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 United States Court of Appeals for the Federal Circuit recently addressed the issue of whether a method of using advertising as a form of currency, to distribute copyrighted products over the internet, constituted patent-eligible subject matter.  The court reversed the district court’s dismissal for lack of subject matter eligibility and found the claimed invention fell within patent-eligible subject matter under 35 U.S.C. §101’s definition of a “process.”

Ultramercial, LLC and Ultramercial, Inc.’s (collectively, “Ultramercial”) filed suit against Hulu, LLC (“Hulu”), YouTube, LLC (“YouTube”), and WildTangent, Inc. (“WildTangent”), in the United States District Court for the Central District of California.  Ultramercial alleged infringement of its patent that claimed a method for distributing copyrighted products over the internet.  The method allowed a consumer to freely obtain copyrighted products, such as songs, movies, and books, over the internet in exchange for viewing an advertisement.  The copyrighted products were paid for by the advertiser.  Hulu and YouTube were dismissed from the case, and WildTangent filed a motion to dismiss for failure to state a claim with patent-eligible subject matter.  The district court dismissed Ultramercial’s patent infringement claims, finding that Ultramercial’s patent did not claim patent-eligible subject matter.  Ultramercial appealed to the United States Court of Appeals, Federal Circuit. 

The United States Court of Appeals, Federal Circuit, initially noted that the district court had dismissed Ultramercial’s claims for failure to claim patent-eligible subject matter without formally construing the claims.  The court recognized that it had “never set forth a bright line rule requiring district courts to construe claims before determining subject matter eligibility.”  Thus, the court held that claim construction may not always be necessary for 35 U.S.C. §101 analysis, and that this case did not require claim construction in light of the subject matter at issue.

The court then set forth the categories of subject matter eligible for patent protection under 35 U.S.C. §101:

[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. 

35 U.S.C. §101.  The court noted that the language of §101 clarifies that the categories of patent-eligible subject matter are no more than a “course eligibility filter” (quoting Research Corp. Techs., Inc. v. Microsoft Corp., 627 F.3d 859, 869 (Fed.Cir. 2010)), and that subject matter eligibility is “merely a threshold check.”  The court pointed out that there are only three categories of subject matter outside the eligibility constraints of §101: laws of nature; physical phenomena; and abstract ideas.  The court further admitted that it, and the United States Supreme Court, have found it difficult to provide a precise definition for the patent-ineligible category of abstractness.  While abstract ideas are patent ineligible, on the other hand, an application of an abstract idea may well be protected.  Thus, the court gave “substantial weight to the statutory reluctance to list any new, non-obvious, and fully disclosed subject matter as beyond the reach of title 35.” 

Addressing Ultramercial’s patent, the court found that it constituted a method of monetizing and distributing copyrighted products over the internet.  Thus, as a method, Ultramercial’s claims satisfied §101’s definition of a “process” and fell within patent-eligible subject matter.  The court determined that Ultramercial’s patent did not simply claim an abstract idea, i.e. advertising can serve as currency, but actually disclosed a practical application for this concept.  The court also found several factors significant, for instance, the invention involved an extensive computer interface and solved problems with prior art banner advertising by requiring consumers to view advertisements before granting access to any copyrighted products.

The court ultimately held that “the ‘course eligibility filter’ of §101 should not be used to invalidate patents based on concerns about vagueness, indefinite disclosure, or lack of enablement, as these infirmities are expressly addressed by §112.”  (quoting Research Corp., 627 F.3d at. 869; citing 35 U.S.C. §112).  Thus, the court determined that Ultramercial’s claimed invention was not so “manifestly abstract as to override the statutory language of section 101,” because it was an improvement to prior art technology and a practical application of the general concept of utilizing advertising as currency.  (quoting Research Corp., 627 F.3d at. 869).  As a result, the court reversed the district court’s dismissal of Ultramercial’s patent claims for lack of subject matter eligibility and remanded for further proceedings.