The wrong tool for the wrong job: time to keep the US courts away from patentable subject matter?

Like many of this weblog's readers, this Kat has long nurtured a fascination and deep admiration for the United States Federal judiciary.  Unlike the judges of the Court of Justice of the European Union, who rarely appear to be qualified to deal with regular commercial law issues and are generally quite reticent to articulate their views in public, their US counterparts -- from the Supreme Court downwards -- give the impression of being not merely qualified but indeed required to display their legal virtuosity, their deep understanding of the underlying issues and their cogent grasp of authority on every subject that ever there was.  It must be conceded that, collectively if not individually, they are mightily good at it too, for they are very convincing, particularly when there is no-one to argue with them.

This guest post, which makes no apology for its length (which patent enthusiasts will greatly appreciate), is premised on the proposition that, whatever else the US Federal judges may be good at, they should be kept from being allowed to interpret and thereby determine the scope of patentable subject matter. The author of this post is no mere sniper, taking pot-shots at a sitting target: he is Professor Norman Siebrasse, one of the most respected commentators on patent law anywhere in the continent of North America, a blogger in his own right (see Sufficient Description) and, most importantly from our point of view, a much-loved former guest Kat.  The subject of Norman's guest post here is the recent US decision in CLS Bank Int’l v Alice Corp 2011-1301 (Fed Cir 2013) en banc aff’g 768 F Supp 2d 221 (D.D.C. 2011). He writes:

The en banc decision of the US Federal Circuit in  CLS Bank v Alice Corp has showcased a fractured court, with five different opinions, three different approaches to assessing patentability, and a 5 - 5 split on whether the key claims are patentable subject matter. Judge Newman’s dissent provides an acerbic assessment of its practical implications: “With today’s judicial deadlock, the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel.” [the IPKat suggests that readers stop at this point and think about the repercussions of this statement -- for business, for investment, for the efficacy of the patent system as a whole] This confusion is not surprising. I have argued that the US Supreme Court approach to patentable subject matter is hopelessly confused because it is wielding the wrong tool for the job; the USSC has consistently attempted to exclude fields of endeavour which it views as problematic, such as life forms (Funk Bros333 US 127 (1948)), computers (Benson 409 US 63 (1972), Flook 437 US 584 (1978) and Diehr 450 US 175 (1981) ), and business methods (Bilski130 S.Ct. 3218 (2010)), by using the rule that abstract ideas cannot be patented. The difficulty with this argument, as first pointed out by Frankfurter J, disagreeing with the majority reasoning in Funk Bros at 135, is that  “[e]verything that happens may be deemed ‘the work of nature,’ and any patentable composite exemplifies in its properties ‘the laws of nature.’ Arguments drawn from such terms for ascertaining patentability could fairly be employed to challenge almost every patent.” The consequence is arbitrariness, as patentability turns on whether a particular judge characterizes the invention as turning on an idea (as all inventions ultimately do), or as being a practical application of that idea (as in any well drafted claim).

At issue in CLS Bank were four related patents related 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 ‘counterparty’ or ‘settlement’ risk.” (Lourie p 3). Method, system and product claims were at issue. The method claims were the most general, encompassing “A method of exchanging obligations. . . comprising the steps of: (a) creating a shadow credit record . . .(b) obtaining from each exchange institution. . .” (Claim 33 of the ‘479 patent, quoted by Lourie p. 23). The system claims captured the same concept, as implemented by computer: “A data processing system. . .comprising: a data storage unit . . .and a computer. . .” (Claim 1 of the ’720 patent, Lourie p 32). The product or media claims were in the so-called Beauregard format, to “computer readable storage medium having computer readable program code embodied” which would carry out the invention on a computer (Claim 39 of the ’375 patent, Lourie p 29).

Judge Lourie wrote for five members of the Court, setting out his approach to the problem, and concluding that all claims were invalid as being directed to abstract ideas. A collective opinion for four other members of the Court – Chief Judge Rader, along with Judges Linn, Moore and O’Malley, set out a different approach, and held the system claims to be patentable subject matter. Chief Judge Rader and Judge Moore, applying the approach from the collective opinion, held the method and product claims not to be directed to patentable subject matter, agreeing with Judge Lourie in the result, though for different reasons. Judges Linn and O’Malley, applying the same method from the collective opinion, but construing the claims differently, held the method and product claims were patent-eligible. Judge Newman advanced a third approach, and held that all the claims were patentable subject matter. (A fifth opinion by Judge Moore, with Chief Judge Rader, and Judges Linn and O’Malley concurring, further explained why the system claims should be considered patentable; this was essentially a concurrence with that part of the collective opinion.) So, by the numbers, the Court was equally divided on the system claims, and held the method and product claims invalid by a 7 - 3 majority.

