Post-Alice Decision on Software Patents, buySAFE v. Google, 2014

In buySAFE v. Google, decided by the Federal Circuit on September 3, 2014, claims were held to be invalid as non-statutory in view of 35 U.S.C. 101.  The Federal Circuit affirmed the district court’s grant of the defendant’s motion to dismiss.

U.S. Patent No. 7,644,019, owned by buySAFE, Inc., claims methods and machine-readable media encoded to  perform steps for guaranteeing a party’s performance of  its online transaction.

A representative method claim is claim 1, which recites:

A method, comprising:
     receiving, by at least one computer application program running on a computer of a safe transaction service provider, a request from a first party for obtaining a transaction performance guaranty service with respect to an online commercial transaction following closing of the online commercial transaction;
     processing, by at least one computer application program running on the safe transaction service
provider computer, the request by underwriting the first party in order to provide the transaction
performance guaranty service to the first party, wherein the computer of the safe transaction
service provider offers, via a computer network, the transaction performance guaranty service that
binds a transaction performance guaranty to the online commercial transaction involving the first
party to guarantee the performance of the first party following closing of the online commercial transaction.
The Federal Circuit noted that laws of nature, natural phenomena, and abstract ideas, no matter how
groundbreaking, innovative, or even brilliant,  are outside what the statute means by “new and useful process, machine, manufacture, or composition of matter,” 35 U.S.C. § 101. See Alice, 134 S. Ct.
at 2357; Myriad, 133 S. Ct. at 2116, 2117.

The Federal Circuit then stated that defining the excluded categories, the Supreme Court has ruled that the exclusion applies if a claim involves a natural law or phenomenon or abstract idea, even if the particular natural law or phenomenon or abstract idea at issue is narrow. Mayo, 132 S. Ct. at 1303. Mayo explained the point with reference to both natural laws and one kind of abstract idea, namely,
mathematical concepts.

A claim that directly reads on matter in the three identified categories is outside section 101. But the provision also excludes the subject matter of certain claims that by their terms read on a human-made physical thing (“machine, manufacture, or composition of matter”) or a human-controlled
series of physical acts (“process”) rather than laws of nature, natural phenomena, and abstract ideas. Such a claim falls outside section 101 if (a) it is “directed to” matter in one of the three excluded categories and (b) “the additional elements” do not supply an “inventive concept” in the physical realm of things and acts—a “new and useful application” of the ineligible matter in the physical
realm—that ensures that the patent is on something “significantly more than” the ineligible matter itself, according to the Federal Circuit, in interpreting Alice.

According to the Federal Circuit, the relevant Supreme Court cases are those which find an abstract idea in certain arrangements involving contractual relations, which are intangible entities. Bilski v. Kappos, 561 U.S. 593 (2010), involved a method of entering into contracts to hedge risk in commodity prices, and Alice involved methods and systems for “exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk,” Alice, 134 S. Ct. at 2356. More narrowly, the Court in both cases relied on the fact that the contractual relations at issue constituted “a fundamental economic practice long prevalent in our system of commerce.” Bilski, 561 U.S. at 611; see Alice, 134 S. Ct. at 2356, 2357.

The Federal Circuit went on to say that in simultaneously rejecting a general business method exception to patent eligibility and finding the hedging claims invalid, moreover, Bilski makes clear that the recognition that the formation or manipulation of economic relations may involve an abstract idea does not amount to creation of a business-method exception. The required section 101 inquiry has a second step beyond identification of an abstract idea. If enough extra is included in a claim, it passes muster under section 101 even if it amounts to a “business method.”

The Supreme Court in Alice made clear that a claim directed to an abstract idea does not move into section 101 eligibility territory by “merely requiring generic computer implementation.”

The claims in this case, according to the Federal Circuit, do not push or even test the boundaries of the Supreme Court precedents under section 101. The claims are squarely about creating a contractual relationship—a “transaction performance guaranty”—that is beyond question of ancient lineage.

The Federal Circuit concluded that the claims thus are directed to an abstract idea.

The claims’ invocation of computers adds no inventive concept. The computer functionality is generic—indeed, quite limited: a computer receives a request for a guarantee and transmits an offer of guarantee in return. There is no further detail. That a computer receives and sends the information over a network—with no further specification— is not even arguably inventive. The computers in
Alice were receiving and sending information over networks connecting the intermediary to the other institutions involved, and the Court found the claimed role of the computers insufficient.

And it likewise cannot be enough that the transactions being guaranteed are themselves online
transactions. At best, that narrowing is an “attempt[] to limit the use” of the abstract guarantee idea “to a particular technological environment,” which has long been held insufficient to save a claim in this context.

According to the Federal Circuit, it is a straightforward matter to conclude that the claims in this case are invalid.

One thing disturbing about this case is the phrase “is not even arguably inventive” that the Federal Circuit used when describing the computer functionality.  If the Federal Circuit requires inventiveness in the hardware, all software patents are invalid.  I don’t think this is where we are headed, though.  They also used the term “functionality” which implies that method steps are part of the consideration.

Post-Alice Decision on Software Patents, Planet Bingo v. VKGS, 2014

In Planet Bingo v. VKGS, decided by the Federal Circuit on August 26, 2014, claims were held to be invalid as non-statutory in view of 35 U.S.C. 101.  The Federal Circuit affirmed the district court’s decision.

Planet Bingo, LLC, owns two patents for computer-aided management of bingo games. After Planet Bingo filed an infringement action against VKGS, the district court granted summary judgment of invalidity, concluding that the patents do not claim patentable subject matter under 35 U.S.C. § 101.

The Federal Circuit stated that because a straight-forward application of the Supreme Court’s recent holding in Alice Corp. v. CLS Bank International, 134 S. Ct. 2347 (2014), led them to the same result, they affirmed.

Generally, the claims recite storing a player’s preferred sets of bingo numbers; retrieving one such set upon demand, and playing that set; while simultaneously tracking the player’s sets, tracking player payments, and verifying winning numbers.

Following a Markman order, VKGS filed a motion for summary judgment that the asserted claims are directed to a patent-ineligible concept. Applying the majority opinion’s approach in CLS Bank International v. Alice Corp., the district court determined that “each method claim encompasses the abstract idea of managing/playing the game of Bingo.”

The Federal Circuit agreed with the district court that there was no meaningful distinction between the method and system claims or between the independent and dependent claims. According to the Federal Circuit, the system claims recite the same basic process as the method claims, and the dependent claims recite only slight variations of the independent claims.

The Federal Circuit stated that the claims here are similar to the claims at issue in Bilski v. Kappos, 130 S. Ct. 3218 (2010), and Alice, 134 S. Ct. 2347, which the Supreme Court held were directed to “abstract ideas.” For example, the claims here recite methods and systems for “managing a game of Bingo.” This is similar to the kind of “organizing human activity” at issue in Alice, 134 S. Ct. at 2356. And, although the ’646 and ’045 patents are not drawn to the same subject matter at issue in Bilski and Alice, these claims are directed to the abstract idea of “solv[ing a] tampering problem and also minimiz[ing] other security risks” during bingo ticket purchases. This is similar to the abstract ideas of “risk hedging” during “consumer transactions,” Bilski, 130 S. Ct. at 3231, and “mitigating settlement risk” in “financial transactions,” Alice, 134 S. Ct. at 2356–57, that the Supreme Court found ineligible. Thus, the Federal Circuit held that the subject matter claimed in the ’646 and ’045 patents were directed to an abstract idea.

