One of the most common complaints about the U.S. patent system is that inventors are claiming ownership of basic, widely understood ideas. No doubt aware of these criticisms, the U.S. Court of Appeals for the Federal Circuit has agreed to revisit its definition of patent-eligible subject matter in an upcoming case. Experts are watching the case closely; the question is whether this will be the case that finally offers some real clarity.
On February 8, the Federal Circuit will hold an en banc argument in CLS Bank International v. Alice Corp., a case concerning the validity of patents for a computerized method of conducting financial transactions. A panel of Federal Circuit judges ruled, 2-1, in July that the patents are valid. Judge Sharon Prost wrote a sharp dissent, in which she described the claimed invention at issue as "literally ancient," and accused her colleagues of muddying the standard for patent-eligibility. The full court agreed in November to rehear the case.
The CLS Bank rehearing is the culmination of years of debate over how to interpret Section 101 of the Patent Act, which provides for the issuance of a patent to a person who invents or discovers any new and useful "manufacture," "process" or "composition of matter." The U.S. Supreme Court later created exceptions for abstract ideas, natural phenomenons or laws of nature.
Tech titans like Google Inc. and advocacy groups like the Electronic Frontier Foundation want judges and patent examiners to reject more patents on Section 101 grounds. Google, EFF and their allies argue that the U.S. Patent and Trademark Office (PTO) has granted too many dubious patents, particularly in the software field, forcing innovative companies to spend time and money battling meritless infringement claims in court. EFF and other advocacy groups are particularly opposed to software patents, which they argue sometimes take age-old processes and simply add a computer. Another source of ire are patents on ways of doing business — so-called business method patents.The PTO has argued that Section 101 is intended to be a crude filter, and that other provisions of the Patent Act can weed out meritless patents. Plenty of academics and practitioners support this view. Older, more patent-rich tech companies like International Business Machines Corp. also tend to support a relatively broad definition of patent-eligible subject matter, but with some limits. The Internet giant Amazon.com Inc. has supported both software and business method patents, although chief executive officer Jeff Bezos has recommended shortening their lifespan from 20 years to three to five years.Critics of software and method patents hoped the U.S. Supreme Court would clarify the scope of Section 101 in 2010′s Bilski v. Kappos. Instead, the high court, by a vote of 5-4, rejected an attempt by the Federal Circuit to craft a single, exhaustive test for determining patent eligibility.
Since the Supreme Court decided Bilski, three-judge panels of the Federal Circuit have issued a string of eight decisions interpreting Section 101. The court seemed to seek out opportunities to shape the definition of patent eligibility.
The CLS Bank case presented one such opportunity. Alice Corp. holds patents covering a computerized method of minimizing the risk that one party to a split-second financial transaction won’t deliver on its promise. CLS, which runs the world’s largest multiple-currency cash settlement system, sought a declaratory judgment that Alice Corp.’s patents are invalid. CLS got its way in 2011, when Judge Rosemary Collyer of the federal district court in Washington ruled that Alice Corp.’s patents cover "the abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risks."
The Federal Circuit breathed new life into Alice Corp.’s patents in July 2012. Siding with the company’s lead lawyer, Adam Perlman of Williams & Connolly, Judge Richard Linn, joined by Judge Kathleen O’Malley, wrote that Alice Corp.’s patents pass muster under Section 101 because they claim a specific, multistep process carried out by a computer. Perlman declined to comment on the case.
The decision drew backlash. EFF accused the Federal Circuit of enabling bogus patents. And many practitioners, regardless of their views on patent reform, argue that the majority decision, when read in conjunction with other recent decisions on Section 101, provided little clarity.
"The Federal Circuit judges have been all over the map," said Gregory Garre of Latham & Watkins.
In her dissenting opinion in CLS Bank, Prost wrote that her colleagues had creating an "entirely new framework" that is "more of an escape hatch than a yardstick." She also accused the majority of ignoring the U.S. Supreme Court’s decision in Mayo v. Prometheus, in which the court struck down a method patent in the field of personalized medicine and, according to Prost, directed the Federal Circuit to "apply the patentable subject matter test with more vigor."
Perhaps emboldened by Prost’s dissent, CLS’ counsel, Mark Perry of Gibson, Dunn & Crutcher, petitioned the Federal Circuit for en banc review in August. The court granted the motion in October.
Perry said the panel decision in CLS Bank was an outlier. Generally, the Federal Circuit and Supreme Court are moving toward a stricter view of patent eligibility, he said. "The Federal Circuit has come to quite a degree of consensus, although not uniformity," he said. "We’re asking the en banc court to continue that trend."
The way the Federal Circuit ­sculpted the questions presented on appeal — for instance "what test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea" — shows that it’s concerned with adding clarity, said Erika Arner, a partner at Finnegan, Henderson, Farabow, Garrett & Dunner. But she warned that clarifying may be an impossible task. Section 101 is meant to be flexible enough to allow for new innovation in developing industries, she said, and "it’s tough to come up with a bright-line standard that’s also flexible enough to allow for inventions we haven’t even thought of yet."
"It’s 90 percent likely the court will come up with some multifactorial test," Kenneth Parker of Haynes and Boone said. According to Parker, in the many amicus briefs that have been filed in the case, nobody has come up with a test that is both easy to litigate and consistent with the Supreme Court’s directives in Mayo.
A multifactorial test would make sense from a legal perspective, Parker argues, but it wouldn’t do much to address the concerns of patent skeptics. Multifactorial tests allow for a certain amount of judicial discretion, he said, and also tend to be expensive to litigate. "It’s highly unlikely that the Federal Circuit comes out with anything that will decrease the litigation expenses in software patent litigation," he said.