MVS Filewrapper® Blog: Federal Circuit Deems Software Patent Ineligible, Provides Little Certainty

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.

Another issue headed for en banc review by the Federal Circuit: How to assess redesigned products

In an order Friday, the Federal Circuit granted en banc review of its second case in the past three weeks and its third over the past three months.  This time it's a case involving Tivo relating to the contempt proceedings against Echostar relating to Tivo's DVR patents.  After Echostar was found to infringe Tivo's patent and was permanently enjoined from infringement, it redesigned its DVR software.  Tivo asked the district court to hold Echostar in contempt for violating the injunction.  The district court agreed with Tivo, and the Federal Circuit affirmed.

That opinion has now been vacated, and the Federal Circuit has granted en banc review to address whether and in what circumstances a contempt proceeding is appropriate to address alleged infringement of a newly accused device.  Specifically, the questions presented are:

  1. Following a finding of infringement by an accused device at trial, under what circumstances is it proper for a district court to determine infringement by a newly accused device through contempt proceedings rather than through new infringement proceedings? What burden of proof is required to establish that a contempt proceeding is proper?
  2. How does “fair ground of doubt as to the wrongfulness of the defendant’s conduct” compare with the “more than colorable differences” or “substantial open issues of infringement” tests in evaluating the newly accused device against the adjudged infringing device? See Cal. Artificial Stone Paving Co. v. Molitor, 113 U.S. 609, 618 (1885); KSM Fastening Sys., Inc. v. H.A. Jones Co., 776 F.2d 1522, 1532 (Fed. Cir. 1985).
  3. Where a contempt proceeding is proper, (1) what burden of proof is on the patentee to show that the newly accused device infringes (see KSM, 776 F.2d at 1524) and (2) what weight should be given to the infringer’s efforts to design around the patent and its reasonable and good faith belief of noninfringement by the new device, for a finding of contempt?
  4. Is it proper for a district court to hold an enjoined party in contempt where there is a substantial question as to whether the injunction is ambiguous in scope? 

Consistent with its typical practice in en banc cases, the Federal Circuit is permitting amicus briefs on these issues.

To read the full order granting en banc review in Tivo, Inc. v. Echostar Corp., click here.

To read our post regarding the original appeal, click here.

Federal Circuit to consider overhaul of inequitable conduct standards en banc

In an order today, the Federal Circuit granted rehearing en banc in Therasense, Inc. v. Becton, Dickinson & Co.  The order indicates the court will be reconsidering its precedent on virtually the entire gamut of issues relating to inequitable conduct. Specifically, the questions presented are:

  1. Should the materiality-intent-balancing framework for inequitable conduct be modified or replaced?
  2. If so, how? In particular, should the standard be tied directly to fraud or unclean hands? See Precision Instrument Mfg. Co. v. Auto. Maint. Mach. Co., 324 U.S. 806 (1945); Hazel-Atlas Glass Co. v. Hartford-Empire Co., 322 U.S. 238 (1944), overruled on other grounds by Standard Oil Co. v. United States, 429 U.S. 17 (1976); Keystone Driller Co. v. Gen. Excavator Co., 290 U.S. 240 (1933). If so, what is the appropriate standard for fraud or unclean hands?
  3. What is the proper standard for materiality? What role should the United States Patent and Trademark Office's rules play in defining materiality? Should a finding of materiality require that but for the alleged misconduct, one or more claims would not have issued?
  4. Under what circumstances is it proper to infer intent from materiality? See Kingsdown Med. Consultants, Ltd. v. Hollister Inc., 863 F.2d 867 (Fed. Cir. 1988) (en banc).
  5. Should the balancing inquiry (balancing materiality and intent) be abandoned?
  6. Whether the standards for materiality and intent in other federal agency contexts or at common law shed light on the appropriate standards to be applied in the patent context.

The court explicitly allows for the filing of amicus briefs without leave of court, and also specifically invites the USPTO to file such a brief.

For the order granting rehearing en banc, click here.

For the original panel opinion (affirming the district court's finding of inequitable conduct), click here.

More detail of the original panel opinion after the jump.