Abstract ideas may still be patent-eligible if they contain an “‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.”

Apart from managing a game of bingo, the claims at issue also require “a computer with a central processing unit,” “a memory,” “an input and output terminal,” “a printer,” in some cases “a video screen,” and “a program . . . enabling” the steps of managing a game of bingo.  These elements, in turn, select, store, and retrieve two sets of numbers, assign a player identifier and a control number, and then compare a winning set of bingo numbers with a selected set of bingo numbers.

“[I]f a patent’s recitation of a computer amounts to a mere instruction to ‘implemen[t]’ an abstract idea ‘on . . . a computer,’ . . . that addition cannot impart patent eligibility.” Alice, 134 S. Ct. at 2358 (quoting Mayo, 132 S. Ct. at 1301).  According to the Federal Circuit, in this case the claims recite a generic computer implementation of the covered abstract idea.

Post-Alice Decision on Software Patents, I/P Engine v. AOL, 2014

In I/P Engine v. AOL, 35 U.S.C. 101 was not addressed by the majority but a concurring opinion would have held the claims non-statutory in view of 35 U.S.C. 101.  The claims were held invalid as obvious.

I/P Engine, Inc. brought an action against AOL Inc., Google Inc., IAC Search & Media, Inc., Gannett Company, Inc., and Target Corporation alleging infringement of U.S. Patent Nos. 6,314,420 and 6,775,664. A jury returned a verdict finding that all asserted claims were infringed and not anticipated.

The ’420 and ’664 patents both claim priority to the same parent patent, U.S. Patent No. 5,867,799. They relate to a method for filtering Internet search results that utilizes both content-based and collaborative filtering.  Content-based filtering is a technique for determining relevance by extracting features such as text from an information item. By contrast, collaborative filtering assesses relevance based on feedback from other users—it looks to what items “other users with similar interests or needs found to be relevant.”

Apparatus claim 10 of the ’420 patent recites:

A search engine system comprising: a system for scanning a network to make a demand search for informons relevant to a query from an individual user; a content-based filter system for receiving the informons from the scanning system and for filtering the informons on the basis of applicable content profile data for relevance to the query; and a feedback system for receiving collaborative feedback data from system users relative to informons considered by such users; the filter system combining pertaining feedback data from the feedback system with the content profile data in filtering each informon for relevance to the query.

Apparatus claim 1 of the ’664 patent provides:

A search system comprising: a scanning system for searching for information relevant to a query associated with a first user in a plurality of users; a feedback system for receiving information found to be relevant to the query by other users; and a content-based filter system for combining the information from the feedback system with the information from the scanning system and for filtering the combined information for relevance to at least one of the query and the first user.

Claim 26 of the ’664 patent is similar to claim 1, but cast as a method claim:

A method for obtaining information relevant to a first user comprising: searching for information relevant to a query associated with a first user in a plurality of users; receiving information found to be relevant to the query by other users; combining the information found to be relevant to the query by other users with the searched information; and content-based filtering the combined information for relevance to at least one of the query and the first user.

The Google Defendants argued that I/P Engine’s claimed invention is obvious as a matter of law because it simply combines content-based and collaborative filtering, two information filtering methods that were well-known in the art.  The Federal Circuit agreed and stated that no reasonable jury could conclude otherwise.

Just Mayer concurred, stating because the claims asserted by I/P Engine disclose no new technology, but instead simply recite the use of a generic computer to implement a well-known and widely-practiced technique for organizing information, they fall outside the ambit of 35 U.S.C. § 101.  And if this determination had been made in the first instance as directed by the Supreme Court, litigation, and nearly two weeks of trial and imposition on citizen jurors, could have been avoided.

Post-Alice Decision on Software Patents, Digitech Image v. Electronics for Imaging, 2014

In Digitech Image v. Electronics for Imaging, decided by the Federal Circuit on July 11, 2014, claims were held to be invalid as non-statutory in view of 35 U.S.C. 101.  The Federal Circuit affirmed the district court’s decision.


This case concerned U.S. Patent No. 6,128,415 directed to a device profile and a method for creating a device profile within a digital image processing system. The district court concluded that the asserted claims were invalid under 35 U.S.C. § 101.

A representative apparatus claim of this software patent is as follows:

A device profile for describing properties of a device in a digital image reproduction system to capture, transform or render an image, said device profile comprising:
     first data for describing a device dependent transformation of color information content of the image to a device independent color space; and
     second data for describing a device dependent transformation of spatial in- formation content of the image in said device independent color space.

A representative method claim of this software patent is as follows:

A method of generating a device profile that describes properties of a device in a digital image reproduction system for capturing, transforming or rendering an image, said method comprising:
     generating first data for describing a device dependent transformation of col- or information content of the image to a device independent color space through use of measured chromatic stimuli and device response characteristic functions;
     generating second data for describing a device dependent transformation of spatial information content of the image in said device independent color space through use of spatial stimuli and de- vice response characteristic functions; and
     combining said first and second data in- to the device profile.

Digitech argued that a device profile is subject matter eligible because it is “hardware or software within a digital image processing system” and exists as a tag file appended to a digital image.  The Federal Circuit stated that Digitech’s position is not supported by the claim language, which does not describe the device profile as a tag or any other embodiment of hardware or software. The claims’ only description of the device profile is that it comprises “first data for describing” color information and “second data for describing” spatial information.

The Federal Circuit stated that the claims at issue here were even broader than the claim in Nuijten.

The Federal Circuit affirmed the decision of the district court.

USPTO Issues post-Alice Software Patent Examination Guidelines

The USPTO has issued preliminary guidelines for examination of software patent applications, and other patent applications, after the Supreme Court’s decision in Alice v. CLS Bank.  The Alice Supreme Court decision is discussed in another post.

The guidelines start by summarizing the Alice decision as follows:

The Court determined that Alice Corp.’s claims to methods were ineligible because “the claims at issue amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer.” Alice Corp.’s claims to computer systems and computer-readable storage media were held ineligible for substantially the same reasons, e.g., that the generically-recited computers in the claims add nothing of substance to the underlying abstract idea. Notably, Alice Corp. neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods.

The guidelines go on to state that The Supreme Court made clear in Alice Corp. that it applies the framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. _ (2012) (Mayo), to analyze all claims directed to laws of nature, natural phenomena, and abstract ideas for subject matter eligibility under 35 U.S.c. § 101. The Mayo framework is currently being used by the USPTO to examine claims involving laws of nature, but had not been used for claims involving abstract ideas. Therefore, the new examination guidelines differ from prior USPTO guidance in two ways:
1) The Mayo analysis should be used for all types of judicial exceptions, whereas prior USPTO guidance applied a different (i.e., Bilski) analysis to claims with abstract ideas than to claims with laws of nature (Mayo guidance in MPEP 2106.01).
2) Alice Corp. also establishes that the same analysis should be used for all categories of claims (e.g., product and process claims), whereas prior guidance applied a different analysis to product claims involving abstract ideas (relying on tangibility) than to process claims (Bilski guidance).

For purposes of the preliminary guidelines, only claims that involve abstract ideas are
addressed, since the USPTO’s current guidance for claims that involve laws of nature/natural phenomena already uses the Mayo framework.

