ROSEMARY M. COLLYER, District Judge.
CLS Bank International moves for summary judgment, contending that all patent claims asserted by Alice Corporation Pty. Ltd. in this case are invalid under 35 U.S.C. § 101 for lack of patentable subject matter. Alice cross-moves for partial summary judgment, arguing that its asserted claims are directed to patent-eligible subject matter. Before the Court are claims 33 and 34 of U.S. Patent No. 5,970,479, and every claim of U.S. Patent No. 6,912,510; U.S. Patent No. 7,149,720; and U.S. Patent No. 7,725,375. For the reasons set out below, the Court finds each of the claims at issue to be directed to unpatentable subject matter and will grant summary judgment in full to CLS.
Alice is an Australian company that owns four United States patents; it asserts that CLS infringes these four patents. CLS is an "Edge Act Corporation," organized under Section 25A of the Federal Reserve Act, as amended, 12 U.S.C. § 611, and authorized by statute to engage in international banking activities. In response to Alice's charge of infringement, CLS challenges the subject matter patentability of the asserted claims of the four patents. Alice's four patents at issue are: (1) U.S. Patent No. 7,149,720 ("'720 Patent"); (2) U.S. Patent No. 6,912,510 ("'510 Patent"); (3) U.S. Patent No. 5,970,479 ("'479 Patent"); and U.S. Patent No. 7,725,375 ("'375 Patent") (collectively the "Patents"). The relevant claims of the '479 and '510 Patents are directed to a method (i.e., process), while the claims of the '720 and '375 Patents are directed to a system or product. The Court has not construed the allegedly infringed claims.
In the early 1990's, the founder of Alice, Ian Shepherd, invented an "innovative trading platform" which entailed a "computerized system for the establishment, settlement, and administration of financial
Mr. Ginsberg elucidates the risk the Patents are intended to mitigate. "When obligations arise from a trade made between two parties, e.g., a trade of stock or a trade of foreign currency, typically, there is a gap in time between when the obligation arises and when the trade is `settled.'" Ginsberg Decl. ¶ 21. "In a number of financial contexts, the process of exchanging obligations, or settlement, is separate from the process of entering into a contract to perform a trade." Id. Mr. Ginsberg provides the example of two banks that wish to exchange large sums of currency would normally enter into a binding agreement to make an enumerated exchange but would postpone the actual exchange until after the price is set and the agreement confirmed, which is typically a two day period. Id. ¶ 22. After two days, the two banks would "settle" the trade by both paying their predetermined amounts to the other bank. However, a risk exists that one bank might wire its money, but the second bank would fail to do the same; the loss possibly becoming permanent, for instance, if the second bank thereafter goes bankrupt or is shut down by regulators. Id. ¶ 23. The Patent claims at issue here seek to minimize this "settlement" risk that only one side of a trade would be fulfilled during the settlement process. Id. "Generally speaking, a trusted third party might operate a computer system that is configured in a particular way to exchange the parties' obligations, and by performing the particular electronic method using that computer system, can lessen settlement risk." Id. ¶ 24.
Therefore, Mr. Ginsberg reads the asserted claims of the four Patents to be "generally directed to methods or systems that help lessen settlement risk using a computer system." Id. Very broadly speaking, the process claims are directed to methods of exchanging financial obligations between parties while the system claims relate to data processing systems to implement the steps of exchanging obligations and the computer product claims enable a computer to send a transaction to the system to be implemented and allow a user to view the steps of exchanging obligations being performed.
The '479 Patent is entitled "Methods and Apparatus Relating to the Formulation and Trading of Risk Management Contracts." See CLS Mem. in Supp. of Mot. for Summ. J. [Dkt. #94] ("CLS Mem."), [Ex. 1] '479 Patent. The application
'479 Patent, col. 3:29-42. The disclosure of the '479 Patent reveals an invention that, as a whole, appears to be directed to a seemingly complex trading platform which facilitates a wide array of parties to come together and enter into contracts to hedge against future risks of all sorts; the system allows parties to trade such contracts already entered into, the system manages contracts until maturity, and the system provides for the transfer or exchange of entitlements or payments once they arise.
Only claims 33 and 34 of the '479 Patent are at issue in this matter. These two claims are directed to a "method of exchanging obligations" between parties, and in their entirety, they claim:
'479 Patent, col. 65:23-54. Both claims recite a "shadow credit record," a "shadow
The methods in claims 33 and 34 relate to just one feature of the entire invention disclosed in the '479 Patent, see Ginsberg Decl. ¶ 26; a concluding step of sorts, when contracted-for obligations become ripe and are exchanged. See '479 Patent, col. 5:61-63 (noting the invention "also encompasses apparatus and method dealing with the handling of contracts at maturity, and specifically the transfer of entitlement"). The '479 Patent was the first of the Patents to issue and the inventions disclosed by the '510, '720, and '375 Patents are continuations of the '479 Patent which, with only minor differences, share a common specification. See Ginsberg Decl. ¶ 25; Alice Mem. 4.
The '510 Patent is entitled "Methods of Exchanging an Obligation." See CLS Mem., [Ex. 2] '510 Patent. The application for the '510 Patent was filed on May 9, 2000, and it issued on June 28, 2005. Each of the 75 claims of the '510 Patent is directed to a particular method of exchanging an obligation. For instance, claim 1 of the '510 Patent is directed to:
'510 Patent, col. 64:2-21. Each of the five independent claims—claims 1, 27, 61, 65, and 68—of the '510 Patent calls for "electronically adjusting" records or accounts. Id. col. 64:11-12 (Claim 1); id. col. 65:25-26 (Claim 27); id. col. 66:63-64 (Claim 61); id. col. 67:24-25 (Claim 65); id. col. 68:7 (Claim 68).
An exchange of obligations, however defined, is the stated purpose of the methods claimed in the '510 Patent claims and claims 33 and 34 of the '479 Patent. Alice argues that claims 33 and 34 of the '479 Patent and every claim of the '510 Patent are implemented electronically using a computer coupled to a data storage method. See Ginsberg Decl. ¶¶ 28-43. CLS disputes that these methods directly or indirectly claim the use of a computer.
The '720 Patent is entitled "Systems for Exchanging an Obligation." CLS Mem., [Ex. 3] '720 Patent. The application for the '720 Patent was filed on December 31, 2002, and it issued on December 12, 2006. Each claim of the '720 Patent, claims 1-84, is directed to a particular data processing system.
As a representative example, claim 1 of the '720 Patent is directed to:
'720 Patent, col. 65:42-61. Each of the six independent claims—claims 1, 28, 60, 64, 68, and 80—of the '720 Patent recites "a data storage unit having stored therein" information about accounts or records, and a "computer, coupled to said data storage unit," that is "configured" to perform certain steps. See id. col. 65:42-61 (Claim 1); id. col. 67:1-18 (Claim 28); id. col. 68:33-53 (Claim 60); id. col. 68:62-66 & col. 69:1-11 (Claim 64); id. col. 69:20-42 (Claim 68); id. col. 70:20-37 (Claim 80).