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En banc Federal Circuit reaffirms written description requirement is separate from enablement

Monday the Federal Circuit  released its en banc opinion in Ariad Pharmaceuticals, Inc. v. Eli Lily & Co., where the court addressed whether 35 U.S.C. § 112  has a written description requirement separate and apart from the enablement requirement.  A substantial majority of the court (10 judges) joined in the majority opinion, with two judges dissenting.  As summarized by the court:

We . . . read the statute to give effect to its language that the specification "shall contain a written description of the invention" and hold that § 112, first paragraph, contains two separate description requirements: a "written description [i] of the invention, and [ii] of the manner and process of making and using [the invention]."

The Federal Circuit analyzed several old Supreme Court cases, and concluded that the Supreme Court, while not specifically calling this requirement a "written description" requirement, has consistently held that an inventor must do more than simply enable one in the art to make and use the invention claimed, but also must describe what the invention is. 

This decision is not unexpected, and leaves intact the Federal Circuit's jurisprudence on the subject. In fact, one of the grounds for retaining the requirement is that forty years of case law has held such a requirement exists, and inventors have relied upon the requirement over the course of that time.  The court was reluctant to upset the settled expectations of the patent community.  The court also declined to set forth a rule where original claims always meet the written description requirement, noting:

Although many original claims will satisfy the written description requirement, certain claims may not. For example, a generic claim may define the boundaries of a vast genus of chemical compounds, and yet the question may still remain whether the specification, including original claim language, demonstrates that the applicant has invented species sufficient to support a claim to a genus. The problem is especially acute with genus claims that use functional language to define the boundaries of a claimed genus. In such a case, the functional claim may simply claim a desired result, and may do so without describing species that achieve that result. 

More detail of the en banc decision after the jump.  Click here for our post regarding the original panel decision, which has much of the factual background of the invention at issue.  Click here for a discussion of court's decision to grant en banc review, including the questions presented.

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Federal Circuit to consider en banc whether new evidence may be introduced in a section 145 action

In an order yesterday, the Federal Circuit has agreed to consider the scope of evidence to be considered in an action filed under 35 U.S.C. § 145 to obtain review of a decision of the Board of Patent Appeals and Interferences.  The case is Hyatt v. Kappos.  Specifically, the court ordered briefing on the following issues:

(a) Are there any limitations on the admissibility of evidence in section 145 proceedings? In particular—

(i) Does the Administrative Procedure Act require review on the agency record in proceedings pursuant to section 145?
(ii) Does section 145 provide for a de novo proceeding in the district court?
(iii) If section 145 does not provide for a de novo proceeding in the district court, what limitations exist on the presentation of new evidence before the district court?

(b) Did the district court properly exclude the Hyatt declaration?

In the original panel decision, the court affirmed the district court's exclusion of evidence that "should have been" raised before the Board but was not, specifically evidence relating to enablement.  Judge Moore dissented, contending Hyatt was entitled to introduce new evidence in a § 145 proceeding. 

No oral argument date has yet been set.  To read the full order granting en banc review, click here.

En banc Federal Circuit to address potential patent misuse issues in license practices

The Federal Circuit has agreed to hear en banc an interesting issue with regard to the potential for patent misuse in licensing.  The case is Princo Corp. v. ITC.  At issue is the patent pool related to the technology used for CD-R and CD-RW discs.  The alleged infringer, Princo, admitted infringement before the ITC, but asserted the patents unenforceable due to patent misuse.  The ITC originally rejected this defense, but a divided panel of the Federal Circuit held additional factual determinations were necessary to assess the defense.  

Currently-available CD-R and CD-RW discs use analog technology to assist the recording device in determining where on the disc the recording laser is located at any given time.  Another potential alternative (that has not been implemented in the marketplace) is using digital technology to make this determination.  According to the defendant, the digital alternative was never commercialized because of an agreement between Sony and Philips (two of the owners of patents in the relevant patent pool) not to license a Sony patent covering this digital alternative for this purpose.  According to the defendant, this amounted to a type of horizontal price fixing, and was therefore patent misuse.  The ITC disagreed, and held no misuse occurred.

A divided panel of the Federal Circuit disagreed, and remanded the case to the ITC for further factual development.  The court stated the precompetitive benefits sometimes seen in the context of patent pools are completely absent in the context of an agreement not to license patents covering a potentially competing technology.  The panel majority held this was at least potentially an antitrust violation under the rule of reason.

