName=/docketfiles/13-298.htm.
CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013) (en banc).
“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.” 35 U.S.C. § 101.
CLS Bank Int’l v. Alice Corp. Pty. Ltd., 134 S. Ct. 734 (2013).
CLS Bank, 717 F.3d at 1273 (per curiam).
Id. at 1274 (Lourie Opinion).
Id. (Lourie Opinion) (emphasis added).
Seven Judges—Judges Lourie, Dyk, Prost, Reyna, Wallach, Rader, and Moore—held that the medium and method claims were patent ineligible. Judges Linn, O’Malley, and Newman disagreed.
Only Judges Rader and Moore held that the claims did not rise or fall together.
Judge Lourie’s concurrence, joined by Judges Dyk, Prost, Reyna, and Wallach, argued for patent ineligibility of the system claims. Judge Rader’s concurrence, joined by Judges Linn, Moore, and O’Malley, argued for patent eligibility. Judge Newman wrote a separate opinion that also held the system claims to be patent eligible.
Judge Lourie’s opinion is joined by Judges Dyk, Prost, Reyna, and Wallach.
The exceptions are “laws of nature, natural phenomena, and abstract ideas.” Diamond v. Diehr, 450 U.S. 175, 185 (1981).
CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1283 (Fed. Cir. 2013) (en banc) (Lourie Opinion).
Id. at 1282 (Lourie Opinion).
See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012) (citing Parker v. Flook, 437 U.S. 584, 594 (1978)).
CLS Bank, 717 F.3d at 1286 (Lourie Opinion).
Id. (Lourie Opinion).
Id. (Lourie Opinion).
Id. at 1287 (Lourie Opinion).
Id. at 1286 (Lourie Opinion) (emphasis in original).
See id. at 1287 (Lourie Opinion).
Id. at 1288 (Lourie Opinion).
Id. at 1289 (Lourie Opinion).
Id. at 1291 (Lourie Opinion).
Judge Moore joins in the entirety of Judge Rader’s opinion. Judges Linn and O’Malley concur in part, separately holding that all claims are patent eligible under § 101. Judge Moore joins in the entirety of Judge Rader’s opinion and writes a separate opinion, joined by Judges Rader, Linn, and O’Malley, that affirms the patent eligibility of the computer system claims under § 101.
Id. at 1294 (Rader Opinion).
Id. at 1296 (Rader Opinion).
Id. at 1297 (Rader Opinion).
Id. at 1299–1300 (Rader Opinion) (emphasis in original). Such limitations are present where the claim “requires a particular machine implementing a process or a particular transformation of matter” or “recites added limitations which are essential to the invention.” Id. at 1301 (Rader Opinion). Meaningful limitations are absent if the claim “merely describes an abstract idea or simply adds ‘apply it,’” “contains only insignificant or token pre- or post-solution activity,” or “if its purported limitations provide no real direction, cover all possible ways to achieve the provided result, or are overly-generalized.” Id. at 1300–01 (Rader Opinion) (citing Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)).
CLS Bank, 717 F.3d at 1302 (Rader Opinion).
Id. at 1307 (Rader Opinion).
Id. (Rader Opinion).
Id. at 1310 (Rader Opinion).
Id. at 1311 (Rader Opinion).
Id. at 1312 (Rader Opinion).
Id. (Rader Opinion).
Id. at 1311 (Rader Opinion).
Judge Linn’s opinion was joined by Judge O’Malley.
Id. at 1327 (Linn Opinion).
Id. (Linn Opinion).
Id. at 1328 (Linn Opinion).
Id. at 1329 (Linn Opinion) (citation omitted).
Id. at 1331–32 (Linn Opinion).
See id. at 1332 (Linn Opinion) (“For the reasons we describe herein, … we would employ the same rationale we employed for the system claims to find the method and media claims patent eligible as well.”).
Id. at 1330 (Linn Opinion).
Id. (Linn Opinion).
Id. at 1333 (Rader Reflections).
Arythmia Research Tech. v. Corazonix Corp., 958 F.2d 1053 (Fed Cir. 1992).
CLS Bank, 717 F.3d at 1334 (Rader Reflections) (quoting Arythmia).
CLS Bank, 717 F.3d at 1335 (Rader Reflections) (“And for evidence that all else has failed, I need only recite [Bilski v. Kappos, Mayo v. Prometheus, Ass’n for Molecular Pathology v. U.S. Patent and Trademark Office, and several other Federal Circuit cases].”).
See CLS Bank, 717 F.3d at 1335 (Rader Reflections).
Id. at 1321 (Newman Opinion).
Id. at 1322 (Newman Opinion).
See id. at 1326 (Newman Opinion) (“I propose that the court return to the statute, and hold that when the subject matter is within the statutory classes in section 101, eligibility is established.”) (emphasis added).
Id. at 1321 (Newman Opinion).
Id. at 1322 (Newman Opinion).
Id. (Newman Opinion).
See id. at 1322–25 (Newman Opinion).
Id. at 1327 (Newman Opinion).
See id. at 1303 n. 5 (Rader Opinion) (“Judge Lourie’s opinion takes the reference to an ‘inventive concept’ in Prometheus and imbues it with a life that is neither consistent with the Patent Act’s description of Section 101 nor with the totality of Supreme Court precedent regarding the narrow exceptions thereto.”).
Assoc. for Molecular Pathology v. Myriad Genetics, Inc., 186 L. Ed. 124, 128 (2013).
CLS Bank, 717 F.3d at 1314 (Moore Opinion).
See Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1300 (2012) (discussing a 19^th-century method for heating a furnace in assessing the § 101 eligibility of a 21^st-century method for treating autoimmune diseases).