The '375 Patent is entitled "Systems and Computer Program Products for Exchanging an Obligation." CLS Mem., [Ex. 4] '375 Patent. The application leading to the '375 Patent was filed on June 27, 2005, and it issued on May 25, 2010. Claims 1-38 and 42-47 of the '375 Patent are directed to data processing systems which enable the exchange of an obligation. As with the '720 Patent claims, the three independent system claims—claims 1, 14, and 26-of the '375 Patent each requires "a data storage unit having stored therein" information about accounts or records, and a "computer, coupled to said data storage unit," that is "configured" to perform certain steps. See '375 Patent, col. 65:1-30 (Claim 1); id. col. 66:1-29 (Claim 14); id. col. 66:61-65 & col. 67:1-26 (Claim 26). The '375 Patent incorporates additional elements to the systems claimed in the '720 Patent. For instance, independent claim 1 further recites a "first party device," id. col. 65:4, claim 12 adds a "second party device," id. col. 65:62, and claim 14 recites a "communications controller." Id. col. 66:3.
Independent claim 39 and claims 40 and 41, which depend from claim 39,
Id. col. 68:5-35. Thus, each of the three product claims asserts a "computer readable storage medium" and "computer readable program code embodied in the medium." Id. col. 68:5-7 (Claim 39).
On May 24, 2007, CLS brought suit against Alice, seeking a declaratory judgment of non-infringement, patent invalidity, and patent unenforceability under the Patent Act, 35 U.S.C. § 1 et seq., and the Declaratory Judgment Act, 28 U.S.C. §§ 2201, 2202. On August 16, 2007, Alice counter claimed that CLS was infringing three of its patents: the '479, '510, and '720 Patents. By agreement of the parties, initial discovery commenced on the question of (1) the operation of CLS Bank International, and (2) CLS Bank International's relationship with the CLS system.
In March 2009, CLS moved for summary judgment on the basis that (a) any patent infringement by CLS could not be said to be occurring within the United States and (b) Alice's claims lacked patentable subject matter eligibility. Alice opposed and cross-moved on both issues. As for extraterritoriality, on October 13, 2009, 667 F.Supp.2d 29 (D.D.C.2009), the Court denied CLS's motion, finding that U.S. patent laws reached CLS's alleged infringing acts since CLS both "uses" its CLS Core System and "offers to sell, or sells" its methods within the United States. The Court also denied without prejudice Alice's cross-motion as premature since it sought a declaration of infringement. See Redacted Mem. Op. & Order [Dkt. ## 79, 78]. The Court then certified CLS's immediate appeal, but the United States Court of Appeals for the Federal Circuit denied
On June 16, 2009, the Court denied without prejudice the cross-motions on subject matter eligibility on the grounds that the Supreme Court had granted certiorari in In re Bilski, 545 F.3d 943 (Fed.Cir.2008) (en banc) ("Bilski I"), upon which the parties had relied heavily in their briefing. The Court ordered re-filing for after the Supreme Court issued its decision. See Minute Entry Order 6/16/2009. After the Supreme Court issued Bilski v. Kappos, ___ U.S. ____, 130 S.Ct. 3218, 177 L.Ed.2d 792 (2010) ("Bilski II"), the parties renewed their briefs. Further, on August 5, 2010, the Court granted Alice leave to file an amended answer containing an additional counterclaim charging CLS with infringement of its '375 Patent, which had only been issued three months prior. Briefing on the question of whether Alice's claims at issue in this litigation are directed to patent eligible subject matter under the Patent Act is now ripe, after oral argument was held on January 14, 2011.
Under Rule 56 of the Federal Rules of Civil Procedure, summary judgment shall be granted "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgement as a matter of law." Fed.R.Civ.P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Moreover, summary judgment is properly granted against a party who "after adequate time for discovery and upon motion . . . fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).
In ruling on a motion for summary judgment, the court must draw all justifiable inferences in the nonmoving party's favor and accept the nonmoving party's evidence as true. Anderson, 477 U.S. at 255, 106 S.Ct. 2505. A nonmoving party, however, must establish more than "the mere existence of a scintilla of evidence" in support of its position. Id. at 252, 106 S.Ct. 2505. In addition, the nonmoving party may not rely solely on allegations or conclusory statements. Greene v. Dalton, 164 F.3d 671, 675 (D.C.Cir.1999). Rather, the nonmoving party must present specific facts that would enable a reasonable jury to find in its favor. Id. at 675. If the evidence "is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50, 106 S.Ct. 2505 (citations omitted).
Section 101 of the Patent Act delineates which inventions are patentable: "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C. § 101. Congress created four independent categories of inventions or discoveries that are eligible for patent protection: processes, machines, manufactures, and compositions of matter. A "process" is defined in the Patent Act as a "process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material." Id. § 100(b). The Supreme Court has described a "process" as follows:
Diamond v. Diehr, 450 U.S. 175, 182-83, 101 S.Ct. 1048, 67 L.Ed.2d 155 (1981) (quoting Cochrane v. Deener, 94 U.S. 780, 787-88, 24 L.Ed. 139 (1877)).
By writing § 101 in expansive terms, "Congress plainly contemplated that the patent laws would be given wide scope." Diamond v. Chakrabarty, 447 U.S. 303, 308, 100 S.Ct. 2204, 65 L.Ed.2d 144 (1980). "Congress took this permissive approach to patent eligibility to ensure that ingenuity should receive a liberal encouragement." Bilski II, 130 S.Ct. at 3225 (internal quotation marks omitted); In re Comiskey, 554 F.3d 967, 977 (Fed. Cir.2009) (recognizing that patentable subject matter under § 101 is "extremely broad"). In fact, the Supreme Court has "more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed." Bilski II, 130 S.Ct. at 3226 (quoting Diehr, 450 U.S. at 182, 101 S.Ct. 1048 (internal quotation marks omitted)).
The Supreme Court has enunciated three exceptions to the Patent Act's broad subject matter eligibility framework: "laws of nature, physical phenomena, and abstract ideas." Bilski II, 130 S.Ct. at 3225 (quoting Chakrabarty, 447 U.S. at 309, 100 S.Ct. 2204). Thus, even if an invention appears to nominally claim subject matter that would be statutorily covered by the Patent Act, it will be denied patent protection if it falls into one of the "fundamental principles" exceptions, i.e. a law of nature, natural phenomena, and/or an abstract idea, which have been expounded by the Supreme Court in Gottschalk v. Benson, 409 U.S. 63, 93 S.Ct. 253, 34 L.Ed.2d 273 (1972), Parker v. Flook, 437 U.S. 584, 98 S.Ct. 2522, 57 L.Ed.2d 451 (1978), Diehr, 450 U.S. 175, 101 S.Ct. 1048, and most recently Bilski II, 130 S.Ct. 3218. An underlying reason for these exceptions is that "[p]henomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work." Benson, 409 U.S. at 67, 93 S.Ct. 253; accord Diehr, 450 U.S. at 185, 101 S.Ct. 1048 ("A principle, in the abstract, is a fundamental truth; an original cause; a motive; these cannot be patented, as no one can claim in either of them an exclusive right.") (citation omitted). Although the "fundamental principles" exceptions are not statutory, the Supreme Court has found them to be consistent with the requirement that a patentable invention be "new and useful." Bilski II, 130 S.Ct. at 3225 (citing 35 U.S.C. § 101). The Supreme Court recently emphasized that a lower court should be attentive to the "guideposts" of Benson, Flook, and Diehr when considering these exceptions to subject matter patentability. Id. at 3231.