The examination guidelines state that, following Alice Corp., Examiners are now to analyze all claims (product and process) having an abstract idea using the following two-part analysis set forth in Mayo :
Part 1: Determine whether the claim is directed to an abstract idea.
Part 2: If an abstract idea is present in the claim, determine whether
any element, or combination of elements, in the claim is sufficient to
ensure that the claim amounts to significantly more than the abstract
idea itself.

As emphasized in Alice Corp., abstract ideas are excluded from eligibility based on a concern
that monopolization of the basic tools of scientific and technological work might impede
innovation more than it would promote it. At the same time, the courts have tread carefully in
construing this exclusion because, at some level, all inventions embody, use, reflect, rest upon
or apply abstract ideas and the other exceptions. Thus, an invention is not rendered ineligible
simply because it involves an abstract concept. In fact, inventions that integrate the building
blocks of human ingenuity into something more by applying the abstract idea in a meaningful
way are eligible.

The guidelines provide examples of abstract ideas, referenced in Alice Corp.:
-Fundamental economic practices ;
-Certain methods of organizing human activities;
-An idea of itself; and
-Mathematical relationships/formulas

Claims that include abstract ideas like these should be examined under Part 2 to determine whether the abstract idea has been applied in an eligible manner.

For Part 2, examiners are to determine whether there are there other limitations in the claim that show a patent-eligible application of the abstract idea, e.g., more than a mere instruction to apply the abstract idea.  They are to consider the claim as a whole by considering all claim elements, both individually and in combination.

The guidelines provide the following non-exclusive examples of limitations referenced in Alice Corp. that may be enough to qualify as “significantly more” when recited in a claim with an abstract idea:
-Improvements to another technology or technical fields;
-Improvements to the functioning of the computer itself; and
-Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.

The guidelines provide the following non-exclusive examples of limitations referenced in Alice Corp. that are not enough to qualify as “significantly more” when recited in a claim with an abstract idea:
-Adding the words “apply it” (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer; and
-Requiring no more than a generic computer to perform generic computer functions that
are well-understood, routine and conventional activities previously known to the industry.

If there are no meaningful limitations in the claim that transform the exception into a patent
eligible application such that the claim amounts to significantly more than the exception itself, the claim should be rejected under 35 U.S.C. § 101 as being directed to non-statutory subject
matter.

Interestingly, and contrary to my prediction in the Alice summary, after conducting the two-part analysis, examiners are instructed to proceed with examination of the claim, regardless of
whether a rejection under § 101 has been made, to determine patentability in accordance with
the other requirements of 35 U.S.C. § 101 (utility and double patenting), non-statutory double
patenting, and §§ 112, 102, and 103 (indefiniteness, novelty, and obviousness).

Alice Corp. v CLS Bank International, U.S. Supreme Court 2014

This is the most recent Supreme Court decision on software patents. In this case, the U.S. Supreme Court has made it harder to obtain software patents by siding with CLS Bank.

The software patents concern “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to 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 “counter party” or “settlement” risk. Settlement risk refers to the risk to each party in an exchange that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counter-party’s performance. Alice’s patents address that risk by relying on a trusted third party to ensure the exchange of either both parties’ obligations or neither obligation. For example, when two parties agree to perform a trade, in certain contexts there may be a delay between the time that the parties enter a contractual agreement obligating themselves to the trade and the time of settlement when the agreed trade is actually executed. Ordinarily, the parties would consummate the trade by paying or exchanging their mutual obligations after the intervening period, but in some cases one party might become unable to pay during that time and fail to notify the other before settlement. As disclosed in Alice’s patents, a trusted third party can be used to verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.

The software patent claims recited methods of exchanging obligations between parties, data processing systems, and computer- readable media containing a program code for directing an exchange of obligations.

A representative method claim of this software patent is as follows:
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 transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and
(d) at the end-of-day, the supervisory institution instructing ones 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.

A representative apparatus claim of this software patent is as follows:
1. A data processing system to enable the exchange of an obligation between parties, the system comprising:
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 trans action, 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 district court granted summary judgment in favor of CLS, holding each of the asserted claims of Alice’s software patents invalid under §101.

In the Federal Circuit decision, a ten-member en banc panel released seven different decisions. None of the opinions garnered majority support. Seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility. Eight of the ten concluded that the software patent claims should rise and fall together regardless of their claim type.

The Supreme Court used its earlier decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. as a framework. Using this framework, the Court must first determine whether the claims at issue are directed to a patent-ineligible concept. If so, the Court then asks whether the claim’s elements, considered both individually and “as an ordered combination,” “transform the nature of the claim” into a patent-eligible application.

The court stated that the software patent claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement. Turning to the second step of Mayo’s framework, the court stated that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention. The court stated that simply appending conventional steps, specified at a high level of generality,” to a method already “well known in the art” is not enough to supply the “inventive concept” needed to make this transformation.

Referring to Mayo, the Court than stated that wholly generic computer implementation is not generally the sort of additional feature that provides any practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself.

Still applying a Mayo analysis to this software patent, the court noted that, taking the claim elements separately, the function performed by the computer at each step—creating and maintaining “shadow” accounts, obtaining data,adjusting account balances, and issuing automated instructions—is purely conventional. Considered “as an ordered combination,” these computer components add nothing that is not already present when the steps are considered separately.

In summary, a software patent in which conventional steps are computerized is not statutory. Unfortunately, the Supreme Court conflated 35 U.S.C 101 and 35 U.S.C. 103 analyses. They should have addressed these two issues separately.

The court also mentioned its previous software patent decision, Bilski v. Kappos, 561 U. S. 593 (2010). The claims at issue in Bilski described a method for hedging against the financial risk of price fluctuations.
All members of the Court agreed that the patent in Bilski claimed an “abstract idea.” Specifically, the claims described “the basic concept of hedging, or protecting against risk.” The Court explained that “‘hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.’” “The concept of hedging” as recited by the claims in suit was in therefore a patent-ineligible “abstract idea, just like the algorithms at issue in Benson and Flook.” The court stated that it follows from prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea.

The court has walked away from sensible software patent precedent in Diamond v. Diehr. In that case, the court said that the novelty of any element or steps is not relevant to a 101 analysis. If you have a computer in the claim, that removes it from the possibility of reading on mental steps, so the claim should be statutory. This court is quite unclear about what makes a claim too abstract.

My belief is that we are moving to a European style patentability analysis for software inventions. This is unfortunate because software per se (without a hardware invention) is valuable and one of the primary fields in which the U.S. dominates and excels. Expect to see more 101 rejections from the U.S. Patent and Trademark Office. It will be easier for an examiner to automatically issue a form rejection under 35 USC 101 whenever a patent application mentions the word “software” than to search for relevant prior art.

The decision can be found here:
http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf

Post-CLS case on 35 U.S.C. 101, Accenture Global Services, GMBH and Accenture LLP v. Guidewire Software, Inc., Federal Circuit 2013

Accenture Global Services, GmbH and Accenture, LLP (“Accenture”) appealed from the grant of summary judgment by the United States District Court for the District of Delaware holding that all claims of U.S. Patent 7,013,284 are invalid under 35 U.S.C. § 101.

The ‘284 software patent describes a computer program for handling insurance-related tasks.

