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From State Street to CLS: US patent eligibility law in review

Last week, the Federal Circuit ordered a rehearing en banc of CLS Bank v Alice in the latest attempt to provide much-needed clarification on what constitutes patent-eligible subject matter in the US

The court also vacated a controversial 2-1 panel ruling it delivered in July, which upheld Australian company Alice’s patent claims for a computerised trading system which minimises risk.

That ruling overturned a previous decision by the US District Court for the District of Columbia, which concluded that that implementing a system on a computer did not protect Alice’s claims from being regarded as patent-ineligible abstract ideas.

Some IP lawyers have said that the case is indicative of judicial disagreement over what constitutes an abstract idea, and that the issue may ultimately have to be decided by the Supreme Court.

For instance, in Bancorp v Sun Life the Federal Circuit concluded that Bancorp’s claim for a system for tracking the values of life insurance policies was not eligible for patent protection. Although the claim utilised a computer, the court said that – unlike in CLS v Alice – the methods could be performed without a machine and therefore constituted abstract ideas.

The debate over what constitutes an abstract idea was first complicated in 1998 when the Federal Circuit ruled that business methods can be patented in State Streetv Signature Bank. In 2008, it introduced the so-called machine-or-transformation test in an effort to provide a definitive standard for finding business methods patent eligible. The test defined a claimed process are being patent-eligible under Section 101 if “it is tied to a particular machine or apparatus” or if “it transforms a particular article into a different state or thing”.

But after hearing Bilski in 2010, the Supreme Court said the machine-or-transformation test is “a useful and important clue, an investigative tool” but “not the sole test for deciding whether an invention is a patent-eligible process”.

The inconsistency between rulings attempting to interpret the abstract ideas exemption has made the outcome of litigation concerning business method patents difficult to predict, and the landscape for patent owners uncertain. Below is a brief history of some key developments concerning patent eligibility.

1998State Streetv Signature Bank: The Federal Circuit rules that business methods can be patented. The court overturns a previous decision by the United States District Court for the District of Massachusetts which invalidated Signature Bank’s patent claims for a data processing system for implementing an investment structure. In reinstating the patent, the court creates the "useful, concrete and tangible result" test. The Supreme Court declines to hear the case.

1999First Inventors Defense Act: In response to the State Street decision, Congress passes the First Inventors Defense Act. The act aims to provide protection for companies which had believed business methods could not be patented prior to State Street and had maintained them as trade secrets. Businesses which had used these trade secrets for some time would be unable to patent them, and if a competitor later patented the same business method, the original company could be liable for infringement. In limiting this defence to a “method of doing or conducting business”, Congress arguably recognised the validity of business method patents.

2007Bilski v Kappos: The Federal Circuit hears Bilski’s appeal against a decision by The Board of Patent Appeals, which rejected Bilski’s claims for a system to help commodities buyers and sellers in the energy market hedge against price changes. The court orders an en banc hearing.

2008Bilski v Kappos: The Federal Circuit rejects Bilski’s patent claims in a 9-3 split (though only one judge would have allowed the patent). The majority concludes that the “useful, concrete and tangible result inquiry” test established in State Street is inadequate and creates the machine-or-transformation test to replace it.

2010Bilski v Kappos: The Supreme Court upholds the Federal Circuit's decision in a 5-4 split. The Court says business methods are patentable, but rejects the machine or transformation test as the sole measure of eligibility and invalidates the Bilski patent because it is geared to an abstract idea.

2010Research Corporation Technologies v Microsoft: The Federal Circuit rules in favour of Research Corporation Technologies, which claims that Microsoft infringed its patent on a method for editing a document of markup code, used in Microsoft Word 2003, Word 2007, NET Framework and Windows Vista.

2011Association for Molecular Pathology v Myriad: The Federal Circuit holds that Myriad’s patent for isolated human DNA molecules is valid. The ruling reversed a previous decision by the District Court for the Southern District of New York, because “the molecules as claimed do not exist in nature”. However, it upheld the lower court’s decision that Myriad’s method claims involving comparing or analysing DNA sequences were abstract steps and therefore ineligible for patent protection.

2011CLS Bank v Alice The District Court for the District of Columbia rejects Alice’s patent claims, ruling that “The system claims are no more limited than the method claims simply because they are directed to a data processing system.”

2012Dealertrack v Huber In January, the Federal Circuit concludes that an otherwise abstract business method cannot be made patent-eligible by claiming that the method will be “computer aided”. Dealertrack’s claims involved a “computer aided method” for managing automobile credit applications. Although Dealertrack limited its claims to the use of a clearinghouse in the car loan application process, the court says that “although directed to a particular use, it nonetheless covers a broad idea”.

2012Mayo v PrometheusIn March, the Supreme Court unanimously finds Prometheus's patent claims concerning methods of optimising the dosage of a drug invalid, on the basis that they cover an abstract idea. The decision has significant ramifications for what constitutes patentable subject matter in the diagnostic, pharmaceutical and biotechnology industries and casts doubt on the Federal Circuit's finding in Myriad.

2012Association for Molecular Pathology v Myriad: The Federal Circuit reaffirms the eligibility of Myriad’s patent for two genes linked to breast and ovarian cancer, after the Supreme Court orders it to revisit the case. In October, AMP filed its second petition for certiorari and is awaiting the Supreme Court’s response.

2012CLS Bank v Alice: In July, the Federal Circuit reinstates Alice’s patent claims for a computerised trading system which minimises risk. The majority agree with the district court that merely utilising a computer does not prevent Alice’s invention from being considered a patent-ineligible abstract idea. However, the court concludes that computerisation plays a critical role in Alice’s invention, enabling it to act as an intermediary between traders. In October, the Federal Circuit vacates that decision and agrees to rehear the case en banc.

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