In 1972, the Benson Court held that a method of programming a computer to convert binary-coded decimal numerals to their equivalent pure binary numerals was
In 1978, the Flook Court rejected another patent because it was directed to unpatentable subject matter, another algorithm, although the patent contained greater limitations and entailed a more specific application than the patent in Benson. The Flook patent concerned monitoring conditions during catalytic conversion processes in the petrochemical and oil-refining industries, and the claims were directed to a method of computing an alarm limit, which is the point at which catalytic conversion conditions can produce inefficiencies or danger. The Court recognized that the only novel part of the method was that it employed a new mathematical formula for calculating and/or updating the alarm limit, and that the invention really claimed the algorithm itself. Flook, 437 U.S. at 585-86, 98 S.Ct. 2522. That the claims were limited to the petrochemical and oil-refining industries and would therefore not preempt the wholesale use of the algorithm was insufficient to render the claims patentable. Id. at 589-90, 98 S.Ct. 2522. Likewise, the methods were not saved by the "post-solution" activity of adjusting the actual alarm limit based on the results of the algorithm since a "competent draftsman could attach some form of post-solution activity to almost any mathematical formula." Id. at 590., 98 S.Ct. 2522
In 1981, the Supreme Court colored the outer limits of the fundamental principles exceptions in Diehr, in which the Court upheld the subject matter eligibility of a claim to a process for producing cured synthetic rubber products. While the invention employed a well-known mathematical formula in one of its steps, the patent did not seek to preempt the use of the formula itself, but only preempt its use in conjunction with all the other steps in the claimed method. Diehr, 450 U.S. at 187, 101 S.Ct. 1048. Admittedly, the mathematical formula would not be patentable on its own, "but when a process for curing rubber is devised which incorporates in it a more efficient solution of the equation, that process is at the very least not barred at the threshold by § 101." Id. at 188, 101 S.Ct. 1048. The Court distinguished Flook by explaining: "We were careful to note in Flook that the patent application did not purport to explain how the variables used in the formula were to be selected, nor did the application contain any disclosure relating to chemical processes at work or the means of setting off an alarm or adjusting the alarm limit. All the application provided was a `formula for computing an updated alarm limit.'" Id. at 192 n. 14, 101 S.Ct. 1048 (internal citations omitted).
Most recently, in 2010, the Supreme Court found a business method unpatenatable as directed to an abstract idea. See Bilski II, 130 S.Ct. at 3231. The Bilski II Court invalidated process claims generally
While an abstract idea in itself is not patentable, a claim "is not unpatentable simply because it contains a law of nature or a mathematical algorithm." Flook, 437 U.S. at 590, 98 S.Ct. 2522. "It is now commonplace that an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection." Diehr, 450 U.S. at 187, 101 S.Ct. 1048 (emphasis in original); id. at 192, 101 S.Ct. 1048 ("[W]hen a claim containing a mathematical formula implements or applies that formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect (e.g., transforming or reducing an article to a different state or thing), then the claim satisfies the requirements of § 101."). It is also clear that when a court examines whether a claim is directed to an abstract idea, the court must view each claim as a whole. "In determining the eligibility of respondents' claimed process for patent protection under § 101, their claims must be considered as a whole . . . This is particularly true in a process claim because a new combination of steps in a process may be patentable even though all the constituents of the combination were well known and in common use before the combination was made." Diehr, 450 U.S. at 188, 101 S.Ct. 1048; see also King Pharms., Inc. v. Eon Labs., Inc., 616 F.3d 1267, 1277 (Fed.Cir. 2010) (reasserting that " § 101 patentability analysis is directed to the claim as a whole, not individual limitations" within the claim).
There is no clear definition of what constitutes an abstract idea; instead, courts analogize from the standards etched out by the cases just discussed. As the Federal Circuit recently acknowledged, "the Supreme Court did not presume to provide a rigid formula or definition for abstractness." Research Corp. Techs, v. Microsoft Corp., 627 F.3d 859, 868 (Fed.Cir.2010) (citing Bilski II, 130 S.Ct. at 3238). The Federal Circuit declined to "presume to define `abstract' beyond the recognition that this disqualifying characteristic should exhibit itself so manifestly as to override the broad statutory categories of eligible subject matter and the statutory context that directs primary attention on the patentability criteria of the rest of the Patent Act." Id.
Ultimately, the determination of whether an asserted claim is invalid for lack of subject matter patentability under § 101 is a question of law. See Bilski I,
Whether an invention falls within a subject matter eligible for § 101 protection is also a threshold question. See Comiskey, 554 F.3d at 975. "It is well-established that `[t]he first door which must be opened on the difficult path to patentability is § 101.'" Id. at 973 (quoting State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368, 1372 n. 2 (Fed. Cir.1998)). Only after an invention has satisfied § 101, will it be analyzed under the remaining hurdles of the Patent Act, which include the requirement that an invention be novel, see § 102; nonobvious, see § 103; and fully and particularly described, see § 112. See Bilski II, 130 S.Ct. at 3225.
CLS argues that Alice's claims are not patentable because they are directed to an abstract idea—the exchange of an obligation when sufficient value is present— which is supported by its argument that the method claims fail to satisfy the machine-or-transformation test. Thus, CLS posits that Alice's method claims in the '510 Patent and claims 33 and 34 of the '479 Patent are directed to an abstract idea, and then by the draftsman's art, this abstract idea is recast as computer system and product claims in the '720 and '375 Patents to carry out the same methods. CLS argues this is further evidenced by the fact the Patents share essentially the same specification and disclosure.
CLS first attacks claims 33 and 34 of the '479 Patent and every claim of the '510 Patent—which collectively entail the only method claims at issue in this litigation— arguing these method claims fail as abstract and because they fail to meet the machine-or-transformation test. Alice responds that the methods are not abstract, but a functional application of a method to satisfy a need, and that the claims further satisfy the machine-or-transformation test.
The first question is whether the methods in claims 33 and 34 of the '479 Patent and all claims in the '510 Patent statutorily
To determine whether a process claims subject matter that is patent eligible, a court may look to the useful and important "machine-or-transformation" ("MOT") test for guidance. See Prometheus Labs., Inc. v. Mayo Collaborative Servs. & Mayo Clinic Rochester, 628 F.3d 1347, 1355 (Fed.Cir.2010). Under the MOT test, an invention is a process if "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." Bilski I, 545 F.3d at 954. Further, "the use of a specific machine or transformation of an article must impose meaningful limits on the claim's scope to impart patent-eligibility" and "the involvement of the machine or transformation in the claimed process must not merely be insignificant extrasolution activity." Id. at 961-62. The MOT test is neither the exclusive nor the dispositive standard to determine whether an invention qualifies as a process under § 101, yet it remains a "useful and important clue, an investigative tool" in the analysis. Bilski II, 130 S.Ct. at 3227. Therefore, this Court analyzes the claims under the MOT analysis to inform its ultimate finding.
