Patent-eligibility of Software Continues to Divide the Federal Circuit

Patent-eligibility of SoftwareThe Federal Circuit continues to struggle with software patentability, even after the Supreme Court’s decisions in Mayo v. Prometheus and In re Bilski. As you probably remember, those cases struck down patents for failing to claim patent-eligible subject matter under 35 U.S.C. § 101. Bilski dealt with a method of hedging investments, and Prometheus dealt with medical diagnostic methods. But neither case directly addressed the patent-eligibility of software.

As a result, as I wrote a while ago, it’s tough to predict what the court will do for any given software patent. In this post, I’ll look at 3 recent cases that show how badly divided the court still is. And, I’ll tell you about new hope that this uncertainty is likely to end.

Patenting Escrow: Can you hold this for me?

First up is a case where the court considered a patent for, basically, an electronic escrow account.

CLS Bank International v. Alice Corp., No. 2011–1301 (Fed. Cir. July 9, 2012) (Judges Linn, Prost, and O’Malley)

Alice sued CLS for patent infringement. Here’s an example of the claims:

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 [sic] 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 one 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.

Are You Absolutely Sure That’s Not Patentable?

Do you see a computer, or any kind of machine, in that claim? The district court didn’t and held that this claim, along with other analogous claims, were invalid under 35 U.S.C. § 101 for failing to claim patentable subject matter.

The Federal Circuit didn’t agree. The majority, in a fairly narrow reading of Prometheus, held that if “it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101.” (See majority opinion at 20.) Applying that standard, the court found that the term “shadow credit record” referred to an electronic record, which, at a minimum, cast doubt on whether the claim is just an abstract idea. It reversed the district court and held that the claims were directed to patentable subject matter.

Judge Prost dissented, and she argued that the majority was basically ignoring Prometheus. She worried that

district courts and litigants will now face a difficult task in deciphering the law and harmonizing precedent: What is it that sets Benson, Bilski, and Prometheus—and Dealertrack—apart from this case, and what legal principle justifies responding to a unanimous Supreme Court decision against patentability with even a stricter subject matter standard? I do not know, and I cannot find the answer in the majority opinion.

(See dissenting opinion at page 8.)

The majority is definitely setting a fairly high bar to prove that a patent is invalid under 35 U.S.C. § 101. It sounds like they’re using something closer to a “beyond a reasonable doubt” standard for invalidating a patent under § 101 rather than the “clear and convincing evidence” standard that the court normally uses when determining whether a patent is invalid.

It’s hard to know if this higher bar will take hold, or if this is a one-time thing. Based on the next case, it seems like it may not last long.

I Got Your Piece of the Rock Right Here…

The Bancorp case came out differently, with Judge Prost in the majority this time.

Bancorp Services, LLC v. Sun Life Assurance Co. of Canada, No. 2011–1467 (Fed. Cir. July 26, 2012) (Judges Lourie, Prost, and Wallach)

Bancorp sued Sun Life for patent infringement. As in CLS Bank, the district court invalidated Bancorp’s patents as invalid under 35 U.S.C. § 101.

Here’s a sample claim from one of Bancorp’s patents:

9. A method for managing a life insurance policy comprising:

generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities of the stable value protected investment;

calculating fees for members of a management group which manage the life insurance policy;

calculating credits for the stable value protected investment of the life insurance policy;

determining an investment value and a value of the underlying securities of the stable value protected investment for the current day;

calculating a policy value and a policy unit value for the current day; storing the policy unit value for the current day; and

removing a value of the fees for members of the management group which manage the life insurance policy.

Unlike the panel in CLS Bank, this panel found that this claim was directed to unpatentable subject matter. It said that using a computer to make an otherwise manual task more efficient doesn’t make a claim patent-eligible.

This is certainly a broader interpretation of Prometheus than the CLS opinion. Whatever one thinks the correct one is, these two opinions are hard to fit together in a consistent way. The panel explained that this case was different from CLS because there it wasn’t clear that the claims were not directed to a “very specific application” where the computer played a “significant part” of the invention. Basically, there is no computer or “electronic record” or similar limitation in Bancorp’s claims.

And then there’s this next case. The majority decision wasn’t about § 101, but it’s Judge Mayer’s dissent that’s germane.

Who’s (Re)minding the Store?

Whitserve, LLC v. Computer Packages, Inc., No. 2011–1206, –1261 (Fed. Cir. Aug. 7, 2012) (Judges Prost, Mayer, and O’Malley)

The majority opinion in this patent infringement case is fairly straightforward, if long. The court affirmed a jury verdict of infringement and (mostly) affirmed the jury’s determination that Whitserve’s patents are not invalid, although it did vacate the damages award. The majority didn’t consider patent-eligibility.

But Judge Mayer, in dissent, argued that it should have. Judge Mayer, as he has before, argued that the court should use subject matter patentability under 35 U.S.C. § 101 as a threshold question. Furthermore, he argued that Whitserve’s patents wouldn’t get past that threshold.

Whitserve’s patents are directed to methods of “delivering professional services to a client.” Here’s a sample claim:

A device for automatically delivering professional services to a client comprising:

a computer;

a database containing a plurality of client reminders, each of the client reminders comprising a date field having a value attributed thereto;

software executing on said computer for automatically querying said database by the values attributed to each client reminder date field to retrieve a client reminder;

software executing on said computer for automatically generating a client response form based on the retrieved client reminder;

a communication link between said computer and the Internet;

software executing on said computer for automatically transmitting the client response form to the client through said communication link; and,

software executing on said computer for automatically receiving a reply to the response form from the client through said communication link.

In Judge Mayer’s opinion, Prometheus changed the landscape enough that even though the parties didn’t brief the issue, the court could still use patent-eligibility as a gatekeeper. He argued that Whitserve’s patent claimed little more than giving reminders of due dates and deadlines.

Judge Mayer did not address the CLS Bank standard.

A Standard for Patent-Eligibility of Software: Third time’s the charm?

That’s three cases, three opinions, and it seems that none the judges has shifted much after Prometheus. Rather, Prometheus seems to have reinforced whatever positions the judges already had.

But, there is hope for clarity: CLS Bank was just taken en banc by the Federal Circuit. Here are the two questions the court is asking the parties to brief:

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?

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?

The big § 101 cases we’ve had up until now, Bilski and Prometheus, didn’t deal with software, so it is perhaps understandable that panels have applied them inconsistently. CLS Bank looks like it will finally address the patent-eligibility of software head on.

We’ll keep you posted!

 

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