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IP: Did the Federal Circuit invalidate 320,799 software patents?

The court’s fractured decision in CLS Bank v. Alice Corp. could have devastating effects on business method, financial system and software patents

On May 10, the Federal Circuit issued its en banc decision in CLS Bank v. Alice Corp. addressing the patentability of software claims issued to Alice Corp. The 10-judge panel issued seven separate opinions, able to agree on only a single paragraph per curium decision. Although a majority of the court agreed that certain of the patent claims were not patent eligible, no majority of judges agreed on a rationale for that conclusion. As a result, no portion of any opinion beyond the judgment constitutes precedent of the court. Indeed, in Judge Randall Rader’s separate, concurring-in-part and dissenting-in-part opinion, he noted that “though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.” The court was evenly divided and “irreconcilably fractured” when addressing the standard for patent eligibility of computerized system claims.

Alice Corp. owns four patents describing the settlement of financial obligations by a trusted third party in a way that eliminates settlement risk—the risk that only one party will meet its obligations. The patents included three categories of claims directed to computerized systems, methods and computer readable media. Both parties agreed that all claims required the use of a computer, including at least a processor and memory, for implementation.

Judges Rader, Moore, Richard Linn and Kathleen O’Malley joined in a concurring-in-part, dissenting-in-part opinion in which they agreed that the system claims are directed to patent eligible subject matter. Citing the Supreme Court’s guidance that the fact that a claim is tied to a machine is an important and useful tool for assessing patent eligibility, these judges said the claims are tied to explicitly disclosed structure for a special purpose computer and flowcharts setting forth the algorithms necessary to program that computer. Thus, the abstract idea the claims present is integrated and applied into a system using machines. Judge Moore’s separate dissent-in-part, in which the other three named judges joined, questions the logic of the lead opinion in categorizing a system claim directed to a tangible computer that could be put on your desk as an abstract idea.  

The four were unable to agree, however, as to the method and media claims. Judges Linn and O’Malley found each of the asserted patent claims patent eligible. Finding no basis in the record for treating the method, system and media claims as varied in scope, Judges Linn and O’Malley apply the same rationale used in finding the system claims patent eligible in the dissent to the method and media claims. Judges Rader and Moore, however, found that the method and media claims merely recite general steps inherent to the concept of using a third-party intermediary in a financial transaction.

Contributing Author

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Julianne Hartzell

Julianne M. Hartzell is a litigation partner at Marshall, Gerstein & Borun LLP. She has litigated patent, trademark, copyright, and trade secret matters in...

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