October 15, 2012 | By Julie Samuels

The Federal Circuit to Take on Software Patents ... Again

In a welcome move, the full Federal Circuit has agreed to revisit a troubling ruling in a case called CLS Bank v. Alice Corp. This case, along with the Ultramercial case, presents an important opportunity for the courts to insert some long-overdue sanity into the debate over what can and cannot be patented. In light of the Supreme Court's ruling earlier this year in Mayo, we think the Federal Circuit has little choice but to throw out the dangerous patents in both CLS Bank and Ultramercial and make clear once and for all that ideas that are otherwise abstract cannot be patented simply because they are executed on the Internet or in a computer system.

So what's going on here? First, you have to understand a little bit about § 101 of the Patent Act. Some background: that section precludes patent protection for laws of nature, natural phenomena, and abstract ideas. This is fundamental to the patent bargain. Without this limitation, parties could obtain harmful monopolies on simple ideas, e.g., ways of running a business or cooking a meal, and be able to (in theory at least) prohibit people from implementing those same ideas. 

Now a brief look at each of these cases:

Mayo v. Prometheus

The patent at issue here covered a method of giving a drug to a patient, testing the metabolite levels in the patient, and tweaking the dosage accordingly. Correctly, in March 2012, the U.S. Supreme Court held the patent invalid because it took laws of nature and merely included “well-understood, routine, conventional activity previously engaged in by researchers in [the] field.”

Importantly, the Supreme Court extended its ruling to cover all categories of § 101 ineligible subject matter when it said “simply appending conventional steps, specified at a high level of generality, to laws of nature, natural phenomena, and abstract ideas cannot make those laws, phenomena, and ideas patentable.” In that one statement, the Supreme Court made clear that abstract ideas—often the basis for dangerous software patents—would also face this heightened standard.

CLS Bank v. Alice Corp.

The patents in CLS Bank covered a computer system that helped with closing financial transactions by avoiding settlement risk (the risk that comes with any financial transaction if one party cannot uphold its end of the bargain). The lower court found this invention—which "simply provides the formula, or manner, in which to use an electronic intermediary to exchange obligations as a way to hedge against the risk of loss"—so abstract that it was unpatenable. In July 2012, the Federal Circuit disagreed and held that implementing this invention on a computer system made it non-abstract and thus patentable.

Of course, this isn't the first time the Federal Circuit has confused the 101 inquiry. What was striking about this case, however, was that the Federal Circuit all but ignored the Supreme Court's previous ruling in Mayo. And we're not the only ones who noticed. In her dissent, Judge Prost faulted the majority for "fail[ing] to follow the Supreme Court's instructions" and, even "more fundamentally," questioning "whether the Supreme Court's abstract idea test is workable at all." 

Ultramercial v. Hulu

In Ultramercal, the Federal Circuit upheld a patent that merely claimed a process for doing no more than viewing ads online before accessing copyrighted content. The court claimed that the patent was not abstract because the steps were completed on the Internet, despite the fact that the underlying idea—viewing ads in exchange for content—was indeed abstract. 

We've twice joined the defendants in asking the Federal Circuit to revisit this dangerous ruling; so far it has refused. The good news is that it can't refuse the Supreme Court, which in May ordered the Federal Circuit to reconsider its ruling in light of Mayo. Unfortunately, it's nearing six months since the Supreme Court issued that order, and the Federal Circuit is still dragging its feet on taking the case back up. 

So now what?

Last month, the alleged infringers in CLS Bank and Ultramercial asked the Federal Circuit to rehear both together (EFF and Public Knowledge agreed and filed briefs in support each case: here and here). The Federal Circuit agreed that the full court would revisit CLS Bank (instead of the typical three-judge panel), but declined to rehear Ultramercial (of course, in light of the Supreme Court's order, at least some judges on the Federal Circuit will have to eventually issue a new ruling). EFF plans to file an amicus brief as part of the full court’s consideration of CLS Bank.

Many in the legal community (including EFF) are closely watching these cases to see what the Federal Circuit does. If it continues to ignore the Supreme Court's guidance that simply adding conventional, well-known steps to an otherwise abstract idea does not somehow make that idea not abstract (a rule that would seemingly invalidate the patents in both CLS Bank and Ultramercial), then we might just end up back in front of the Supreme Court. If so, we look forward to asking the high court to clarify its less-than-helpful ruling in Bilski and to reinforce that courts and the Patent Office should take § 101 seriously and strike down (or preferably not allow in the first place) the most dangerous and abstract patents. 

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