The Court first finds the relevant claims of the '479 and '510 Patents do not involve any "transformation" under the MOT test. Alice argues that the electronic transformation of data caused by the methods' electronic adjustment of accounts satisfies the transformation prong of the test. See Alice Mem. 33. The Federal Circuit recently grappled with its "measured approach" to allowing the manipulation of electronic signals or data or even "abstract constructs," such as legal obligations, to qualify as transformations under the Patent Act. Bilski I, 545 F.3d at 962. The Federal Circuit pointed to only one example where "the electronic transformation of the data itself into a visual depiction" was sufficient to meet the test. Id. at 963 (citing In re Abele, 684 F.2d 902, 908-09 (C.C.P.A.1982)). It was not the mere manipulation of data itself that led the U.S. Court of Customs and Patent Appeals (the predecessor to the U.S. Court of Appeals for the Federal Circuit) to find the method was transformative, but that the process involved the conversion of X-ray data into a visual depiction which represented specific physical objects, i.e., bones. See Bilski I, 545 F.3d at 962-63.
Further, for a transformation to satisfy the MOT test, the "transformation must be central to the purpose of the claimed process." Bilski I, 545 F.3d at 962. Assuming the asserted process claims in the Patents are implemented by computer, the claims are nonetheless directed to "a method of exchanging obligations," not to the manipulation of an electronic hard drive or memory, and any such electronic transformation is at most incidental to the exchange of obligations, not to mention it would also constitute insignificant extra-solution activity. Further, the exchange of "obligations" itself involves no particular article being transformed since obligations are a mere abstraction. "Purported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances." Bilski I, 545 F.3d at 963.
The closer question is whether Alice's process claims are tied to a particular machine or apparatus under the MOT test. A "machine" is a "a concrete thing, consisting of parts, or of certain devices and combination of devices." In re Nuijten, 500 F.3d 1346, 1355 (Fed.Cir.2007) (quoting Burr v. Duryee, 68 U.S. (1 Wall.) 531, 570, 17 L.Ed. 650 (1863)). The Court first looks to the '510 Patent claims, each of which recites "electronically adjusting" records and/or accounts as a step within the claim.
The Court will also presume, for purposes of these motions, that claims 33 and 34 of the '479 Patent are directed to computer implementation, a position CLS contests. To be sure, claims 33 and 34 of the '479 Patent contain no unambiguous reference to a machine or apparatus. Alice posits that a person of ordinary skill in the relevant art reading these claims in light of the specification and other claims of the '479 Patent would understand the term "transaction" to require the use of electronic data processing systems, see Alice Reply in Supp. of Mot. for Summ. J. [Dkt. # 99] ("Alice Reply") 23, and the terms "shadow credit record" and "shadow debit record" to require electronic storage of data files in a data storage unit. Id. (citing Ginsberg Decl. ¶ 32); see also '479 Patent, col. 65:27, 33 (Claim 33). At a minimum, Alice argues that claims 33 and 34 are directed to implementation by a computer system including a processor and memory. See Alice Mem. 31; see also Ginsberg Decl. ¶ 43 (noting that the process claims "expressly recite methods of performing a particular transaction electronically, which requires (explicitly or implicitly) the use of a computer system").
Whether a claim is valid under § 101 is a matter of claim construction, see State Street, 149 F.3d at 1370, and for purposes of these motions, CLS has agreed to assume a construction of terms favorable to Alice.
The single fact that Alice's method claims are implemented by computer does not mean the methods are tied to a particular machine under the MOT test. The requirement that shadow accounts and/or records be adjusted electronically, or that information be stored electronically, may not sufficiently tie the claims to a
The Court concludes that nominal recitation of a general-purpose computer in a method claim does not tie the claim to a particular machine or apparatus or save the claim from being found unpatentable under § 101. See, e.g., Fuzzysharp Techs., Inc. v. 3D Labs Inc., Ltd., No. 07-5948, 2009 WL 4899215, at *4, 2009 U.S. Dist. LEXIS 115493, *12 (N.D.Cal. Dec. 11, 2009) ("Courts applying Bilski have concluded that the mere recitation of `computer' or reference to using a computer in a patent claim us [sic] insufficient to tie a patent claim to a particular machine.") (emphasis in original) (referring to Bilski I, 545 F.3d 943); Cf. Benson, 409 U.S. 63, 93 S.Ct. 253 (finding method claims to be performed on a general purpose computer to be invalid as an algorithm). On the other hand, a computer that has been specifically programmed to perform the steps of a method may no longer be considered a general purpose computer, but instead, a particular machine. Cf. In re Alappat, 33 F.3d 1526, 1545 (Fed.Cir. 1994) (finding that "a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions pursuant to instructions from program software").
With evolving guidance on this issue, district courts have determined that a method claim that is directed to a general purpose computer is not tied to a particular machine under the MOT test.
The Fuzzysharp court also found certain method claims were not tied to a particular machine. The claims at issue related to "reducing the indivisibility related computations in 3-D graphics" and the district court accepted that the claims required a device such as a computer because at least one claim recited "computer storage," and the parties agreed that certain terms required a "computer screen." Fuzzysharp, 2009 WL 4899215 at *3-4, 2009 U.S. Dist. LEXIS 115493 at *11-12. Nonetheless the court found that the claims were not tied to a particular machine because they either contained only a "passing reference to `computer storage'" or simply made "a general[ ] reference to `a' computer." Id. at *4, 2009 U.S. Dist. LEXIS 115493 at 12-15. The court noted that ultimately the challenged method claims employed algorithms and calculations which would require a computer, but no particular computer. Id. at *5, 2009 U.S. Dist. LEXIS 115493 at 15.
To determine whether a machine is particular under the MOT test, courts also look to whether the machine or apparatus imposes meaningful limits on the process itself. "In order for the addition of a machine to impose a meaningful limit on the scope of a claim, it must play a significant part in permitting the claimed method to be performed, rather than function solely as an obvious mechanism for permitting a solution to be achieved more
Similarly, in Every Penny Counts, a district court invalidated a method claim because it failed the MOT test. See Every Penny Counts, Inc. v. Bank of Am. Corp., No. 2:07-042, 2009 WL 6853402, 2009 U.S. Dist. LEXIS 53626 (M.D.Fla. May 27, 2009). The claim was directed to a system in which a consumer could have a portion of any credit or debit transaction set aside—that amount determined either by rounding up each transaction to the nearest dollar and setting aside the difference or by adding a predetermined amount to each transaction—and then have the portion routed to either the consumer's savings account, a preferred charitable organization, or a portion to each. Id. at *1, 2009 U.S. Dist. LEXIS 53626 at *2. The district court first found the claim, categorized as a system, to be truly directed to a process since it "has no substantial practical application except in connection with computers, cash registers, and networks, but it is not comprised of those devices." Id. at *2, 2009 U.S. Dist. LEXIS 53626 at *7 (internal quotation marks omitted). The court then found that although the process recited implementation by a "network," "entry means" and a "computing means in said network being responsive to said data," the so-described computer failed to impose a meaningful limitation on the process because the claim was essentially "a mathematical algorithm [that] uses machines for data input and data output and to perform the required calculations." Id. at *3, 2009 U.S. Dist. LEXIS 53626 at *7.