The result in this case was that all claims are invalid, as the equal division resulted in an affirmation of the decision below. More importantly for the law, there was no consensus on the proper approach.

The debate centred on three judicially created exceptions to the broad scope of patentable subject matter set out in §101: “‘[L]aws of nature, natural phenomena, and abstract ideas’ are excluded from patent eligibility.” (Lourie p 8). These exceptions to patentability, and particularly the rule against patenting of abstract ideas, have long been at the heart of the debate over the patentability of computer programs. The logic is that an algorithm is an abstract idea, and so if the inventive concept lies only in the algorithm, and there is no invention in implementing it on a general purpose computer, then claiming a program amounts to claiming an abstract idea.

Justice Frankfurter’s observation that all inventions turn on abstract ideas is now well-recognized (see eg Prometheus v Mayo 132 S.Ct. 1289, 1293), so the challenge is how to limit this principle that abstract ideas cannot be claimed. One approach, and the correct approach in my view, was succinctly stated by the Supreme Court of Canada in Shell Oil [1982] 2 SCR 536 summarizing a long line of English authority:

A disembodied idea is not per se patentable. But it will be patentable if it has a method of practical application.

That is, the only prohibition is on patenting of abstract ideas; there is no objection to an invention which rests on an abstract idea – as all inventions ultimately do – so long as it is claimed as a practical application of that idea. The difficulty with this position, at least in the US, is that it is not consistent with decisions such as Benson and Flook, which held claims to programs to be unpatentable notwithstanding that they were claimed as a practical application.

The policy rationale advanced in Benson is that it is would be wrong to allow a claim to “wholly pre-empt the mathematical formula,” as “in practical effect [this] would be a patent on the algorithm itself.” This, it is said, would impede innovation rather than promoting it. The legal difficulty with that argument is that it is inconsistent with a vast number of cases, stretching back to the nineteenth century litigation over Neilson’s patent for a hot blast furnace in which the rule against abstract claims was originally developed. (See here for a discussion of the origin of the rule.) Lord Justice Clerk Hope in a direction ultimately approved by the House of Lords, directed the jury that “a patent will be good, though the subject of the patent consists in the discovery of a great, general, and most comprehensive principle in science or law of nature, if that principle is by the specification applied to any special purpose, so as thereby to effectuate a practical result and benefit not previously attained” ((1843) 1 WPC 673, 683. Lord Hoffmann has more recently affirmed the same point in Kirin-Amgen [2004] UKHL 46 at [77]: 

Of course a patentee may in some cases be able to frame his claim to a product or process so broadly that in practice it will be impossible to use the information he has disclosed, even to develop important improvements, in a way which does not infringe.

The policy objection to the Benson reasoning is that the scope of the reward should be commensurate with the scope of the contribution.  As the US Supreme Court remarked in The Telephone Cases, if it were true that Bell’s patent granted him a practical monopoly, this would “show more clearly the great importance of his discovery, but it will not invalidate his patent” 126 US 1, 535.

The result of the inconsistency between the practical application test and the pre-emption reasoning has been arbitrariness. A court inclined to strike down a patent can emphasize the abstract nature of the underlying idea (Funk Bros, Benson, Flook),  while a court inclined to uphold it will emphasize the practical application, as in Diehr. The position of the Federal Circuit, picking up on Diehr, and exemplified by In re Alappat, 33 F 3d 1526 (Fed Cir 1994) (en banc) has been to apply the practical application test, leading to liberal granting of software patents, as well as to decisions such as State Street. (The USSC Bilskidecision did nothing to clarify this mess, as it approved all the prior case-law, and the claims at issue were arguably invalid under either approach.)

The surprise in CLS Bank is that half the Federal Circuit, in Judge Lourie’s opinion, has finally come around to the USSC’s way of thinking. In his approach, subject matter patentability “turns primarily on the practical likelihood of a claim preempting a fundamental concept” (Lourie p 9; and see also p 15). A claim will avoid this objection only if there are “meaningful limitations that prevent the claim as a whole from covering the concept’s every practical application” (p 16). That the claim is directed to the invention as implemented by a computer is not a meaningful limitation if it is in such general terms as to cover every practical implementation. The difficulty with this, both as a practical matter for claims drafters and as a matter of policy, was pointed out by the Supreme Court of Canada in Burton Parsons [1976] 1 SCR 555: “If the patent is to have a practical value, it must cover all [implementations of the invention] which can yield the desirable result . . . [I]f, in order to guard against possible invalidity, some area is left open between what is the invention as disclosed and what is covered by the claims, the patent may be just as worthless as if it was invalid. Everybody will be free to use the invention in the unfenced area.”