The software patent discloses various software components, including a “data component that stores, retrieves and manipulates data” and a client component that “transmits and receives data to/from the data component.” The client component also includes a business component that “serves as a data cache and includes logic for manipulating the data.”  There is also a controller component to handle program events and an adapter component to interface with a data repository.

The specification contains detailed descriptions of the various software components, including many of the functions those components utilize and how those components interact.

Claim 1 is a claim to a software system for generating tasks to be performed in an insurance organization and recites:
       A system for generating tasks to be performed in an insurance organization, the system comprising:
       an insurance transaction database for storing information related to an insurance transaction, the insurance transaction database comprising a claim folder containing the information related to the insurance transaction decomposed into a plurality of levels from the group comprising a policy level, a claim level, a participant level and a line level, wherein the plurality of levels reflects a policy, the information related to the insurance transaction, claimants and an insured person in a structured format;
       a task library database for storing rules for determining tasks to be completed upon an occurrence of an event;
       a client component in communication with the insurance transaction database configured for providing information relating to the insurance transaction, said client component enabling access by an assigned claim handler to a plurality of tasks that achieve an insurance related goal upon completion; and
       a server component in communication with the client component, the transaction database and the task library database, the server component including an event processor, a task engine and a task assistant;
       wherein the event processor is triggered by application events associated with a change in the information, and sends an event trigger to the task engine; wherein in response to the event trigger, the task engine identifies rules in the task library database associated with the event and applies the information to the identified rules to determine the tasks to be completed, and populates on a task assistant the determined tasks to be completed, wherein the task assistant transmits the determined tasks to the client component.

 Claim 8 claims a software method for generating tasks to be performed in an insurance organization and recites:
       An automated method for generating tasks to be performed in an insurance organization, the method comprising: 

       transmitting information related to an insurance transaction;
       determining characteristics of the information related to the insurance transaction; 

       applying the characteristics of the information related to the insurance transaction to rules to determine a task to be completed, wherein an event processor interacts with an insurance transaction database containing information related to an insurance transaction decomposed into a plurality of levels from the group comprising a policy level, a claim level, a participant level and a line level, wherein the plurality of levels reflects a policy, the information related to the insurance transaction, claimants and an insured person in a structured format; 

       transmitting the determined task to a task assistant accessible by an assigned claim handler, wherein said client component displays the determined task; 

       allowing an authorized user to edit and perform the determined task and to update the information related to the insurance transaction in accordance with the determined task;

       storing the updated information related to the insurance transaction; and

       generating a historical record of the completed task.

The Federal Circuit found many similarities between the apparatus claim and method claim and noted that both claim 1 and claim 8 disclose aspects of “generating tasks to be performed in an insurance organization.”  They also noted that claim 1 and claim 8 further include many of the same software components.  

The Federal Circuit stated that they recently evaluated 35 U.S.C. § 101 and its application to computer software in CLS Bank Int’l v. Alice Corp., 717 F.3d 1269 (Fed. Cir. 2013) (en banc). The plurality opinion in CLS Bank identified a two-step process, derived from the Supreme Court’s decision in Mayo Collaborative Servs. v. Prometheus Labs., Inc., ___ U.S. ___, 132 S. Ct. 1289 (2012), for analyzing patent eligibility under § 101. First, the court must identify “whether the claimed invention fits within one of the four statutory classes set out in § 101.”  Second, one must assess whether any of the judicially recognized exceptions to subject-matter eligibility apply, including whether the claims are to patent-ineligible abstract ideas.

In the case of abstractness of a software patent, the court must determine whether the claim poses “any risk of preempting an abstract idea.”  To do so the court must first “identify and define whatever fundamental concept appears wrapped up in the claim.”  Then, proceeding with the preemption analysis, the balance of the claim is evaluated to determine whether “additional substantive limitations . . . narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.”

The Federal Circuit then stated that although CLS Bank issued as a plurality opinion, in that case a majority of the court held that system claims that closely track method claims and are grounded by the same meaningful limitations will generally rise and fall together.  

The district court in this case held that the method claims of the ’284 software patent are invalid under § 101. That judgment was not appealed by Accenture.  That may have been a big mistake.

The Federal Circuit stated that because the ’284 software patent’s method claims were found to be patent ineligible, they should first compare the substantive limitations of the method claim and the system claim to see if the system claim offers a “meaningful limitation” to the abstract method claim, which has already been adjudicated to be patent-ineligible.  CLS Bank, 717 F.3d at 1291.

Under this analysis, the court compares the two claims to determine what limitations overlap, then identify the system claim’s additional
limitations. Essentially, the court must determine whether the system claim offers meaningful limitations “beyond generally linking ‘the use of the [method] to a particular technological environment.’” Id. (quoting Bilski, 130 S. Ct. at 3230).  

The court went on to say that the ’284 software patent’s system claim 1 includes virtually the same limitations and many of the same software components as the patent-ineligible method claims. Both claims are for “generating tasks to be performed in an insurance organization.”

Accenture only points to system claim 1’s inclusion of an insurance claim folder, a task library database, a server component, and a task engine in attempting to show that the system claim is meaningfully different from the ’284 patent’s method claims. However, according to the Federal Circuit, these software components are all present in the method claims, albeit without a specific reference to those components by name.

The Federal Circuit stated that even the specification of the ’284 patent makes little distinction between the system and method claims.

According to the Federal Circuit, because the system claim and method claim contain only “minor differences in terminology [but] require performance of the same basic process,” they should rise or fall together.

Accenture reasonably argued that system claim 1 of the software patent remains patent-eligible even after CLS Bank. It contended that the claim is patent-eligible because the ’284 patent implements the general idea of generating tasks for insurance claim processing, but narrows it through its recitation of a combination of computer components including an insurance transaction database, a task library database, a client component, and a server component, which includes an event processor, a task engine, and a task assistant. Accenture further argued that the complexity and detail of the specification demonstrate that the patent is an advance in computer software and not simply a claim to an abstract idea. Additionally, Accenture pointed to the recently-issued decision in Ultramercial as support for the patent-eligibility of system claim 1.

Guidewire responded that system claim 1 of the software patent sets forth the same steps and recites all the same elements as method claim 8 and requires no specific hardware or any particular algorithm.

The Federal Circuit finally concluded that the system claims of the ’284 software patent were patent-ineligible both because Accenture was unable to point to any substantial limitations that separate them from the similar, patent-ineligible method claim and
because, under the two-part test of CLS Bank, the system claim does not, on its own, provide substantial limitations to the claim’s patent-ineligible abstract idea.  

Judge Rader dissented.  I agree with his dissent.  He noted that prior to granting en banc review in CLS Bank, the Federal Circuit commented: “no one understands what makes an idea abstract.”  After CLS Bank, nothing has changed.  Opinions spend page after page revisiting cases and those of the Supreme Court, and still we continue to disagree vigorously over what is or is not patentable subject matter.

Indeed, deciding what makes an idea “abstract” is “reminiscent of the oenologists trying to describe a new wine.”

I couldn’t agree more.