Granting Alice's position that "claims 33 and 34 of the '479 patent are properly limited to implementations of the claim methods using a computer, just as the '510 patent requires," see Alice Mem. 32 n. 15, the Court nonetheless finds the method claims before the Court—claims 33 and 34 of the '479 Patent and each claim of the '510 Patent—are not tied to a particular machine under the MOT test. Assuming accounts and/or records will be electronically adjusted, which requires information to be stored electronically in a data storage unit, and that an irrevocable instruction is conducted electronically, the method claims here at best recite implementation by a general-purpose computer.
To be sure, the specification of the '479 Patent, which the '510 Patent largely shares, reveals a seemingly intricate "trading platform" invention consisting of systems and methods, with apparent software applications to be used in implementing the invention. The '479 Patent specification speaks to methods being conducted by way of specifically programmed computing devices. See, e.g., '479 Patent, col. 28:12-16 ("The invention has industrial application in the use of electrical computing devices and data communications. The apparatus and methods described allow the management of risk in an automated manner by means of programming of the computing devices."); '510 Patent, col. 31:66-67 & col. 32:1-3 (same). The specification undoubtedly provides context for reading a patent's claims, but the plain language of the claims themselves is the measure of the breadth of patent protection granted. See Innova/Pure Water, Inc. v. Safari Water
Alice points to unasserted claims 12 and 28 of the '479 Patent to demonstrate that if claims 33 and 34 are interpreted in context of other '479 Patent claims, it becomes clear that claims 33 and 34 also require computer implementation. See Ginsberg ¶¶ 30-31. The Court has accepted this proposition, however this juxtaposition reinforces the Court's conclusion that claims 33 and 34 of the '479 Patent are independent of the broader computer system revealed in the specification, and it demonstrates that the drafters of the claims of the '479 Patent knew how to explicitly recite to computer components.
Therefore, even assuming a reasonable construction favorable to Alice that claims 33 and 34 of the '479 Patent and each claim of the '510 Patent recites to computer implementation, the asserted claims contain no indication that the computers, or other devices required to implement the methods, are specifically programmed. The claims make no mention of any specific hardware, let alone software or specifically programmed hardware. Alice's expert construes the claims to require "a computer configured and programmed to carry out the processes of the claims." Ginsberg Decl. ¶ 15. Alice argues the term "shadow record" refers to electronic records maintained in a data storage unit by a computer programmed with application software. Alice Reply 24. While the specification and other claims of the '479 Patent may reveal specifically programmed computers, only claims 33 and 34 of the '479 Patent and the claims of the '510 Patent are before the Court, and according to the plain language of the terms actually employed in these claims it cannot be said that they reasonably recite to a specifically programmed computer.
Furthermore, that the processes before the Court are conducted electronically, by way of a computer, fails to impose a meaningful limitation on the processes themselves. See Every Penny Counts, 2009 WL 6853402 at *2-3, 2009 U.S. Dist. LEXIS 53626 at *7 (finding the computerized method required machines for data input and output, and to perform calculations,
Looking at the methods claimed by Alice, the Court need not even engage in abstraction to contemplate how they could be implemented without the use of electronics. The method of exchanging obligations by employing an intermediary to consummate the exchange after ensuring the parties have adequate value to guarantee the exchange, perhaps by keeping an up-to-date record of the parties' abilities to honor their obligations, and then providing an irrevocable instruction to the parties— or their representative banks or other value holders—to adjust their accounts or records accordingly, does not require the use of computers. See Ultramercial, LLC v. Hulu, LLC, No. 09-06918, 2010 WL 3360098, *5, 2010 U.S. Dist. LEXIS 93453, *13 (C.D.Cal. Aug. 13, 2010) (finding a computerized method invalid, in part, because "[t]here is nothing inherently computer-specific about receiving media from a content provider, choosing a sponsor for the media, selecting an ad for the sponsor, verifying the viewer's activity, assigning passwords, charging the sponsor for the advertisement, or any of the remaining steps"); see also Benson, 409 U.S. at 67, 93 S.Ct. 253 ("The mathematical procedures can be carried out in existing computers long in use, no new machinery being necessary. And, as noted, they can also be performed without a computer."); Flook, 437 U.S. at 586, 98 S.Ct. 2522 ("Although the computations can be made by pencil and paper calculations, the abstract of disclosure makes it clear that the formula is primarily useful for computerized calculations producing automatic adjustments in alarm settings."). Claims 33 and 34 of the '479 Patent and the claims of the '510 Patent are not meaningfully limited by a computer since a computer is not essential to the operation of the methods. See SiRF Tech., 601 F.3d at 1333.
Even if computer implementation is not inherently necessary for the methods claimed, a computerized approach would indubitably expedite the exchanges. However, it is also true that simply because method claims call for computerized implementation to be usefully or pragmatically applied "does not mean, however, that the patent claims are limited to use on a computer, or, more importantly, that they are tied to one." Ultramercial, 2010 WL 3360098 at *5, 2010 U.S. Dist. LEXIS 93453 at *13 (emphasis in original). "That the disclosed invention is only used on computers or computer networks cannot alone satisfy the machine test without rendering the test completely toothless." Id. It is a truism that the "the particular methods claimed in these patents only work, as intended, when carried out using a computer," Ginsberg ¶ 41, but that alone does not mean that a computer meaningfully limits the processes. For the foregoing reasons, the Court finds that claims 33 and 34 of the '479 Patent and claims 1-75 of the '510 Patent fail to satisfy the machine-or-implementation test.
CLS asserts that Alice's methods, claims 33 and 34 of the '479 Patent and claims 1-75 of the '510 Patent, attempt to patent the abstract idea of "`exchanging an obligation between parties' after ensuring that there is `adequate value' in independent accounts maintained for the parties." CLS Mem. 24. CLS analogizes the method claims to a "two-sided `escrow' arrangement for financial transactions" and likens Alice's supposed escrow-type invention to the hedging claims that were invalidated by the Supreme Court in Bilski II. Id. at 25. Alice defends the methods as "more than a mere statement of a concept," and insists they constitute "a particular solution to a real world problem in need of solving—eliminating counterparty risk with a complicated computer system programmed to perform the settlement." Alice Mem. 34. Alice argues against abstractness in that the "performance of the method can be observed and verified; settlements are completed electronically, with accounts being electronically debited and credited." Id. (citing Ginsberg Decl. ¶¶ 44-45).
The claims before the Supreme Court in Bilski II, which the Court found to encapsulate the concept of hedging, were directed to the steps of initiating a series of transactions between a commodity provider and consumers at a fixed rate which corresponded to consumers' risk positions, identifying market participants for the commodity who had a counter-risk position, and then initiating a series of transactions at a fixed price between the commodity provider and those market participants having a counter-risk position. See Bilski II, 130 S.Ct. at 3223-24. The Supreme Court found the invention claimed a fundamental economic practice. Id. at 3231. Similarly, a district court found a business method directed to allowing Internet users to view copyrighted material free of charge in exchange for viewing certain advertisements to be an unpatentable abstract idea. See Ultramercial, 2010 WL 3360098 at *6, 2010 U.S. Dist. LEXIS 93453 at *17. The district court found the method abstract because at its core sat "the basic idea that one can use advertisement as an exchange or currency." Id.