In contrast to Judge Lourie’s opinion, the collective opinion carried on the Federal Circuit tradition of emphasizing the practical application test. Relying heavily on Diehr, the USSC decision most sympathetic to that position, the collective opinion notes at 28 that “it would seem that a claim embodying the machine itself, with all its structural and functional limitations, would rarely, if ever, be an abstract idea.” The opinion deals with the USSC’s heavy reliance on pre-emption by asserting in effect that when an invention is claimed as a practical application, it will rarely, if ever, pre-empt the idea itself (p 20, 21). Consequently, a claim to a general purpose computer programmed to implement an idea, as in this case, will normally be patentable, though Chief Judge Rader and Judge Moore felt that the method claims were unpatentable as claiming the abstract idea as such. If the collective opinion was to prevail, computer implemented inventions would continue to be generally patentable.

Judges Linn and O’Malley disagreed with Chief Judge Rader and Judge Moore only as to the proper interpretation of the method claims. They held that on the record, the computer-implemented limitations that were explicit in the system claims should also be read in to the method claims. Though they did not expressly address the point, it seems that if they had construed these claims as not being subject to these limitations, they also would have held them to be invalid as claiming abstract ideas (See p 10).

Judge Newman would apparently entirely reject the judicially created limitation on patenting of laws of nature, natural phenomena, and abstract ideas. “The court should return to these basic principles [of novelty, unobviousness, enablement, specificity, etc.], and abandon its failed section 101 ventures into abstraction, preemption, and meaningfulness.”

As Judge Moore noted at p 3, “Our court is irreconcilably fractured over these system claims.” Judge Lourie attempted to create an appearance of consensus, saying “seven of the ten members, a majority, of this en banc court have agreed that the method and computer-readable medium claims before us fail to recite patent-eligible subject matter. In addition, eight judges, a majority, have concluded that the particular method, medium, and system claims at issue in this case should rise or fall together in the § 101 analysis” (Lourie fn 1). To the extent that this is intended to imply that the system claims must be invalid because there is agreement that they must stand or fall with the method claims, which a majority held to be invalid, this is disingenuous. Judge Lourie held that the claims stand or fall together as a matter of principle: “we must look past drafting formalities and let the true substance of the claim guide our analysis” (Lourie p 30). Judges Linn and O’Malley did not hold that the substance of the invention was determinative of patent-eligibility; on the contrary, they emphasized that the question turned on a proper construction of the claims. The result was the same for all the claims only because, properly construed, they all embodied “the same meaningful limitations” (Linn & O’Malley p 2). And Judge Newman held that all stand or fall together because she entirely rejected the analytical premise of the Lourie opinion. The collective opinion accordingly concluded that “Accordingly, though much is published today discussing the proper approach to the patent eligibility inquiry, nothing said today beyond our judgment has the weight of precedent.” The judgment itself, per curiam, was two sentences holding only that the method and product claims are not patentable subject matter, and “An equally divided court affirms the district court’s holding that the asserted system claims are not directed to eligible subject matter under that statute.” In other words, the Court is so hopelessly divided that it could not even agreed on what has been decided.

The key to escaping from the resultant morass is found in the dissenting opinion of Judges Linn and O’Malley at 13, responding to the concern raised by amici that software patents inhibit innovation:

We do not discount Amici’s concerns, we just disagree with what they ask us to do to quell them. Congress can, and perhaps should, develop special rules for software patents. . . .  While Congress may, this court may not change the law to address one technological field or the concerns of a single industry. Thus, whatever the merits of such concerns, the answer is not to rewrite the law by broadening the abstract ideas exception to § 101.

It may be that innovation is impeded by software patents – or business method patents or gene patents – but that question is one for the legislature, not the courts. (I make this argument in a recent article).

The lesson here, as I see it, is that the question of patentable subject matter can no longer be left to the courts, or at least not to the US courts. At one time it was reasonable to suppose that a satisfactory resolution might be achieved through the common law method of incremental judicial decision. After both the USSC Bilskidecision and now CLS Bank, which have created more confusion, rather than less, it seems evident that this strategy has failed.

Katnote: a follow-up post, taking in the recent decision of the Court of Appeal for England and Wales in HTC v Apple, will be posted tomorrow evening.