The en banc Federal Circuit has now agreed to address this issue, with the briefing cycle to be completed shortly after the new year.  Oral argument is not yet set (update, see below), but the case has the potential to provide some clarity on when an arguably anticompetitive licensing practice crosses over into patent misuse.

Click here for the order granting rehearing en banc.

Update (10/29):  The Federal Circuit has set oral argument in the case for March 3 at 2:00 PM.

Click below for a full summary of the panel decision in Princo Corp. v. Int'l Trade Comm'n.

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Claim and continuation rules dead: thousands of practitioners breathe easier

In a Federal Register notice today, the USPTO has officially withdrawn the claim and continuation rule changes from the Code of Federal Regulations.  This is consistent with a press release from Thursday announcing the rules were no longer going to be pursued.  The summary of the notice:

The United States Patent and Trademark Office (Office) published a final rule in the Federal Register in August of 2007 to revise the rules of practice for patent cases pertaining to continuing applications and requests for continued examination practices, and for the examination of claims in patent applications (Claims and Continuations Final Rule). The Office is revising the rules of practice in this final rule to remove the changes in the Claims and Continuations Final Rule from the Code of Federal Regulations.

The USPTO and GlaxoSmithKline (one of the plaintiffs who sought injunctive relief against implementation of the rules) have joined in a motion to dismiss the appeal and vacate the district court decision.  Tafas, the other plaintiff, has not joined the motion regarding the vacatur of the district court decision, wanting it to stay on the books as a limit on future rulemaking attempts by the USPTO.

To read the press release, click here.

To read the full Federal Register notice with background history on the rules and the underlying litigation, click here.

Federal Circuit to consider whether a separate written description requirement exists in section 112

In an en banc order Friday, the Federal Circuit announced it will rehear Ariad Pharmaceuticals, Inc. v. Eli Lilly & Co. en banc to consider whether there is a written description requirement in § 112 separate and apart from the enablement requirement.  Specifically, the questions presented are:

  1. Whether 35 U.S.C. § 112, paragraph 1, contains a written description requirement separate from an enablement requirement?
  2. If a separate written description requirement is set forth in the statute, what is the scope and purpose of the requirement? 

Our post regarding the panel decision in the case may be found hereJudge Linn filed an opinion concurring in the panel's decision in order to restate his opinion that no such separate written description requirement exists in the statute.  He now has his opportunity to convince his colleagues that there is no such requirement.

To read the order in Ariad Pharms., Inc. v. Eli Lilly & Co., click here.

Federal Circuit to hear claim and continuation rule case en banc

In an order this afternoon, the Federal Circuit agreed to hear en banc Tafas v. Doll, the case challenging the USPTO's claim and continuation rules.  Back in March, a panel of the court held, in a 2-1 decision, the limits on continuation applications were invalid, but the remainder of the rules were not invalid, at least for the reasons given by the district court.

In the order, the court set forth the briefing schedule:

  • August 5:  Appellants' additional briefs due
  • August 25:  Appellee's additional brief due
  • September 1:  Reply briefs due

Oral argument will be set at a later date.  To read the order granting en banc review, click here.

Bilski: No machine or transformation, no patentable method, at least for now

As we reported Thursday, the Federal Circuit has decided In re Bilski, an en banc decision regarding the scope of patentable subject matter.  Specifically, the court addressed what is necessary for a method to fall within the scope of patentable subject matter under § 101.

The court, after examining the relevant Supreme Court cases on the subject (such as Diehr, Benson, and Flook), the court adopted the "machine-or-transformation" test as the applicable test for patent-eligible methods.  In so doing, the court rejected the Freeman-Walter-Abele test (regarding algorithms), the "useful, concrete, and tangible result" test articulated in State Street, and the "technological arts" test described in, for example, Ex parte Lundgren.

As stated by the court:

The machine-or-transformation test is a two-branched inquiry; an applicant may show that a process claim satisfies § 101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article.

The machine or transformation must also "impose meaningful limits on the claim's scope" and "must not merely be insignificant extra-solution activity."

The final vote was 9-3, with Judge Dyk writing a concurrence joined by Judge Linn, and Judges Newman, Mayer, and Rader authoring separate dissents.

More detail of In re Bilski and links to coverage from the media and blogs after the jump.

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