CLS argues that Alice's method claims are directed to unpatentable processes for exchanging an obligation based on a mathematical algorithm, as well as the abstract idea of transformation or manipulation of legal obligations or business risks. CLS Reply 23. The Court need not consider whether the methods, at heart, claim nothing more than an algorithm because the Court agrees that the methods are directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk. This is a basic business or financial concept much like those struck down in Bilski II or Ultramercial. At the heart of these claims is the fundamental idea of employing a neutral intermediary to ensure that parties to an exchange can honor a proposed transaction, to consummate the exchange simultaneously to minimize the risk that one party does not gain the fruits of the exchange, and then irrevocably to direct the parties, or their value holders, to
To demonstrate, independent claim 27 of the '510 Patent requires the supervisory institution to maintain an account for a first party which is independent of an account held by an exchange institution, to facilitate an exchange of obligations if the first party's account value (however defined) does not drop below zero, and to conduct a transaction with the exchange institution that is irrevocable at the end of a period to reflect the exchange of obligations made. See '510 Patent, claim 27. Essentially, this claim is directed to the abstract and fundamental concept of using an intermediary to guarantee an exchange. Similar to the invention in Flook, which was found merely to provide a formula for computing an alarm limit, see Diehr, 450 U.S. at 192 n. 14, 101 S.Ct. 1048, the invention here 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. Independent claim 33 of the '479 Patent and independent claims 1, 61, 65, and 68 of the '510 Patent, each is directed as a whole to this same abstract concept.
Alice argues that the claimed methods "require the use of a computer and data storage unit programmed to perform a particular financial transaction, implement a concept in a tangible way with tangible, real world results—money is exchanged in the absence of counterparty risk." Alice Mem. 34. There may be no dispute that the methods claimed engender a practical result, but this fact alone does not rescue the claims from the realm of abstraction. Some abstract ideas, such as fundamental business concepts, although not patentable standing alone will nonetheless produce useful results when basically applied. Cf. Bilski I, 545 F.3d at 965 ("[T]he claimed process here as a whole is directed to the mental and mathematical process of identifying transactions that would hedge risk. The fact that the claim requires the identified transactions actually to be made does no more to alter the character of the claim as a whole."); see also Diehr, 450 U.S. at 192 n. 14, 101 S.Ct. 1048 (noting that the claims in Flook "did more than present a mathematical formula" but presented steps to calculate an updated alarm limit and replace the outdated alarm limit for which there were a "broad range of potential uses" in the petrochemical and oil refinery industries); Ultramercial, 2010 WL 3360098 at *7, 2010 U.S. Dist. LEXIS 93453 at *19 (stating that despite the Supreme Court coming to different conclusions on subject matter eligibility in Diehr and Bilski II: "In both [cases], the claimed invention discloses a real-world application of a mathematical formula. In both, a well-known or basic principle is linked to its practical use."). It would seem logical that the concept and application of hedging in the energy markets before the Supreme Court in Bilski II would produce practical and real world results; however the Court did not focus on this point, but instead held the claims were "broad examples" of a concept and the patent would ultimately preempt the use of the concept itself. Bilski II, 130 S.Ct. at 3231. The fact that a claim produces practical results may inform the abstract analysis, but it is not dispositive of
A district court should instead focus on the extent to which the application of an abstract idea is specific and/or limited to determine whether an invention is patent eligible. Recently, the Federal Circuit reversed a district court's finding that a method for "rendering a halftone image of a digital image by comparing, pixel by pixel, the digital image against a blue noise mask" was unpatentable as directed to an abstract algorithm. See Research Corp., 627 F.3d at 868. The Circuit found the invention was not abstract, in part, because it presented "functional and palpable applications in the field of computer technology" and addressed "a need in the art for a method of and apparatus for the halftone rendering of gray scale images in which a digital data processor is utilized in a simple and precise manner to accomplish the halftone rendering." Id. at 868-69. "Indeed, this court notes that inventions with specific applications or improvements to technologies in the marketplace are not likely to be so abstract that they override the statutory language and framework of the Patent Act." Id. at 869.
An analysis of the preemptive power of a claim is inextricably linked with the question of whether the application of an abstract idea is specific or limited. "Pre-emption of all uses of a fundamental principle in all fields and pre-emption of all uses of the principle in only one field both indicate that the claim is not limited to a particular application of the principle." Bilski I, 545 F.3d at 957; see also Accenture, 691 F.Supp.2d at 595 ("While it is not permissible to pre-empt the use of an intangible principle, an application of the principle may be patentable; the scope of the exclusion of others to practice or utilize the fundamental principle imparted by the claims must be examined.").
The processes claimed by Alice employ a supervisory institution to serve as an intermediary to exchange obligations, which may monitor the credit/debit accounts/records at the parties' exchange institution, and when sufficient value is present, the supervisory institution conducts the exchange of obligations and instructs the parties, or their value holding exchange institutions, to adjust their accounts/records accordingly. The methods broadly claim the idea of exchanging "obligations" by way of an intermediary. Although each claim should be considered independently and as a whole, by looking to the dependent claims of '510 Patent one understands the reach of the methods claimed. The dependent claims recite potential "obligations" as those that arise from any transaction linked to a "share price," a "weather event," a "market event," or a "currency exchange transaction,"
The remaining dependent claims in the '510 Patent as a whole also speak to the type of entity that might be an "exchange institution"—i.e. a credit card company, a debit card company, a bank, or a guarantor,
It is clear that "limiting an abstract idea to one field of use or adding token postsolution components" does not make an abstract idea patentable. Bilski II, 130 S.Ct. at 3231; see also Diehr, 450 U.S. at 191, 101 S.Ct. 1048 (holding that the limitation against patenting an abstract idea cannot be circumvented by "attempting to limit the use of the formula to a particular technological environment," or by adding "insignificant postsolution activity" to transform a principle into a process). Limiting the use of the unpatentable Pythagorean theorem by claiming it could be usefully applied to surveying techniques would not make the invention patentable, see Bilski I, 545 F.3d at 957 (citing to Flook, 437 U.S. at 590, 98 S.Ct. 2522), no more than limiting the concept of hedging to the energy and commodities markets. See Bilski II, 130 S.Ct. at 3231; see also CyberSource, 620 F.Supp.2d at 1077. The method claims before the Court are not limited to any particular industry, but are supposedly limited by the use of a computer. As financial transactions, and the maintenance of accounts and/or records on a party's value or wealth, are increasingly likely to be monopolized by electronic and computer implementation and storage, the fact these claims are implemented electronically fails to limit the methods. See Benson, 409 U.S. at 71-72, 93 S.Ct. 253 (explaining that the practical effect of granting patent protection would be patenting an abstract idea since the algorithm before that court "ha[d] no substantial practical application except in connection with a digital computer"); see also Ultramercial, 2010 WL 3360098 at *6, 2010 U.S. Dist. LEXIS 93453 at *18. The method claims before the Court are not limited by electronic implementation, and in looking at the method claims as a whole they would serve to patent the fundamental and abstract concept itself. See Benson, 409 U.S. at 71-2, 93 S.Ct. 253.