Post-CLS case on Software Patents, Ultramercial, Inc. v. Hulu, LLC, Federal Circuit 2013

Ultramercial sued Hulu, YouTube, and WildTangent for infringement of U.S. Patent No. 7,346,545.  The software patent generally relates to method for inserting ads in free online videos so that viewers must watch them before they can proceed.  Hulu and YouTube were eventually dismissed from the case.  WildTangent filed a
12(b)(6) motion to dismiss for failure to state a claim.  The District Court for the Central District of California held that the patent does not
claim patent-eligible subject matter.  On appeal, the Federal Circuit
reversed and remanded.  However, that decision was vacated by the
Supreme Court.

Claim 1 recites:
        A method for distribution of products over the Internet via a facilitator, said method comprising the steps of:
        a first step of receiving, from a content provider, media
products that are covered by intellectual property rights protection and
are available for purchase, wherein each said media product being
comprised of at least one of text data, music data, and video data;
        a second step of selecting a sponsor message to be associated
with the media product, said sponsor message being selected from a
plurality of sponsor messages, said second step including accessing an
activity log to verify that the total number of times which the sponsor
message has been previously presented is less than the number of
transaction cycles contracted by the sponsor of the sponsor message;
        a third step of providing the media product for sale at an Internet website;
        a fourth step of restricting general public access to said media product;
        a fifth step of offering to a consumer access to the media
product without charge to the consumer on the precondition that the
consumer views the sponsor message;
        a sixth step of receiving from the consumer a request to view
the sponsor message, wherein the consumer submits said request in
response to being offered access to the media product;
        a seventh step of, in response to receiving the request from
the consumer, facilitating the display of a sponsor message to the
consumer;
        an eighth step of, if the sponsor message is not an
interactive message, allowing said consumer access to said media product
after said step of facilitating the display of said sponsor message;
        a ninth step of, if the sponsor message is an interactive
message, presenting at least one query to the consumer and allowing said
consumer access to said media product after receiving a response to
said at least one query;
        a tenth step of recording the transaction event to the
activity log, said tenth step including updating the total number of
times the sponsor message has been presented;
        and
        an eleventh step of receiving payment from the sponsor of the sponsor message displayed.

Judge Rader noted first that it will be rare that a patent infringement suit can be dismissed at the pleading stage for lack of patentable subject matter. This is so because every issued
patent is presumed to have been issued properly, absent “clear and convincing” evidence to the contrary.  Second, the analysis under § 101, while ultimately a legal determination, is rife with underlying factual issues.   Third, and in part because of the factual issues involved,
claim construction normally will be required.  Fourth, the question of eligible subject matter
must be determined on a claim-by-claim basis.

The court then noted that 35 U.S.C. § 101 sets forth the categories of subject matter that are eligible for patent protection:
“[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” Underscoring its breadth, § 101 both uses expansive categories and modifies them with the word “any.” In Bilski, the Supreme Court emphasized that “[i]n choosing such expansive terms modified by the comprehensive ‘any,’ Congress plainly contemplated that the patent laws would be given wide scope.” 130 S. Ct. at 3225 (quoting Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980)).

The Supreme Court has on occasion recognized narrow judicial exceptions to the 1952 Act’s deliberately broadened eligibility provisions. In line with the broadly permissive nature of § 101’s subject matter eligibility principles and the structure of the Patent Act, case law has recognized only three narrow categories of subject matter outside the eligibility bounds of § 101—laws of
nature, physical phenomena, and abstract ideas. Bilski, 130 S. Ct. at 3225. The Court’s motivation for recognizing exceptions to this broad statutory grant was its desire to prevent the “monopolization” of the “basic tools of scientific and technological work,” which “might tend to impede innovation more than it would tend to promote it.” Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct.
1289, 1293 (2012) (“Prometheus”)

Though recognizing these exceptions, the Court has also recognized that these implied exceptions are in obvious tension with the plain language of the statute, its history, and its purpose.  Thus, this court must not read § 101 so restrictively as to exclude “unanticipated inventions” because the most
beneficial inventions are “often unforeseeable.”

In the eligibility analysis as well, the presumption of proper issuance applies to a granted software patent.

Defining “abstractness” has presented difficult problems, particularly for the § 101 “process” category. Clearly, a process need not use a computer, or some machine, in order to avoid “abstractness.” In this regard, the Supreme Court recently examined the statute and found that the ordinary, contemporary, common meaning of “method” may include even methods of doing business.
See Bilski, 130 S. Ct. at 3228. Accordingly, the Supreme Court refused to deem business methods ineligible for patent protection and cautioned against “read[ing] into the patent laws limitations and conditions which the legislature has not expressed.” Id. at 3226 (quoting Diamond v. Diehr, 450 U.S. 175, 182 (1981)).

In an effort to grapple with this non-statutory “abstractness” exception to “processes,” the dictionary provides some help.  Judge Rader referred to Merriam-Webster’s Collegiate
Dictionary 5 (11th ed. 2003) (defining abstract as “disassociated from any specific instance . . . expressing a quality apart from an object ”). An abstract idea is one that has no reference to material objects or specific examples—i.e., it is not concrete.

He noted that members of both the Supreme Court and the Federal Circuit have recognized the difficulty of providing a precise formula or definition for the abstract concept of abstractness.

A software patent claim can embrace an abstract idea and be patentable.  See Prometheus, 132 S. Ct. at 1294 (explaining that the fact that a claim uses a basic tool does not mean it is not eligible for patenting). Instead, a claim is not patent eligible only if, instead of claiming an application of an abstract idea, the claim is instead to the abstract idea itself.

In determining on which side of the line the software patent claim falls, the court must focus on the claim as a whole.

The Court has long-recognized that any software patent claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. A court cannot go hunting for abstractions by
ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.
Instead, the relevant inquiry is whether a claim, as a whole, includes meaningful limitations restricting it to an application, rather than merely an abstract idea. See Prometheus, 132 S. Ct. at 1297.

Judge Rader then considered an old example. The claims in O’Reilly v. Morse, 56 U.S. (15 How.) 62 (1854), and a case described therein, illustrate the distinction between a patent ineligible abstract idea and a practical application of an idea. The “difficulty” in Morse arose with the claim in which Morse did not propose to limit himself to the specific machinery or parts of machinery described in the specification and claims; the essence of him invention being the use of the motive power of the electric or galvanic current however developed for marking or printing intelligible characters, signs, or letters, at any distances. In considering Morse’s claim, the Supreme Court referred to an earlier English case that distinguished ineligible claims to a “principle” from claims “applying” that principle.

The Supreme Court repeatedly has cautioned against conflating the analysis of the conditions of patentability in the Patent Act with inquiries into patent eligibility. See Diehr, 450 U.S. at 190.

When assessing computer implemented claims, while the mere reference to a general purpose computer will not save a method claim from being deemed too abstract to be patent eligible, the fact
that a claim is limited by a tie to a computer is an important indication of patent eligibility. See Bilski, 130 S. Ct. at 3227. This tie to a machine moves it farther away from a claim to the abstract idea itself. Moreover, that same tie makes it less likely that the claims will pre-empt all practical applications of the idea.

This inquiry focuses on whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible. On the other hand, software patent claims directed to nothing more than the idea of doing that thing on a computer are likely to face larger problems. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology. See SiRF Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1332-33 (Fed. Cir. 2010) (noting that “a machine,” a GPS receiver, was “integral to each of the claims at issue” and “place[d] a meaningful limit on
the scope of the claims”). A special purpose computer, i.e., a new machine, specially designed to implement a process may be sufficient. See Alappat, 33 F.3d at 1544.

