CLS Bank v. Alice Corporation: An attempt in formulating the abstractness of the “abstract ideas” test to patent eligibility

Rob Raheja | July 18, 2012

CLS Bank v. Alice Corporation

July 9, 2012

Panel:  Linn, Prost and O’Malley. Opinion by Linn.  Dissent by Prost.


The district court for the District of Columbia held that claims to computer systems, computer readable medium and claims to methods of using a computer of the asserted patents were all invalid as “abstract ideas.” In so holding, the district court ignored the limitations recited in the claims and boiled the invention down to a mere abstract concept “of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” On appeal, the Federal Circuit reversed the district court’s judgment of invalidity under 35 U.S.C. § 101. The Federal Circuit, after considering each asserted claim “as a whole”, found that it was not “manifestly evident” that the claims of the asserted patent were drawn to “abstract ideas.” Therefore, the Federal Circuit held that claims must not be deemed inadequate under 35 U.S.C. § 101.


Alice Corporation (“Alice”) owns four patents that “cover a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate ‘settlement risk.’ Settlement risk is the risk that only one party’s obligation will be paid, leaving the other party without its principal. The trusted third party eliminates this risk by either (a) exchanging both parties’ obligations or (b) exchanging neither obligation.” CLS Bank filed suit against Alice seeking a declaratory judgment that Alice’s Patents are invalid, unenforceable, or otherwise not infringed. Alice filed a counterclaim alleging that CLS Bank infringes asserted claims of the asserted Patents.

Claim representative of the method claims of the asserted patents:

A method of exchanging obligations as between parties, each party holding a  credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these [sic] transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order; and

(d) at the end-of-day, the supervisory institution instructing one of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations  placed on the exchange institutions.” (Emphasis added).

Claim representative of the system claims of the asserted patents:

A data processing system to enable the exchange of an obligation between parties, the system comprising:

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.” (Emphasis added).

The district court granted CLS Bank’s motion for summary judgment holding that each asserted claim of Alice’s four patents is invalid for failure to claim patent eligible subject matter. In so holding, the district court ignored the limitations recited in the claims and boiled the invention down to a mere abstract concept “of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” Alice timely appealed to the Federal Circuit. The Federal Circuit reversed the district court’s summary judgment of invalidity and held that Alice’s method, system, and product claims are directed to statutory subject matter under § 101 for the reasons discussed below.

The issue on appeal was “whether the claimed inventions fall within the ‘abstract ideas’ exception to patent eligibility.” As defined previously by the Alappat court, some twenty years ago, “abstract ideas constitute disembodied concepts or truths which are not ‘useful’ from a practical standpoint standing alone, i.e., they are not ‘useful’ until reduced to some practical application.” More recently, the Research Corp. court “explained that the ‘disqualifying characteristic’ of abstractness must exhibit itself ‘manifestly’ ‘to override the broad statutory categories of patent eligible subject matter.’”

On appeal, CLS Bank argued that Alice’s method claims (1) fail the machine or transformation test because the machine does not impose a meaningful limitation on the scope of the claims as the machine merely permits a solution to be achieved more quickly; (2) the claims “effectively preempt the use of the abstract business concept for exchanging an obligation”; and (3) the claims are drawn to a mathematical formula or algorithm for adjusting account and providing instructions that are “post-solution activity.” As to Alice’s computer-implemented system and product claims, CLS Bank argued that “they are also directed to abstract ideas because, under Benson, a mere redrafting of method claims to recite a computer and data storage unit that are configured to carry out the abstract method does not save the claims from abstractness.” (Citations omitted, emphasis added).

The Federal Circuit began its analysis by noting that asserted system and media claims explicitly recite “machine” limitations. For example, a data processing system . . . comprising a data storage unit . . . ; and a computer . . . ; a computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium . . . program code for causing a computer…. That some of the asserted method claims recited an “electronic adjustment” limitation and the method claims that did not explicitly recite the “electronic adjustment limitation”, recited “shadow credit record” and “shadow debit record” limitations, which the patent specification clearly defined as electronically adjusted records to require computer implementation. Therefore, the Federal Circuit stated that “computer implementation indicates that these claims would likely satisfy the ‘machine’ prong of the machine-or-transformation test” given “the addition of a machine [] impose a ‘meaningful limitation’ on the scope of [the claims].”

Next, the Federal Circuit analyzed the limitations of the asserted claims and found that the asserted “claims as a whole” meaningfully limit the scope because “[t]he asserted claims appear to cover the practical application of a business concept in a specific way, which requires computer implemented steps of exchanging obligations maintained at an exchange institution by creating electronically maintained shadow credit and shadow debit records, and particularly recite that such shadow credit and debit records be held independently of the exchange institution by a supervisory institution; that start-of-the-day balances be obtained from the exchange institution; that adjustments be made to the credit records based on only certain specified allowed transactions under the ‘adjusting’ limitation;  that such adjustments be made in chronological order; that at the end of the day, instructions be given to the exchange institution to reflect the adjustments made on the basis of the permitted transactions; and that such adjustments affect irrevocable, time invariant obligations placed on the exchange institution. Transactions ‘that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time’ are not permitted under the ‘adjusting’ limitation, and do not result in any ultimate exchange of obligations in the INVENTICO system.’” (Emphasis added and citations omitted).

Furthermore, the Federal Circuit found that “the claim limitations can be characterized as being integral to the method, as ‘play[ing] a significant part in permitting the method to be performed,’ and as not being token post-solution activity.”