Similar to Bilski II, in which the Supreme Court invalidated the dependent claims which purported to limit hedging to be "broad examples of how hedging can be used in commodities and energy markets," Bilski II, 130 S.Ct. at 3231, the dependent claims of the '510 Patent and claim 34 of the '479 Patent, each when considered as a whole, constitute broad examples of potential parties, institutions, obligations, and circumstances under which the exchange of obligations—each dependent claim is no more than an attempt to limit the abstract concept to a field of use or to limit the invention by adding token postsolution components.
Also, that the methods entail an irrevocable instruction, assumed to be electronic in nature, to require that exchange institutions adjust their accounts or records according to the exchange conducted by the supervisory institution is subsumed within the abstract idea itself, if not insignificant postsolution activity. See Flook, 437 U.S. at 590, 98 S.Ct. 2522 ("The notion that post-solution activity, no matter how conventional or obvious in itself, can transform an unpatentable principle into a patentable process exalts form over substance."); Bilski I, 545 F.3d at 966 (noting that abstract hedging claims required "performing the post-solution step of consummating those transactions"). In claiming the abstract idea of using an intermediary to guarantee the exchange of obligations to minimize risk, the final action that the parties, or their account holders, be met with an irrevocable instruction to adjust their account or record to reflect the consummated transaction is no more an inherent and necessary step
The Court finds claims 33 and 34 of the '479 Patent and claims 1-75 of the '510 Patent invalid are not directed to patentable subject matter.
The claims of the '720 and '375 Patents represent system and product claims. CLS contends that Alice simply recasts its abstract method claims in a physical embodiment in an attempt to employ the draftsman's art to save these claims from falling within the fundamental principles exceptions. Alice counters that these claims clearly fall within the category of inventions protected by the Patent Act and that there is no controlling precedent of courts finding a machine, a physical object made of parts, to be unpatentable as abstract.
The claims of the '720 and '375 Patents are directed to either a machine or a manufacture under § 101. A "machine" is a "a concrete thing, consisting of parts, or of certain devices and combination of devices." Nuijten, 500 F.3d at 1355 (quoting Burr, 68 U.S. at 570). A machine "includes every mechanical device or combination of mechanical powers and devices to perform some function and produce a certain effect or result." Id. (quoting Corning v. Burden, 56 U.S. 252, 267, 15 How. 252, 14 L.Ed. 683 (1854)). A manufacture, on the other hand, is one or more articles prepared "for use from raw or prepared materials by giving to these materials new forms, qualities, properties, or combinations, whether by hand-labor or by machinery." Id. at 1356 (quoting Chakrabarty, 447 U.S. at 308, 100 S.Ct. 2204). Machine and method claims differ: "A machine is a thing. A process [or method] is an act, or a mode of acting. The one is visible to the eye—an object of perpetual observation. The other is a conception of the mind, seen only by its effects when being executed or performed." Expanded Metal Co. v. Bradford, 214 U.S. 366, 384, 29 S.Ct. 652, 53 L.Ed. 1034 (1909) (citation omitted).
Each of the 84 claims in the '720 Patent is directed to a particular "data processing system" to enable an exchange of obligations. Every claim in the '720 Patent recites "a data storage unit having stored therein" information about shadow accounts and/or records, and a "computer, coupled to said data storage unit," that is "configured" to perform steps of exchanging obligations similar to those laid out in the asserted method claims.
Similarly claims 1-38 and 42-47 of the '375 Patent are directed to a particular "data processing system" which enables the exchange of obligations. As with the claims in the '720 Patent, claims 1-38 and 42-47 of the '375 Patent each requires "a data storage unit having stored therein" information about accounts or records, and a "computer, coupled to said data storage unit," that is "configured" to perform certain steps of effecting an exchange obligation.
Independent claim 39 and dependent claims 40 and 41 of the '375 Patent are directed to a "computer program product" containing a particular program code. See '375 Patent, col. 68:5 (Claim 39); id. col. 68:36 (Claim 40); id. col. 68:38 (Claim 41). Each of these claims recites a "computer readable storage medium" having "computer readable program code embodied in the medium." Id. col. 65:5-7 (Claim 39). The parties appear to agree for the present that these claims represent a computer readable medium containing software that instructs a computer how to submit a transaction and allow a party to view information on the processing of the exchange of obligations by the supervisory institution, which mimics the methods claimed in the '510 Patent. See CLS Mem. 35; Alice Mem. 25.
The Court first determines whether these claims fall within the statutory class of inventions covered by § 101. At first glance, a computer is a concrete item made of parts that would appear to fit clearly within the statutory protection afforded by § 101 as a machine, see Nuijten, 500 F.3d at 1355, so that every claim of the '720 Patent and claims 1-38 and 42-47 of the '375 Patent appear to fit within the § 101
Assuming the claims of the '720 and '375 Patents are directed to machines or manufactures under § 101, the Court must still analyze these inventions under the exceptions for fundamental principles which apply to all four categories of § 101 patent eligible inventions. See AT & T Corp. v. Excel Commc'ns, 172 F.3d 1352, 1357-58 (Fed.Cir.1999); see also Benson, 409 U.S. at 67-8, 93 S.Ct. 253; In re Ferguson, 558 F.3d 1359, 1363 (Fed.Cir. 2009).
Alice holds up State Street to support its argument that its process and/or software claims are directed to patent eligible subject matter. In State Street, the Federal Circuit reviewed machine claims under the abstract analysis and ultimately found the claims were patentable because they satisfied the "useful, concrete, and tangible result." See State Street, 149 F.3d at 1373. The Federal Circuit concluded, "[t]he question of whether a claim encompasses statutory subject matter should not focus on which of the four categories of subject matter a claim is directed to-process, machine, manufacture, or composition of matter—but rather on the essential characteristics of the subject matter, in particular, its practical utility." Id. at 1375. In analyzing the State Street claims, the Circuit did not note any potential preemptive effects of the claims, but focused only on the results produced by the claims. However, the "useful, concrete, and tangible result" test has been thoroughly rejected, see Bilski II, 130 S.Ct. at 3221, at least partly because its application proved too liberal in filtering out abstract claims. See id. at 3232 n. 1 (Stevens, J. concurrence); id. at 3259 (Breyer, J. concurrence) (noting the "useful, concrete, and tangible result" test would, if taken literally, allow claims to be patentable where the Supreme Court has held to the contrary (citing cases, including Flook) and that the test "preceded the granting of patents that ranged from the somewhat ridiculous to the truly absurd") (internal citations and quotation marks omitted).
In the instant matter, the Court follows the reasoning of the Supreme Court in Bilski II, which concentrated not on the usefulness or practicality of claims, but on whether claims are directed to a fundamental concept as demonstrated, as least in part, by their preemptive force. See id. at 3231. Just as the claims in Bilski II were not saved from the abstract exception because they may have nominally claimed a "process" under § 101, nor can Alice's system or product claims be saved only by the fact they may nominally recite a "computer" or "manufacture."
