United States: U.S. Supreme Court Grants Review In CLS Bank To Provide Guidance On Patent-Eligibility

On December 6, 2013, the Supreme Court announced it will review the Federal Circuit's decision in CLS Bank International v. Alice Corp., 717 F.3d 1269 (Fed. Cir. 2013), in its spring 2014 term. The Court's decision to grant certiorari is welcomed by most who have struggled to reconcile the Federal Circuit's fractured decisions relating to 35 U.S.C. § 101, the gatekeeper provision through which an application must pass before being considered for novelty and non-obviousness. Although touted as a case of particular importance to the software and electronics industry, any decision by the Supreme Court will unavoidably impact computer-implemented inventions in all industries.

The CLS Bank en banc court considered two fundamental and important questions: (1) what test should be used to determine eligibility of a computer-implemented invention; and (2) in assessing patent eligibility, should it matter whether the invention is claimed as a method, system, or storage medium? Rather than provide answers, the court affirmed that Alice Corporation's method and computerreadable media (CRM) claims were not patent-eligible, split 5-5 on the patent-eligibility of Alice Corporation's computer system claims, and authored five conflicting opinions that caused many practitioners to sigh heavily and scratch their collective heads. Id. at 1274 (per curiam opinion), 1293. The Supreme Court's review will hopefully provide some much-needed clarity.

The CLS Bank decision drew attention to the Federal Circuit's struggle in recent years to reconcile legislative history surrounding Section 101 and the Supreme Court's precedent on patent eligibility. Contrary to its charter to provide uniformity in patent laws by handling all patent appeals, the Federal Circuit has instead issued a series of decisions since 2010 whose outcomes appear more panel-dependent than merit-dependent. A case in point is Ultramercial, LLC v. Hulu, LLC and WildTangent, Inc., 723 F.3d 1335 (Fed. Cir. 2013), decided one month after CLS Bank by a three-judge panel led by Chief Judge Rader, who surprised no one by writing a majority opinion that was consistent with his group's views in CLS Bank. In Ultramercial, the Judge Rader-led panel found claims to a method for distributing copyrighted products (e.g., songs, movies, books) over the Internet, where the consumer receives a copyrighted product for free in exchange for viewing an advertisement, were patenteligible, and emphasized that Section 101 should act as a "coarse filter" that should accommodate unforeseen technologies. Id. at 1339. In two other panel decisions—Accenture Global Services Gmbh v. Guideware Software, Inc., 728 F.3d 1336 (Fed. Cir. 2013) and Bancorp Services, LLC v. Sun Life Assurance Co. of Canada (U.S.), 687 F.3d 1266 (Fed. Cir. 2012)—computer-related claims were found to be patent-ineligible, using completely different reasoning. The Accenture panel (led by Judge Lourie with Judge Rader in dissent) held claims to a system for generating tasks to be performed in an insurance organization ineligible under Section 101, reasoning that confining the claims to a computer and to the insurance industry was insufficient to make the otherwise abstract idea patent eligible. See 728 F.3d at 1345. In Bancorp, the Judge Lourie-led panel held that systems and methods for administering and tracking the value of life insurance policies in separate accounts were abstract ideas and ineligible under Section 101. See 687 F.3d at 1280-81.

Understandably, these recent decisions—and other Section 101 cases since the Supreme Court took up Bilski v. Kappos in 2010—have left practitioners, the U.S. Patent and Trademark Office (USPTO), and lower courts adrift on how to apply Section 101. Chief Judge Rader himself lamented that the Federal Circuit's "opinions spend page after page revisiting our cases and those of the Supreme Court, and still we continue to disagree vigorously over what is or is not patentable subject matter." Accenture, 728 F.3d at 1348 (citing MySpace, Inc. v. GraphOn Corp., 672 F.3d 1250, 1259 (Fed.Cir. 2012)).

While the Supreme Court was considering petitions for certiorari in both CLS Bank and Ultramercial, CLS Bank is widely believed to be the better vehicle for addressing the issues at hand. The decision comprises 135 pages of opinions representing the viewpoints of ten Federal Circuit judges that eloquently frame the issues. Three dozen amici, including Bancorp (who filed its own petition for certiorari on November 8, 2013, but also signed onto the Trading Technologies amicus brief) and Accenture (which has petitioned the Federal Circuit for a rehearing en banc of its decision) urged the Court to grant review in CLS Bank, citing as a primary reason that it is a well-briefed en banc decision.

Additionally, Supreme Court review of CLS Bank allows the Court to address the full range of computer-implemented invention claims—computerized method, CRM and system claims requiring computer hardware. By contrast, the Federal Circuit decision in Ultramercial only addressed the patentability of a computerized method claim.

The Supreme Court's consideration of CLS Bank will be its third foray into Section 101 jurisprudence since Bilski v. Kappos, 130 S. Ct. 3218 (2010). But the Court's decisions in Bilski, Mayo Collaborative Services v. Prometheus Laboratories, Inc., and Association for Molecular Pathology v. Myriad Genetics, Inc. did not squarely address computer-implemented inventions. In fact, the Supreme Court last considered the issue in Diamond v. Diehr, 450 U.S. 175 (1981), when the Internet was in its infancy and computer-implemented inventions were neither well-understood nor ubiquitous. Although computer-implemented inventions were not at the heart of the debate in Bilski, the Bilski Court was cautious not to draw any lines or endorse tests that would render software per se patent eligible. The Bilski Court, in fact, declined to adopt the "machine-or-transformation test" for fear that doing so "would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals." Id. at 3227. The Court further recognized that "times change" "[t]echnology and other innovations progress in unexpected ways." Id. The Court cautioned that Section 101 is a "dynamic provision designed to encompass new and unforeseen inventions." Id. (citing J. E. M. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l, Inc., 534 U.S. 124, 135 (2001)).

In view of these musings, it seems unrealistic to expect that the Supreme Court will announce any bright-line test for patent eligibility, but it would also appear unlikely that the Court would categorically exclude software from patent eligibility. It is certain, however, that given Section 101's important role as the first hurdle for patent applications at the USPTO and its increasing importance in post-issuance validity disputes, this case will be closely followed, and many "friends of the court" briefs are expected. Whether the Supreme Court's decision ultimately provides clarity on Section 101, or further muddy the waters, remains to be seen.

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