In its analysis, the Federal Circuit also considered the following cases where some of the claims were considered to be nothing more than a mental process:

The mere implementation on a computer of an otherwise ineligible abstract idea will not render the asserted “invention” patent eligible. See Fort Props. Inc. v. Am. Master Lease LLC, 671 F.3d 1317, 1322 (Fed. Cir. 2011) (“[An] abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world.”); Dealertrack Inc. v. Huber, 674 F.3d 1315, 1333 (Fed. Cir. 2012) (“Simply adding a ‘computer aided’ limitation to a claim covering an abstract concept, without more, is insufficient to render the claim patent eligible.”); CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366, 1375 (Fed. Cir. 2011) (“[W]e have never suggested that simply reciting the use of a computer to execute an algorithm that can be performed entirely in the human mind” is sufficient to render a claim patent eligible.).

Notwithstanding, the court distinguished the present case from the cases mentioned in the paragraph above by finding that the addition of a computer in the instant case meaningfully limited the scope of the asserted claims because 1) the claims specifically called for electronically maintained shadow credit and shadow debit records in order to exchange obligations, which necessarily required a computer, i.e., the electronic requirement precluded any possibility that the claims could be performed “entirely in the human mind”; and 2) the asserted claims appear to cover the practical application of a business concept in a specific way where, among other things, a supervisory exchange virtually  “adjust[s] each respective party’s shadow credit record or shadow debit record” in a particular way to include, at the end of the day, reporting back to the exchange institutions to effectuate a legal obligation upon the exchange institutions, which, for example, is not the same as “a two-sided escrow arrangement” as characterized by the CLS Bank in their arguments.

Last but not the least, the court analyzed whether asserted claims pre-empt the use of the abstract business concept of using an intermediary to help consummate exchanges between parties, i.e., do they claim “an exclusive right to a fundamental truth or disembodied concept that would foreclose every future innovation in that art .” (Emphasis in original).

Unlike Gottschalk v. Benson, — where claims were directed to a mathematical formula in connection with a digital computer were nonetheless held to be an unpatentable abstract idea because the claims of the patent would “wholly pre-empt the mathematical formula and in practical effect would be a patent on an algorithm itself [emphasis in original]” — the Federal Circuit held the asserted claims of the present case do not pre-empt because they are limited to a very specific application of the business concept of using an intermediary to help consummate exchanges between parties. More specifically, the Federal Circuit found “that the limitations requiring specific ‘shadow’ records leave broad room for other methods of using intermediaries to help consummate exchanges, whether with the aid of a computer or otherwise, and, thus, do not appear to preempt much in the way of innovation.”

In conclusion, the majority notes the following: “[w]hile the use of a machine in these limitations is  less substantial or limiting than the industrial uses examined in Diehr (curing rubber) or Alappat (a rasterizer), the presence of these limitations prevents us from finding it manifestly evident that the claims are patent ineligible under § 101. In such circumstances, we must leave the question of validity to the other provisions of Title 35[, namely §112, §102, and §103].” (Emphasis added and citations omitted).

The following language from the court’s opinion is worth noting:

Any claim can be stripped down, or simplified, removing all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. But nothing in the Supreme Court’s precedent, nor in that of the United States Court of Appeals for the Federal Circuit, allows a court to go hunting for abstractions by ignoring the concrete, palpable, tangible, and otherwise not abstract invention the patentee actually claims. It is fundamentally improper to paraphrase a claim in overly simplistic generalities in assessing whether the claim falls under the limited “abstract ideas” exception to patent eligibility under 35 U.S.C.S. § 101. Patent eligibility must be evaluated based on what the claims recite, not merely on the ideas upon which they are premised. In assessing patent eligibility, a court must consider the asserted claim as a whole.” (Emphasis added).

[A] claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not. (Emphasis in original).

Prosecution Tips

In view of this case, for the business systems/methods/media claims in E-business related technologies, the machine-or-transformation (MOT) appears to be the only viable test. To satisfy the MOT test, keep in mind a claimed invention must contain specific limitations connecting it to a practical application in the real world (see Diehr, SiRF), i.e., claims should not be so broad as to pre-empt the underlying concept (see Morse, Benson, Flook, Bilski). The author acknowledges that this is easier said than done as the line between patentable subject matter and unpatentable abstract ideas is far from clear in view of the conflicting decisions from the court (see Cybersource, Dealertrack). Notwithstanding, one way to avoid running into an abstractness problem may be to ensure that claims, independent of their statutory classification, require computer programming that converts a general purpose computer to a special purpose computer, i.e., the use of computers must not be mere token post-solution activity/field of use limitation.

For example, the use of computers to perform mere mathematical calculations recited in the claims may be considered as mere token post-solution activity/field of use limitation as it may not be enough to negate the pre-emption of the underlying idea or mathematical formula. Also, the mere programming of computers to use its pre-existing functionality such as invoking printf() function to print may not be enough. Whereas, the programming that provides computers with a new functionality such as printf() function, giving computers ability to print may be sufficient to move claims beyond the reach of abstractness. Importantly, moreover, care should be taken when drafting a specification by ensuring that the programing requirement (algorithm) is satisfied by describing in the specification not only what a programmed element does, but, more importantly, how it does it. In other words, the programing requirement may not be satisfied by merely describing in the specification and/or in the claims, in functional terms, as to what the programmed element does without describing in the specification how it does it.

Full Opinion

Patent At Issue #1

Patent At Issue #2

Patent At Issue #3

Patent At Issue #4

Subscribe | 登録



词典 / 辞書 / 사전
  • dictionary
  • dictionary
  • 英語から日本語

Double click on any word on the page or type a word:

Powered by