CLS argues that the language of Alice's system and method claims are essentially one and the same, merely replacing the term "supervisory institution" from the '510 Patent with an unspecified "computer" in every claim of the '720 Patent and claims 1-38 and 42-47 of the '375 Patent. See CLS Mem. 34. Accordingly, CLS argues the system claims in the '720 and '375 Patents represent nothing more than an attempt to recast an abstract method as tangible hardware to circumvent the limitations on subject matter eligibility. See id. at 34. Alice acknowledges the similarity, but disputes that the various claims are
The Court has found Alice's asserted method claims to be directed to an abstract concept. The system claims of the '720 Patent represent merely the incarnation of this abstract idea on a computer, without any further exposition or meaningful limitation. Although it is unsettled as to when a claim to a machine or manufacture is abstract,
The impact of the '720 Patent on common and everyday financial transactions speaks to its preemptive effect. Independent claims 1, 27, 60, and 68 of the '720 Patent mirror the fundamental concepts claimed by the '510 Patent. System claim 64, on the other hand, essentially enables a purchase between a buyer and seller, in which the system recited maintains a shadow account for a buyer and seller independent of those held by a bank, and the computer is configured to receive a transaction, adjust the accounts of the buyer and seller to effectuate the purchase if the accounts have sufficient value, and to generate an irrevocable instruction to the bank(s) to adjust their account(s) accordingly. See '720 Patent, col. 68:62-66 & col. 69:1-11. Such a "system" is simply an electronic intermediary that maintains its own shadow accounts to guarantee and effect purchases between parties. Claim 67, which depends from claim 64, further entails means "for allowing said buyer to acquire an item from said seller, wherein the purchase relates to said item." Id. col. 69:17-19. Independent claim 80 of the '720 Patent is directed to the same basic concept of enabling a purchase by an electronic
Chamberlain, a district court decision following Bilski II, well illustrates the issue here. The Chamberlain invention claimed a physical transmitter that sent out an encrypted signal to control an actuator (as part of a garage door opening system), which the court held was a machine under § 101. See Chamberlain, 756 F.Supp.2d at 965-68, 2010 WL 4884448 at *23-25, 2010 U.S. Dist. LEXIS 124566 at *73, 78-79. In analyzing the exception for fundamental principles, the court found the claims before it were not an attempt to patent a mere algorithm and that no preemption concerns were raised. Id. at 968-69, at *26, 2010 U.S. Dist. LEXIS 124566 at *84. When viewed in the context of the entire claim, the algorithm was directed at a "physical product that is to be used for a specific purpose" and would not "preclude the use of the mathematical algorithms that operate within the transmitter for other purposes." Id. at 969, at *26, 2010 U.S. Dist. LEXIS 124566 at *84-85. The court also noted that the physical transmitter was not simply insignificant extra-solution activity since "the machine, to the contrary, constitutes the very heart of the invention." Id. at 969, at *26, 2010 U.S. Dist. LEXIS 124566 at *85.
The machine claims before the Chamberlain court stand in stark contrast to the '720 Patent claims before this Court. Here, preemption concerns of a basic concept across an unlimited field are preeminent. The system claims are not a specific and limited application of a general business concept, but instead seek to preempt the concept itself when employed by any computer coupled with a data storage unit. The system claims are no more limited than the method claims simply because they are directed to a data processing system. The effect of allowing these claims to be patentable would be to allow Alice "to pre-empt substantially all uses of th[e] fundamental principle." Bilski I, 545 F.3d at 953.
Further, the dependent claims of the '720 Patent only serve to limit the invention to a field of use and are no more than token postsolution components. See Bilski II, 130 S.Ct. at 3231. The dependent claims merely demonstrate the all-encompassing nature of the steps, or methods, that the '720 Patent system claims are intended to implement. As with the dependent claims of the '510 Patent, the dependent claims of the '720 Patent describe a plethora of possible transactions or accounts that would be covered by the system,
The Court also applies this analysis and result to system claims 1-38 and 42-47 of the '375 Patent. Although these claims recite an additional component of allowing stakeholders an ability to transmit requested transactions directly to the computer system via a "first party device," a "second party device," or a "communications controller,"
The dependent claims at most attempt to limit the fundamental concept to a field of use, by defining the "obligations" that are to be exchanged, the conditions under which obligations are to be exchanged, and/or the respective parties and institutions to the transaction. At the heart of these claims is the same fundamental concept
Lastly, the three program claims in the '375 Patent are also directed to the same abstract concept despite the fact they nominally recite a different category of invention under § 101 than the other claims asserted by Alice. Claim 39 recites "program code" to cause a computer to allow a party to send a transaction relating to "an exchange obligation arising from a currency exchange transaction between" a first and second party. '375 Patent, col. 68:10-12, 14. The program code also causes the computer to allow a party to view information relating to the "processing" of the obligation exchange by a supervisory institution. Id. col. 68:15. The processing that one can view by way of the program code constitutes the general steps of exchanging an obligation that arise in the other Patents, i.e., maintaining information about the parties' accounts, electronically adjusting the accounts to effect the exchange obligation, and generating an irrevocable instruction to the exchange institutions. Id. col. 68:17-35. CLS argues that claims 39-41 of the '375 Patent do no more than mirror method claim 68 of the '510 Patent, except that the computer program allows a party, by computer, to send a transaction and view information relating to the method claims. CLS Mem. 35. It is true that independent claim 39 recites as part of the claim a process almost identical to a method claimed in the '510 Patent. Compare '375 Patent, col. 68:17-35, with '510 Patent, col. 68:1-19.
To be sure, the application of an abstract idea does not render a claim unpatentable under § 101, see Diehr, 450 U.S. at 187, 101 S.Ct. 1048, however these claims seek to claim the fundamental concept itself, and not a limited or specific application of the concept. Claims 39-41 of the '375 Patent allow a party to use a computer to submit a preferred transaction— the first and necessarily inherent step in the fundamental concept of employing an intermediary to facilitate a simultaneous and irrevocable exchange of obligations to minimize risk—and then to observe the processing, or implementation, of the fundamental concept itself. The additional elements of programming to allow a party to submit a transaction and view the exchange does little to mitigate the preemptive effect of these claims on the fundamental concept. Moreover, dependent claim 40 does no more than attempt to limit the invention to a field of use by confining the submitted "transaction" to one that involves currency, see '375 Patent, col. 68:37, and claim 41 similarly attempts to limit the claim by only allowing a party to view preauthorized information relating to the processing. Id. col. 68:38-41. These two dependent claims represent no more than "broad examples" of how the fundamental concept can be applied and implemented. See Bilski II, 130 S.Ct. at 3231.
For the foregoing reasons, the Court will grant CLS's motion for summary judgment. The Court finds claims 33 and 34 of the '479 Patent and each claim of the '510 Patent, '720 Patent, and '375 Patent to be directed to an abstract idea under the Benson, Flook, Diehr, and Bilski Supreme Court line of precedent. Accordingly, these claims are invalid as being directed to patent-ineligible subject matter under § 101 of the Patent Act. A memorializing
Research Corp., 627 F.3d at 869.
