With CLS Bank Int’l, SCOTUS to Decide if Computers are “Machines”

bethShaw-0580editConvertedProfile-e1360002102239Featured Expert Column

Beth Z. Shaw, Brake Hughes Bellermann LLP

Earlier this year, the U.S. Court of Appeals for the Federal Circuit sat en banc to review software patents in CLS Bank Int’l v. Alice Corp. This was a decision that was supposed to clarify business method patents and software patents, the scope of 35 U.S.C. § 101, and what an “abstract idea” means in practice. Instead of clarity, however, the judges of the Federal Circuit issued seven different opinions (or reflections), with no consensus beyond the ultimate judgment, which was that the invention was patent ineligible. The split gave almost every judge an opportunity to provide his or her unique philosophical view on software patents. As the title of this commentator’s last post on CLS Bank reflected, Want Clarity on Software Patents?: Skip CLS Bank Int’l Opinion and Wait for Supreme Court Review. That wait is now over, as the Supreme Court agreed on December 6 to review the Federal Circuit’s “decision.”

Prior Supreme Court decisions in cases like Bilski v. Kappos and Mayo v. Prometheus provide clues as to how the Supreme Court might rule in this case. First, the Supreme Court is probably not going to create “a categorical rule denying patent protection for inventions in areas not contemplated by Congress,” such as software, business methods, or even diagnostic testing. Indeed, the Supreme Court in Bilski explicitly stated that a “business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting under § 101.” And the Court stated in Mayo that “too broad an interpretation” of exclusionary principals “could eviscerate patent law.” As a result, the Supreme Court will not even attempt to eliminate all types of method patents in one fell swoop.  

Yet, the Supreme Court decided to take this case, and should in theory have something more to say about software patents. The claims in the patent at issue relate to a method, system, and computer readable medium for a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate “counterparty” or “settlement” risk. The Supreme Court needs to look at each type of claim to determine its patent-eligibility, and how the Court reaches that conclusion may affect the practice of patent law. One particularly interesting aspect of the case, which the Supreme Court has not directly addressed before, is whether claims to a “system” should be considered together with claims for a “method” for purposes of § 101. The system claims in this case recite tangible devices as system components, including at least “a computer” and “a data storage unit.” Several judges on the Federal Circuit have opined that computers are “machines”—and machines are expressly eligible subject matter under the statute.

At a practical level, the U.S. Patent and Trademark Office provides guidelines and training to its patent examiners to apply the law of § 101. The Office did not revise its § 101 guidelines to patent examiners after the Federal Circuit’s decision in CLS Bank. The guidelines currently instruct that the “machine-or-transformation” test is not the only test, but a useful tool to determine patent eligibility.

It is also important to note that the § 101 patent-eligibility test is only a threshold question. There are many other requirements of a patent, and patents do not—and should not—stand or fall on § 101 alone. The other requirements include that the invention be novel and nonobvious, and that the invention be fully and particularly described in the patent. This last requirement—the fully and particularly described requirement of 35 U.S.C. § 112—is already starting to provide the next round of patent litigation. The U.S. Patent and Trademark Office also issued new guidelines for patent examiners in 2010 relating to § 112. Internal reviews by the U.S. Patent and Trademark Office have shown a marked increase in § 112 rejections. It appears that § 112 may be the next area of the law that is not going to be resolved anytime soon.

Because the Supreme Court has not previously decided a § 101 case that involves “system” claims, that aspect of the decision will have the most dramatic impact on patents. Yet if the Court maintains its theoretical position, as it likely will, that it will not implement categorical rules for § 101, the tension will remain between the Supreme Court precedent and the need for practical application of the law by patent examiners, district court judges, and the Federal Circuit.

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