For critics of “business method” patents, the U.S. Supreme Court’s 2010 decision in Bilski v. Kappos was a major disappointment. Instead of resolving once and for all whether business methods are eligible for patenting, the high court invalidated the patents at issue on narrow grounds and largely punted on the bigger questions. The U.S. Court of Appeals for the Federal Circuit has now issued a key decision building on Bilski, and business method patent skeptics won’t like the direction the court is headed.
In a 2-1 decision issued on Monday, the appeals court overturned a district court ruling that invalidatied patents owned by Australia-based Alice Corporation for a computerized method of using an intermediary to settle financial transactions. The ruling breathes news life into Alice’s 2007 patent infringement case against CLS Bank International, the world’s leading foreign-exchange trading platform. More significantly, the majority opinion interpreted “abstract ideas”–which the Patent Act states are not eligible for patenting–in a way that could bolster business method patents in general, and software patents in particular.
Relying on her view of Bilski, U.S. District judge Rosemary Collyer in Washington D.C. invalidated Alice Corp’s patents in 2011, finding that the claimed invention merely took the age-old idea of having a neutral intermediary oversee a transaction and supplanted it onto a computer, “without any further exposition or meaningful limitation.” In a majority opinion penned by Circuit Judge Richard Linn, the Federal Circuit reversed on Monday, finding that the invention sufficiently transforms an abstract notion because it breaks the process down into a series of specific computerized steps.
“The asserted claims appear to cover the practical application of a business concept in a specific way,” the majority held. “The presence of these limitations prevents us from finding it manifestly evident that the claims are patent ineligible.”
The new gloss the majority seems to be putting on abstraction–that method patents pass muster as long it isn’t “manifestly evident” that they cover abstract ideas–didn’t sit well with Circuit Judge Sharon Prost. In a spirited defense, she complained that the standard “is more of an escape hatch than a yardstick.” Despite the Supreme Court hinting in its March decision in Mayo v. Prometheus that the Federal Circuit needs to analyze business method patents more closely, it has created “an entirely new framework that in effect allows courts to avoid evaluating patent eligibility [under section 101 of the Patent Act] whenever they so desire,” she added.
Prost agreed with the lower court judge that Alice Corp just took an abstract idea and threw in a computer. “This basic idea of ‘credit intermediation’ is not just abstract; it is also literally ancient. So where is the invention?,” she wrote. “The majority states that it is not the computer implementation, but ‘the claims as a whole’ that make the invention patentable. But setting any need for computer implementation aside, there is nothing in the method steps themselves that brings the invention within patentable subject matter.”
Not surprisingly, CLS Bank counsel Steven Glassman of Kaye Scholer agreed with Prost that the majority opinion got it wrong. “The current decision says that merely putting something on a computer isn’t enough to make it patent-eligible and that more specific details are required, but I read the opinion and I don’t see what those details are,” Glassman told us. “It’s internally inconsistent.”
“This new ‘manifestly evident’ standard is very hard to implement,” Glassman said. While Bilski didn’t add further clarity, he said, the Supreme Court’s unanimous decision Prometheus was useful because the court instructed that a patent must cover an inventive concept. Now the Federal Circuit has contradicted that decision, he said.
Williams & Connolly partner Adam Perlman, who handled the winning arguments for Alice Corporation, didn’t respond to a call seeking comment.
This article originally appeared in the Am Law Litigation Daily.