In this case, the defending parties proceed on the assumption that the mere idea that advertising can be used as a form of currency is abstract, just as the vague, unapplied concept of hedging
proved patent-ineligible in Bilski.

The ’545 patent seeks to remedy problems with prior art banner advertising over the Internet, such as declining click-through rates, by introducing a method of product distribution that forces consumers to view and possibly even interact with advertisements before permitting access to the desired media product.

By its terms, the claimed invention invokes computers and applications of computer technology.
Specifically, the ’545 patent claims a particular internet and computer-based method for monetizing copyrighted products, consisting of the following steps: (1) receiving media products from a copyright holder, (2) selecting an advertisement to be associated with each media product, (3) providing said media products for sale on an Internet website, (4) restricting general public access to the media products, (5) offering free access to said media products on the condition that the consumer view the advertising, (6) receiving a request from a consumer to view the advertising, (7) facilitating the display of advertising and any required interaction with the advertising, (8) allowing the consumer access to the associated media product after such display and interaction, if any, (9) recording this transaction in an activity log, and (10) receiving payment from the advertiser. ’545 patent col. 8, ll. 5-48. Judge Rader noted that his court does not need the record of a formal claim construction to see that many of these steps require intricate and complex computer programming.

Even at this general level, it wrenches meaning from the word to label the claimed invention “abstract.” The claim does not cover the use of advertising as currency disassociated with any specific application of that activity. It was error for the district court to strip away these limitations and instead imagine some “core” of the invention.

Further, and even without formal claim construction, it is clear that several steps plainly require that the method be performed through computers, on the internet, and in a cyber-market environment. One clear example is the third step, “providing said media products for sale on
an Internet website.” Col. 8, ll. 20-21. And, of course, if the products are offered for sale on the Internet, they must be “restricted”—step four—by complex computer programming as well.

In addition, Figure 1, alone, demonstrates that the claim is not to some disembodied abstract idea but is instead a specific application of a method implemented by several computer systems, operating in tandem, over a communications network.  Almost all of the steps in this process, as explained in the flow chart of Figure 2, are tied to computer implementation.

Viewing the subject matter as a whole, the invention involves an extensive computer interface. Unlike Morse, the claims are not made without regard to a particular process. Likewise, it does not say “sell advertising using a computer,” and so there is no risk of preempting all forms of advertising, let alone advertising on the Internet.

Further, the record at this stage shows no evidence that the recited steps are all token pre- or post-solution steps.

Finally, the software patent claim appears far from over generalized, with eleven separate and specific steps with many limitations and sub-steps in each category. The district court improperly made a subjective evaluation that these limitations did not meaningfully limit the “abstract idea at the
core” of the claims.

Having said that, the Federal Circuit refused to define the level of programming complexity required before a computer implemented method can be patent-eligible. Nor did the court hold that use of an Internet website to practice such a method is either necessary or sufficient in every case to satisfy § 101. They simply held the claims in this case to be patent-eligible, in this posture, in part because
of these factors.

Some 2013 Software Patents decisions by the Patent Trial and Appeal Board on 35 USC 101

     Ex Parte Betts et al., Appeal 2010-004256, Application 11/132,649, PTAB 2013 concerns a software patent application that relates to balancing load requests and failovers using a UDDI proxy.  Illustrative claim 14 was rejected under 35 U.S.C. § 101 and read as follows:
    
     14. A system for connecting to a web service comprising: a web service-selecting unit for selecting a web service; a server-selecting unit for selecting a server among one or more servers capable of running the selected web service, the selected server being selected by the server-selecting unit independent of input from a requesting application subsequent to selection of the web service; a determining unit for determining a real address for the selected web service running on the selected server; and a connecting unit for connecting to the selected web service running on the selected server using the determined real address.
  
     The PTAB concluded that claim 14 encompassed software without physical embodiment, i.e., software per se, which is an abstract idea and not a “process, machine, manufacture, or composition of matter,” as required by § 101.

     Ex Parte Krause, Appeal 2010-012129, HP Application 10/442,401, PTAB 2013 concerns a software patent application that relates to network congestion management using one or more timers to provide a frame delay indication when delay conditions exist for more than a variable time that is based on a network system attribute.   Claim 51 was rejected under 35 U.S.C. § 101 and reads as follows:
    
51. An end station comprising:
an aggressive timer adapted to monitor network traffic, and respond to an occurrence of at least one condition of delayed frame transmission progress to provide a first frame delay indication when the at least one condition exists for a duration that exceeds a variable timing threshold, wherein the variable timing threshold is configurable based on at least one network system attribute.
 
     The Appellant contended that the Examiner erred in rejecting certain claims under 35 U.S.C §101 because the claims recited an “end station,” which is defined as hardware. The Board stated that Appellant’s argument did not cite evidence to rebut the Examiner’s interpretation that the claim encompasses either hardware or software. Accordingly, they declined to reverse the rejection.

     Ex Parte Barsness, Appeal 2010-011009, IBM Application 11/316,285, PTAB 2013 relates to characterizing HTTP session workload in a web server in which multiple HTTP sessions are processed in a first computer system and session-persistent state data for HTTP sessions is maintained in the first computer system.  Claim 10 is directed to “computer-executable instructions tangibly recorded on a computer-readable media” and reads as follows:

   
     10. A computer program product for characterizing HTTP session workload of a web server, comprising:
     a plurality of computer-executable instructions tangibly recorded on computer- readable media, wherein said instructions, when executed by at least one computer system, cause the at least one computer system to perform the steps of:
     accessing redundant session-persistent state data stored in a first computer system, said redundant session-persistent data being received in said first computer system from a second computer
system, said redundant session-persistent state data representing session-persistent state maintained by said second computer system for processing a plurality of HTTP sessions by said second computer system, said redundant session- persistent sate data being stored in said first computer system in a manner supporting recovery of session state of said plurality of HTTP sessions using said redundant session- persistent state data; and
     characterizing said HTTP session workload using said redundant session-persistent state data accessed by said accessing step.
     Appellants argued that claim 10 recites “tangibly recorded on computer readable media” thus restricting embodiments in which the media and the information recorded on it have some physical form.  The PTAB found that the Specification states the invention is capable of being distributed in the form of a wireless signal when exchanged from one signal-bearing medium to another. This falls within a propagating electromagnetic signal per se and thus, is not directed to one of the statutory categories.

     Ex Parte Svendsen, Appeal 2011-001873, Application 11/837,876, PTAB 2013 relates to reducing and/or preventing multiple listing of a media item in a playlist.  Claim 10 was rejected under 35 U.S.C.  § 101 and reads as follows:
     10. A system for reducing the multiple listing of a media item in a playlist, comprising:
a control system, wherein the control system is adapted to:
     receive a media item recommendation for a media item
from a recommender;
      determine whether there is a current listing of the media item in a playlist; and
     based on whether there is the current listing, provide a resultant listing of the media item in the playlist to reduce multiple listings of the media item in the playlist.
     The PTAB noted that the claimed “control system” could be implemented as software. As such, the PTAB was not persuaded by Appellants’ argument that the mere recitation of a “control system” (even if the Specification describes it as being associated with a memory) is sufficient to make the claims patent-eligible under 35 U.S.C. § 101  as it does not play a significant part in the performance of the claimed steps.  The PTAB stated that, in short, the broadest reasonable interpretation of the claim language lead them to construe the “control system” as being directed to a computer program per se, which, as drafted, renders the claimed subject matter not patentable under 35 U.S.C. § 101. The PTAB referred to Gottschalk v. Benson, 409 U.S. 63, 72 (1972).

