In its recent en banc decision in CLS Bank v. Alice Corp, the Federal Circuit has affirmed the finding of subject matter ineligibility of Alice Corp's method and software for management of risk in financial transactions through use of a third party intermediary.  The ten-member panel produced seven different decisions, but did not produce any majority opinion.  However, seven judges agreed that the method and computer-readable medium claims were patent ineligible.  Additionally, eight of the ten determined that the claims should rise or fall under § 101 regardless of claim type.

In the plurality opinion written by Judge Lourie, the court examined Supreme Court precedent on the issue of patent eligible subject matter.  Utilizing these precedents, the Federal Circuit proposed an "integrated approach" to § 101 problems—patents should not be allowed to preempt the fundamental tools of discovery; courts should avoid overly formalistic approaches to subject-matter eligibility that invites manipulation by patent applicants; courts should use a flexible, claim-by-claim approach that avoids rigid line-drawing.  The analysis asks the following questions:

-          Does the claimed invention fall into one of the four statutory classes (process, machine, manufacture, composition of matter)?

-          Does the claimed invention meet a judicial exception to patent eligibility (law of nature, natural phenomena, abstract idea)?

-          What is the fundamental concept at issue in the claim?

-          Will the patenting of the idea preempt the whole idea or does the claim provide enough limitations to limit the scope of the patent grant?

-          Is the human contribution more than a trivial addition or tangential, routine, well-understood, conventional limitation?

Under this analysis, the plurality determined that the abstract idea claimed in Alice Corp's patent was not rendered patent eligible because the added limitations were nothing more than "insignificant post-solution activity."  They refused to reward the clever use of extravagant language to make the claims sound more limited with terms like "shadow record."  Ultimately, the five judge plurality concluded that adding existing computer technology to an abstract idea does not render it patent eligible.

Judge Rader's opinion, concurring-in-part and dissenting-in-part, differed slightly in his proposed analysis for subject matter eligibility.  He focused on whether the limitations in the claim restrict the abstract idea to a concrete reality or actual application of the idea.  He noted that if the claim covers all practical applications of an abstract idea, it is not meaningfully limited.  In contrast to Judge Lourie's opinion, Judge Rader found that when a claim is limited by the requirement for a computer, that is an important indication of patent eligibility.  Ultimately, where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention and the claim does not preempt virtually all uses of an underlying abstract idea, the claim is patent eligible.  For these reasons, Judge Rader deemed Alice Corp's system claims to be patent eligible.

Judge Newman filed an opinion concurring with the majority that the claims should rise or fall together, but dissenting in her opinion that all of the claims are patent eligible. She indicated her concern over the uncertainty surrounding subject matter eligibility, which she believed was not remedied by this en banc decision. She proposed that the court return to the time-tested principles of patent law and abandon its failed § 101 ventures into abstractions, preemption, and meaningfulness. In response to the concern of preemption of experimentation and innovation, Judge Newman stated that the court should reaffirm the long-standing rule that study and experimentation are not infringement.

There continues to be uncertainty regarding the patentability of various types of software inventions. The fragmented opinions of the en banc panel indicate that despite their desire for a clear, consistent approach to section 101 that provides certainty and guidance to applicants and examiners alike, the issue of software patent eligibility is far from resolved.

The Supreme Court has handed down its much anticipated decision in Bowman v. Monsanto Co., holding that the defense of patent exhaustion does not apply to the practice of planting and harvesting patented seeds through planting and harvesting without the patent holder's permission.

The case centers on the Roundup Ready gene, which confers resistance to glyphosate herbicides such as Roundup. Monsanto owns U.S. Patent Nos. 5,352,605 and RE39,247E, which cover the Roundup Ready gene, as well as seeds incorporating the gene. The Roundup Ready gene stably integrated into the genomic material of soybeans sold by Monsanto, which means that once the seeds are planted, the plants that grow from those seeds and any seeds produced by that plant also have the Roundup Ready gene.

Monsanto markets both the Roundup Ready seeds and the Roundup herbicide to farmers. However, the seeds are sold subject to a licensing agreement that permits a grower to plant the purchased seed in only one growing season-the grower in prohibited from saving any of the harvested seed for replanting in a subsequent growing season. Growers are permitted under the agreement to consume the seeds or to sell the seeds as a commodity for eventual consumption. Due to the popularity of Roundup Ready seeds, a significant proportion of commodity seeds are Roundup Ready.

Vernon Bowman purchased Roundup Ready seeds from a licensed seller each year for his first planting of the growing season. Bowman also made a second planting each season, for which he used seed that was not purchased from a licensed seller. Instead, Bowman purchased commodity seed, planted the seed, treated the plants with glyphosphate herbicide, and harvested the seed from the surviving plants, which he then used for second plantings in subsequent growing seasons. Because these seeds survived the glyphosphate herbicide treatment, they necessarily possessed the Roundup Ready gene. Ultimately, Bowman harvested eight crops through this system of growing and replanting, effectively generating a homogenous Roundup Ready source of seed that was not purchased from Monsanto.

