Recent Federal Circuit Court rulings indicate inconsistencies surrounding “abstract ideas” and the resulting patent-eligibility of business methods and software.
In CLS Bank Int’l v Alice Corp. (No. 2011-1301, Fed. Cir. July 9, 2012), the Federal Circuit passed judgment on the eligibility of claims directed to a computerized trading platform for exchanging credit and debit obligations between multiple parties. The following was among the method claims discussed:
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 debit 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.
The District Court found the claims to be directed to abstract ideas and thus invalid under 35 U.S.C. § 101. The Federal Court, however, reversed the decision, concluding that “the system, method, and media claims” at question were not merely attached to abstract ideas, but rather “directed to practical applications of invention falling within the categories of patent eligible subject matter defined by 35 U.S.C. § 101.”
The Court further stated:
When – after taking all of the claim recitations into consideration – 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.
Unless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible “abstract idea” under 35 U.S.C. § 101.
Judge Prost offered a dissenting opinion.
Some believed this decision would allow for more liberal standards of patent-eligibility to be used in financial business method cases. And yet, less than three weeks later, the Court reached a seemingly contrary decision —striking down a patent covering an automated life insurance management system in Bancorp Services L.L.C v. Sun Life Assurance Co. (No. 2011-1467, July 26, 2012).
In Bancorp, the Court considered the following patent claims for a life insurance management system:
9) A method for managing a life insurance policy on behalf of a policy holder, the method comprising the steps of:
- a policy generator for 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;
- a fee calculator for calculating fees for members of a management group which manage the life insurance policy;
- a credit calculator for calculating credits for the stable value protected investment of the life insurance policy;
- an investment calculator for determining an investment value and a value of the underlying securities of the stable value protected investment for the current day;
- a policy calculator for calculating a policy value and a policy unit value for the current day;
- digital storage for storing the policy unit value for the current day; and
- a debitor for removing a value of the fees for members of the management group which manages the life insurance policy.
The system claims included:
1. a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.
The Court deemed all of the claims to be ineligible for patenting under 35 U.S.C § 101. A computer, the Court found “must be integral to the invention, facilitating the process in a way that a person making calculations or computations could not” in order to salvage an “otherwise patent-ineligible process.” The Court construed the system, computer readable media and dependent method claims at issue to all require use of a computer. However, ”[t]he computer required by some of Bancorp’s claims is employed only for its most basic function, the performance of repetitive calculations, and as such does not impose meaningful limits on the scope of those claims.” Thus, “[a]s in [the Supreme Court’s decision in] Bilski, the claims do not effect a transformation, and the fact that the required calculations could be performed more efficiently via a computer does not materially alter the patent eligibility of the claimed subject matter.”
The Court sought to harmonize this result with the result reached in CLS, explaining that in CLS, “it [wa]s difficult to conclude that the computer limitations . . . d[id] not play a significant part in the performance of the invention or that the claims [we]re not limited to a very specific application of the [inventive] concept.” The computer limitations in Bancorp’s case, however, “do not play a “significant part” in the performance of the claimed invention” and are therefore, ineligible under 35 U.S.C § 101.
The role that these two decisions will ultimately play in developing a rational and uniform stance on “abstract ideas” and patentability remains to be seen.
Ocean Tomo’s strategic advisory practice can provide business guidance to clients in developing robust patent portfolios protecting valuable business methods. Our transactions practice can assist in monetization of business method patents and our expert testimony practice can offer damages testimony in business method patent infringement litigation.