     Ex Parte Xu, Appeal 2010-009107, Application 10/767,075, PTAB 2013 relates to determining location information for a node in a network.  Claim 1 was rejected under 35 U.S.C.  § 101 and reads as follows:
     1.  A method of determining location information for a computer system node in a network, the method comprising:
     [(a)] determining first distances from the node to a set of global landmark nodes;
     [(b)] determining second distances from the node to a set of local landmark nodes proximally located to the node, wherein the set of local landmark nodes are different than the set of global landmark nodes and the set of landmark nodes are located in routing paths between the node and the global landmark nodes; and
     [(c)] determining location information for the node based on the first distances and the second distances.
     The PTAB took the position that claim 1 as a whole is directed to a sequence of steps that can be performed by a person. They concluded that claim 1 is drawn to patent-ineligible subject matter and invalid under § 101.

     Ex Parte Robert S. Bray, Appeal 2011-013427, Application 11/686,054, PTAB 2013 concerned a device positioned between two vertebrae.  Dependent claim 3 was rejected under 35 U.S.C.  § 101 and reads as follows:
     3.  The implant device of claim 1, wherein the device is positioned between two vertebrae through a lateral opening exposing a lateral side of the vertabrae.
     The PTAB noted that the claim concerns positioning of the device not, for example, a human comprising a positioned device. They stated that the claims relate only to the correct placement of the device in the human patient, and as a whole, do not encompass a human organism. The PTAB noted that there was nothing in the statute, and they were unaware of any case that categorically excludes such devices.

CLS Bank v. Alice Corp., Federal Circuit 2013

The Federal Circuit reviewed an appeal by Alice Corp. of a district court (U.S. District Court for District of Columbia) holding that Alice’s asserted
method claims, computer readable media claims, and systems claims were not directed to eligible subject matter under 35 U.S.C. §101.

The ten-member en banc panel released seven different decisions. None of the opinions garnered majority support. Seven of the ten judges agreed that the method and computer-readable medium claims lack subject matter eligibility. Eight of the ten concluded that the software patent claims should rise and fall together regardless of their claim type.

The software patents concern “the management of risk relating to specified, yet unknown, future events.” In particular, the patents relate to 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 “counter party” or “settlement” risk. Settlement risk refers to the risk to each party in an exchange that only one of the two
parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counter-party’s performance. Alice’s patents address that risk by
relying on a trusted third party to ensure the exchange of either both parties’ obligations or neither obligation. For example, when two parties agree to perform a
trade, in certain contexts there may be a delay between the time that the parties enter
a contractual agreement obligating themselves to the trade and the time of settlement when the agreed trade is actually executed. Ordinarily, the parties would consummate the trade by paying or exchanging their mutual obligations after the intervening period, but in some cases one party might become unable to pay during that time and fail to notify the other
before settlement. As disclosed in Alice’s patents, a trusted third party can be used to verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.

The claims before the court recited methods of exchanging obligations
between parties, data processing systems, and computer-
readable media containing a program code for directing
an exchange of obligations.

A representative method claim is as follows:
          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 transactions that do not result in the
value of the shadow debit record being less
than the value of the shadow credit record at
any time, each said adjustment taking place
in chronological order; and
          (d) at the end-of-day, the supervisory institution
instructing ones 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.

A representative apparatus claim is as follows:
          1. A data processing system to enable the exchange of
an obligation between parties, the system comprising:
          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 trans
action, 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 district court granted summary judgment in favor of CLS, holding each of the asserted claims of Alice’s software patents invalid under §101.

The district court concluded that Alice’s method claims “are directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”

Further, the district court held the asserted system claims similarly ineligible, as those claims “would preempt the use of the abstract concept of employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk on any computer, which is, as a practical matter, how these processes are likely to be
applied.”

The asserted media claims failed on the same ground as “directed to the same abstract concept
despite the fact they nominally recite a different category of invention.” The invalidation of the system claims and media claims are disconcerting. One would think that systems and media pass the “machine or transformation” test that was accepted by the Supreme Court as an indication of patent eligibility.

The leading five-member opinion written by Judge Lourie noted that the patent statute sets forth four broadly stated categories of patent-eligible subject matter: processes, machines,
manufactures, and compositions of matter. As the Supreme Court has explained, Congress intended that the statutory categories would be broad and inclusive to best serve the patent system’s constitutional objective of encouraging innovation.
See Diamond v. Chakrabarty, 447 U.S. 303, 308-09 (1980).

While the categories of patent-eligible subject matter recited in §101 are broad, their scope is limited by three important judicially created exceptions.
“[L]aws of nature, natural phenomena, and abstract ideas” are excluded from patent eligibility,
because such fundamental discoveries represent “the basic tools of
scientific and technological work,” Gottschalk v. Benson,
409 U.S. 63, 67 (1972). Thus, even inventions that fit within one or more of the statutory categories are not patent eligible if drawn to a law of nature, a natural phenomenon, or an abstract idea. The underlying concern is that patents covering such elemental concepts would
reach too far and claim too much, on balance obstructing rather than catalyzing innovation. But danger also lies in applying the judicial exceptions too aggressively because “all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.”
Mayo Collaborative Servs. v. Prometheus
Labs., Inc., 132 S. Ct. 1289, 1293 (2012). Taken too far, the exceptions could swallow patent law entirely.

The opinion continued on to say that, accordingly, the basic steps in a patent-eligibility
analysis can be summarized as follows. We must first ask whether the claimed invention is a process, machine, manufacture, or composition of matter. If not, the claim is ineligible under §101. If the invention falls within one of the statutory categories, we must then determine
whether any of the three judicial exceptions nonetheless bars such a claim is the claim drawn to a patent ineligible law of nature, natural phenomenon, or abstract
idea? If so, the claim is not patent eligible. Only claims that pass both inquiries satisfy §101. While simple enough to state, the patent-eligibility test has proven quite difficult to apply.

The opinion discussed several Supreme Court cases and noted that several common themes that run through the Supreme Court’s decisions that should frame the analysis in this and other §101 cases.

First and foremost is an abiding concern that patents
should not be allowed to preempt the fundamental tools of
discovery.

Next, the cases repeatedly caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants such as
claim drafting strategies that attempt to circumvent the
basic exceptions to §101 using, for example, highly stylized language, hollow field-of-use limitations, or the recitation of token post-solution activity should not be
credited.

Finally, the cases urge a flexible, claim-by-claim approach to subject-matter eligibility that avoids rigid line drawing. Bright-line rules may be simple to apply, but they are often impractical and counterproductive when applied to §101. Such rules risk becoming outdated in
the face of continual advances in technology.

