CAFC invalidates claims directed to a method of creating a real estate investment instrument as unpatentable abstract idea

Bill Schertler | March 7, 2012

Fort Properties, Inc. v. American Master Lease LLC

February 27, 2012

Panel:  Prost, Schall and Moore.  Opinion by Prost

Summary

American Master Lease (“AML”) threatened Fort Properties with an infringement lawsuit for infringement of U.S. Patent No. 6,292,788 (the ‘788 patent) and Fort Properties filed an action in the U.S. District Court for the Central District of California asking for a declaratory judgment of invalidity.  In a decision prior to the Supreme Court’s Bilski v. Kappos decision, the district court granted summary judgment in favor of Fort Properties, finding all claims of the ‘788 patent invalid for failing the machine-or-transformation test.  On appeal, the Federal Circuit affirmed – finding the claimed invention unpatentably abstract.

Details

The ‘788 patent discloses an investment tool designed to enable property owners to buy and sell properties without incurring tax liability by taking advantage of the “like kind exchange” rules of 26 U.S.C. §1031.

Representative claims 1 and 32 from the ‘788 patent are set forth below.

1. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

aggregating real property to form a real estate portfolio;

encumbering the property in the real estate portfolio with a master agreement; and

creating a plurality of deedshares by dividing title in the real estate portfolio into a plurality of tenant-in-common deeds of at least one predetermined denomination, each of the plurality of deedshares subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.

 

32. A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

acquiring real property;

encumbering the real property with a master agreement; and

using a computer to generate a plurality of deedshares by generating a plurality of tenant-in-common deeds of at least one predetermined denomination that divide title in the real property into a plurality of tenant-in-common interests, each of the plurality of tenant-in-common deeds being subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.

Claims 1-31 of the ‘788 patent

Regarding claims 1-31, AML argued that claims 1–31 recite a patentable process and not an abstract idea, because they require a series of steps to take place in the real world that involve property, deeds, and contracts.  Specifically, AML contends that the deeds remove the invention from the realm of abstract because they are physical legal documents signifying real property ownership that must be publicly recorded.

Fort Properties countered that the claims consist entirely of mental processes and abstract intellectual concepts, and that, under Bilski, the claimed invention could not be transformed into a patentable process because of the invention’s intertwinement with deeds, contracts and real property.

The CAFC agreed with Fort Properties, concluding that claims 1-31 of the ‘788 patent do not define patent eligible subject matter, and supported its decision by analogizing the claimed invention to that in Bilski, which also disclosed an investment tool.  The claims in Bilski were tied to the physical world through at least two tangible means: commodities and money.  Under Bilski, the court reasoned, connections to the real world through real property, deeds, and contracts do not transform an abstract idea into patentable subject matter.

Claims 32-41 of the ‘788 patent

Claims 32-41 of the ‘788 patent are similar to claims 1-31 in that they have the same ties to deeds, contracts and real property.  However, claims 32-41 include an additional limitation in that they require a computer to “generate a plurality of deedshares”.

The CAFC held that the computer limitation did not impart patent eligibility to claims 32-41.  The court pointed out that its precedent requires that the computer limitation must impose meaningful limits on the claim’s scope to impart patent eligibility to an otherwise unpatentable process.  The CAFC reasoned that, in this case, the computer limitation does not play a significant part in permitting the claimed invention to be performed.  “AML simply added a computer limitation to claims covering an abstract concept – that is, the computer limitation is simply insignificant post-solution activity.”

Commentary

Recent CAFC decisions evaluating subject matter eligibility under 35 U.S.C. §101 of method claims that recite a computer/internet implemented step have, more often than not, been found unpatentably abstract by the Court.  In particular, in CyberSource Corp. v. Retail Decisions, Inc., (Fed. Cir., August 16, 2011), Dealertrack v. Huber (Fed. Cir., January 21, 2012) and the instant case, method claims reciting a computer or internet implemented step were found unpatentably abstract.

An exception to the cases noted above is Ultramercial, LLC v. Hulu (Fed. Cir. 2011, September 15, 2011), in which the CAFC, in an opinion by Judge Rader, held that claims directed to a method for distributing products over the internet, and including a step of “providing the media product for sale at an Internet website” were not “so manifestly abstract as to override the statutory language of section 101.”

Full Opinion

Patent At Issue

 

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