Monsanto sued Bowman in the U.S. District Court for the Southern District of Indiana, alleging that Bowman's harvesting and replanting of Roundup Ready seeds infringed its patents. In his defense, Bowman asserted that the doctrine of patent exhaustion prevented Monsanto from controlling his use of the seeds because they were the subject of a prior authorized sale. The trial court rejected Bowman's patent exhaustion defense, finding for Monsanto. On appeal, the Federal Circuit affirmed, concluding that the patent exhaustion defense was not available to Bowman because he had created newly infringing articles through the harvesting and replanting-Bowman had replicated Monsanto's patented technology by planting the seeds and thereby creating newly infringing plants and seeds.

The Supreme Court, like the district court and the Federal Circuit, concluded that Bowman could not rely on the doctrine of patent exhaustion. The Court held that while the patent exhaustion doctrine restricts a patentee's right to control what others can do with a particular article sold, it does not affect the patentee's ability to prevent a buyer from making new copies of a patented item. Thus, the Court determined that the patent exhaustion doctrine enabled Bowman to resell the patented commodity soybeans he purchased, or consume the beans, or feed them to his animals without interference from Monsanto, but it did not enable Bowman to make additional patented soybeans without Monsanto's permission.

The Court relied on its precedent in J.E.M. Ag. Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., where the Court explained that only a patent holder, and not the holder of a certificate issued under the Plant Variety Protection Act, could prohibit a farmer who legally purchases and plants a protected seed from saving harvested seed for replanting. The Court also dismissed Bowman's argument that patent exhaustion should apply in this case because soybeans naturally self-replicate, and therefore the seeds themselves-and not Bowman-were responsible for producing copies. Such a "blame-the-bean" defense was unpersuasive in light of the Bowman's active role in purchasing, planting, selecting, harvesting, and replanting the infringing seeds for eight successive crops.

The Court took care to limit its holding to the situation before it, stating that it is a closer question as to whether the patent exhaustion doctrine would apply where an article's self-replication occurs outside the purchaser's control, or is necessary by incidental step in using the item for another purpose.

In Biosig Instruments, Inc. v. Nautilus, Inc., the Federal Circuit reversed a decision by the U.S. District Court for the Southern District of New York finding a patent invalid for indefiniteness, relying on intrinsic evidence.  Biosig Instruments, Inc. (“Biosig”) is the assignee of U.S. Patent No. 5,337,753 (“the ’753 patent”).  The ’753 patent is directed to a heart rate monitor for use with exercise equipment and exercise procedures.  Biosig sued Nautilus, Inc. (“Nautilus”) for patent infringement alleging that claims 1 and 11 of the ’753 patent were infringed by Nautilus’s exercise equipment that has a mounted heart rate monitor. 

In the late 1990s, Biosig was in negotiations with Stairmaster Company—Nautilus’s predecessor—regarding Biosig’s patented technology, but the companies failed to reach an agreement.  Stairmaster, and eventually Nautilus, started to sell exercise equipment with mounted heart rate monitors.  Biosig sued Nautilus in August 2004, alleging that the equipment infringed its patent.  Following reexaminations and re-filed patent infringement suits, the District Court for the Southern District of New York eventually conducted a Markman hearing on the asserted claims of the ’753 patent in September 2011.  Among the terms the court construed was the term “spaced relationship.”  The district court construed the term to mean that “there is a defined relationship between the live electrode and the common electrode on one side of the cylindrical bar and the same or a different defined relationship between the live electrode and the common electrode on the other side of the cylindrical bar.”  Following the district court’s claim construction, Nautilus moved for summary judgment of non-infringement and invalidity for indefiniteness.

In February 2012, the district court ruled on the summary judgment motions, denying the motion for summary judgment of non-infringement and granting the motion for invalidity based on indefiniteness.  The district court’s holding of invalidity for indefiniteness was founded on the conclusion that the term “spaced relationship” was ambiguous, despite the fact that the court had construed the term in its Markman order.  Biosig appealed the district court’s grant of summary judgment, with the sole issue on appeal being the indefiniteness of “spaced relationship.” 

On appeal, the Federal Circuit’s analysis began with a summary of the standards of indefiniteness, stating “[a] claim is indefinite only when it is ‘not amenable to construction’ or ‘insolubly ambiguous.’”  The Court went on to discuss words of degree, for which “the court must determine whether the patent provides ‘some standard for measuring that degree.’”  In this instance, the Court concluded that the term was not indefinite, as it “was amenable to construction,” whereas “indefiniteness . . . would require a showing that a person of ordinary skill would find ‘spaced relationship’ to be insolubly ambiguous—that it fails to provide sufficient clarity delineating the bounds of the claim to one skilled in the art.”  The Federal Circuit specifically relied on the intrinsic evidence that the district court used in construing the term in its Markman order.  In doing so, the Federal Circuit noted that the specification described the “spaced relationship” of the electrodes in terms of their function, and cited the evidence submitted during the reexamination, including a declaration by the inventor, used to traverse a rejection by the USPTO.  In light of the specification and intrinsic evidence, the Federal Circuit held that the term “spaced relationship” was not indefinite; and therefore, that the grant of summary judgment was in error.  Accordingly, the Federal Circuit reversed the district court’s invalidity determination and remanded the case for further proceedings.