In this software patent, claim 33 plainly recites a process. The issue presented then becomes whether that process amounts to no more than a patent-ineligible abstract idea. As described,
the first step in that analysis requires identifying the
abstract idea represented in the claim. The methods
claimed here draw on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary (here, the supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow. CLS describes that concept as “fundamental and ancient,”
but
the latter is not determinative of the question of abstractness. Even venerable concepts, such as risk hedging in
commodity transactions, were once unfamiliar, just like the concepts inventors are
unlocking at the leading edges of technology today. But
whether long in use or just recognized, abstract ideas
remain abstract. The concept of reducing settlement risk
by facilitating a trade through third-party intermediation
is an abstract idea because it is a “disembodied” concept, a basic building block of human ingenuity, untethered from any real-world application. Standing alone,
that abstract idea is not patent-eligible subject matter.

The analysis therefore turns to whether the balance of
the claim of the software patent adds “significantly more.” Apart from the idea
of third-party intermediation, the claim’s substantive
limitations require creating shadow records, using a
computer to adjust and maintain those shadow records,
and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. None of those limitations adds anything of
substance to the claim.

The opinion states that the requirement for computer implementation
could scarcely be introduced with less specificity; the
claim lacks
any
express language to define the computer’s
participation. In a claimed method comprising an abstract idea, generic computer automation of one or more
steps evinces little human contribution. There is no
specific or limiting recitation of essential, or improved computer technology, and no reason to view the computer limitation as anything but “insignificant post-solution activity” relative to the abstract idea.
Furthermore, simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract
concept does not meaningfully limit claim scope for purposes of patent eligibility.  That is particularly apparent in this case. Because of the efficiency and
ubiquity of computers, essentially all practical, real-world
applications of the abstract idea implicated here would
rely, at some level, on basic computer functions
—
for
example, to quickly and reliably calculate balances or
exchange data among financial institutions. At its most
basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the
claims require a computer to perform operations that are
not merely accelerated calculations, a computer does not
itself confer patent eligibility. In short, the requirement
for computer participation in these claims fails to supply
an “inventive concept” that represents a nontrivial, non-conventional human contribution or materially narrows
the claims relative to the abstract idea they embrace.

Considering the computer readable storage medium claims of the software patent, the opinion noted that although the claim’s preamble appears to invoke a physical object, the claim term “computer readable storage
medium” is stated in broad and functional terms
—
incidental to the claim
—
and every substantive limitation
presented in the body of the claim pertains to the method steps of the
program code “embodied in the medium.” Therefore,
the claim is not “truly drawn to a specific computer readable medium, rather than to the underlying method” of
reducing settlement risk using a third
–
party intermediary. Despite their
Beauregard
format, Alice’s “computer readable medium claims” are thus
equivalent to the methods they recite for §
101 purposes.

Considering the software patent’s apparatus claims, the opinion states that the representative apparatus claim recites a computerized system configured to carry out a series of steps that mirror Alice’s
method claims
—
maintaining shadow records, allowing
only those transactions supported by adequate
value in
the shadow records, adjusting the shadow records pursuant to such transactions, and later instructing exchange institutions to execute the allowed transactions. Indeed,
Alice’s method and system claims use similar and often
identical language to
describe those actions. The
system claims are different, however, in that they also
recite tangible devices as system components, including at
least “a computer” and “a data storage unit.” Other
claims specify additional components, such as a “first
party device” and a “communications controller.”

Similar to the computer
readable medium claims, the system claims are formally
drawn to physical objects and therefore raise a question
whether they deserve to be evaluated differently under
the abstract ideas exception from the accompanying
method claims discussed above. Careful analysis shows
that they do not.
The computer-based limitations recited in the
system
claims here cannot support any meaningful distinction
from the computer-based limitations that failed to supply
an “inventive concept” to the related method claims.

The
shadow record and transaction limitations in Alice’s
method claims require “a computer,” evidently capable of calculation, storage,
and data exchange. The system claims are little different.
They set forth the same steps for performing third-party
intermediation and provide for computer implementation
at an incrementally reduced, though still striking level of
generality. Instead of wholly implied computer limitations, the system claims recite a handful of computer
components in generic, functional terms that would
encompass any device capable of performing the same
ubiquitous calculation, storage, and connectivity functions
required by the method claims. Though the
system claims associate certain computer components
with some of the method steps, none of the recited hardware offers a meaningful limitation beyond generally
linking “the use of the [method] to a particular technological environment,” that is, implementation via computers.

For all practical purposes,
every
general-purpose computer will include “a computer,” “a data
storage unit,” and “a communications controller” that
would be capable of performing the same generalized
functions required of the claimed systems to carry out the
otherwise abstract methods recited therein.

Therefore, as with the asserted method claims, such
limitations are not actually limiting in the sense required
under §
101; they provide no significant “inventive concept.” The system claims are instead akin to stating the
abstract idea of third
–
party
intermediation and adding
the words: “apply it” on a computer. That is not sufficient for patent eligibility, and
the system claims before us fail to define patent
–
eligible
subject matter under §
101, just as do the method and
computer-readable medium claims.

The opinion notes that one of the separate opinions (one with which Malhotra Law Firm, PLLC agrees) in this case takes aim at this opinion, asserting that the system claims here are simply claims to a
patent-eligible machine, a tangible item one can put
on
one’s desk.   Machines are unquestionably eligible for patenting, states the opinion, although the system claims
here clearly track the method claims that the separate
opinion concedes are not patent eligible.
That conclusion is surely correct as an abstract proposition. A particular computer system, composed of wires,
plastic, and silicon, is no doubt a tangible machine. But
that is not the question. The question we must consider is
whether a
patent claim
that ostensibly describes such a
system on its
face represents something more than an
abstract idea in legal substance.  Claims to computers
were, and still are, eligible for patent. No question should
have arisen concerning the eligibility of claims to basic
computer hardware under §
101 when such devices were
first invented. But we are living and judging now
(or at
least as of the patents’ priority dates), and have before us
not the patent eligibility of specific types of computers or
computer components, but computers that
have
routinely
been
adapted by software consisting of abstract ideas, and
claimed as such, to do all sorts of tasks that formerly were
performed by humans. And the Supreme Court has told
us that, while avoiding confusion between §
101 and
§§
102 and 103, merely adding existing computer technology to abstract ideas
—
mental steps
—
does not as a matter
of substance convert an abstract idea into a machine.

Malhotra Law Firm, PLLC (patentsusa.com) takes the position that apparatus claims reciting computer components clearly pass the machine-or-transformation test.

That is what we face when we have a series of claims
to abstract methods and computers fitted to carry out
those methods. We are not here faced with a computer
per
se
. Such are surely patent
–
eligible machines. We are
faced with abstract methods coupled with computers
adapted to perform those methods. And that is the fallacy
of relying on
Alappat
, as the concurrence in part does.
Not only has the world of technology changed, but the
legal world has changed. The Supreme Court has spoken
since
Alappat
on the question of patent eligibility, and we
must take note of that change. Abstract methods do not become patent-eligible machines
by being clothed in
computer language.

In view of this decision, Malhotra Law Firm, PLLC recommends reciting hardware as possible in patent claims, and integrating that hardware into the software method as much as possible.  There has been much lobbying against patenting of financial methods so it is possible that other software methods will be received more favorably.  This decision seems to be contrary to the machine-or-transformation test accepted by the Supreme Court in Bilski as one possible test, at least in my opinion.  Perhaps the Supreme Court will shed more light on the matter some day.  Until then, we have muddy guidance from our Federal Circuit.  They caution against bright line tests and with this decision have certainly not provided any bright lines.  After 20 years we still do not have any clear guidance on what sort of software should be patent-eligible.