Supreme Court Arguments in Alice Corp. v. CLS Bank – Going between Scylla and Charybdis?

The Supreme Court heard oral arguments in Alice Corp. v. CLS Bank, No. 13-298, today (March 31, 2014) regarding the question presented of “[w]hether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101.”  Arguments were heard from the petitioners, the respondents, and the United States as amicus curiae.

From the questions and comments of the justices, one might get the impression that at least some members of the Court were not entirely certain that the Alice patent was directed to an abstract idea.  The Court also seemed to be wrangling with how to draw the line between “technological” software inventions and those based on abstract ideas only.  At one point, Justice Breyer noted there were a lot of suggestions in the 42 briefs filed in the case as to “how to go between Scylla and Charybdis,” suggesting that on one side there was the evil of patenting abstract ideas, and on the other, the harm caused to legitimate software inventions by an overly restrictive test for Sec. 101 eligibility.

Naturally, the petitioners argued that the claims were not directed to an abstract idea, but to “a very specific way of dealing with a problem.”  Just as naturally, the respondents argued that the claims were simply directed to “[d]ebit, credit, and pay,” and thus were at a high level of abstraction.  The government took perhaps the most anti-software-patent position, arguing that improving “the functioning of computer technology” (e.g., through improved encryption or compression algorithms) or using a computer to “improve another technology” would be patent-eligible, but that other software claims would fail under Section 101.  Rather than focusing on the arguments made by the attorneys, the summary below is organized to emphasize the questioning of the Justices.

Questioning the Petitioners

Justices Kennedy, Ginsburg, and Breyer questioned the petitioners as to whether “intermediate settlement” is “less abstract than hedging,” since hedging was found to be a non-eligible abstract idea in Bilski.  Justice Breyer described a hypothetical pen-and-paper (or even abacus) implementation of the abstract idea of “solvency.”  After the petitioners observed that the hypothetical was a mere caricature of the claims, Justice Breyer agreed, but described it as a “caricature designed to suggest that there is an abstract idea here.”  In responding to these questions regarding the abstractness of the invention, petitioners argued that the claims solved the problem of the risk of non-settlement using software “that the patent specifically describes by function.”

Justice Sotomayor raised the question of functional claiming, expressing concern that the claim limitations amounted to no more than “reconciling accounts … through a computer.”

Justice Scalia asked why “doing it through a computer” shouldn’t be enough to confer patent-eligibility.  Just as mechanical inventions perform labor-saving tasks that could be performed by hand, so do computer inventions.  Petitioners agreed that computer-implemented inventions shouldn’t be singled out.

Justice Kagan was interested in pulling apart the invention into an “idea” and a “computer.”  Petitioners were wary of such a division, and argued that the invention, to be useful, had to be performed on a computer and thus could not be separated.

Justice Breyer expressed his concern about striking the right Section 101 test as a policy matter.  If the bar for patentability is too low, business success will depend more on patent lawyers than on anything else.  If the bar for patentability is too high, then no computer-implemented inventions will be protectable.  Regarding Mayo, Justice Breyer said he found it to be “an obvious case” of patent-ineligibility, but deliberately left the line vague so that attorneys could weigh in and help “figure out how to go further.”  Petitioners responded that the line shouldn’t be moved to invalidate more patents.  Congress, by passing the AIA, provided for administrative review of more patents, but did not change the substantive law.  Petitioners suggested that the Court should view this as an endorsement of the status quo and interpret claims as written rather than reducing them to a caricature before applying Section 101.

Questioning the Respondents

Justices Breyer, Sotomayor, Ginsburg, and Kennedy asked, in different ways, if any business process claims would be patent-eligible and what the proper line to draw for Section 101 eligibility would be.  Similarly, Justice Kagan asked about the level of detail required in the claims regarding the computer-implemented steps in order to be patent-eligible and about the potential harm to already-issued patents from tightening the standards of Section 101.  Respondents referred the court to the PTO’s rules that held “economic concepts, legal concepts, financial concepts, teaching concepts, dating and interpersonal relationships and generally how business should be conducted as examples of those things that are likely abstract.”  Respondents further noted that Congress, in the AIA, said that business methods “that pertain to data processing in the financial services industry and do not offer technological solutions” “are subject to special scrutiny.”  Regarding the impact on the patent system, Respondents claimed that “this is a very small problem” because out of 22,000 infringement litigations since Bilski only 57 decisions on Section 101 grounds have been issued by the district courts.

Chief Justice Roberts asked about the teachings of the patent, and if the detailed flowcharts it contained took the invention beyond an abstract idea.  Respondents argued that the complex flowcharts were not related to the claims at issue.  Chief Justice Roberts also asked about the patent-eligibility of a computer-implemented process that was theoretically human-implementable but would be impractical without a computer.  Respondents argued that the claims at issue were not impractical without a computer, but did not address the broader question.

Questioning the Government

Justice Ginsburg, Breyer, and Kennedy asked if the government’s proposed rule would invalidate all business-method and software patents.  The government responded that it would be difficult to identify a patent-eligible business method unless an improved technology, such as an improved encryption algorithm, was involved.

Justice Sotomayor asked if the case before the Court is even a software patent case, since the claims at issue are directed to systems.  The government argued that the claims could be found invalid as system claims because they are directed to abstract ideas without additional technical innovation.

Chief Justice Roberts asked if the government’s proposed non-exhaustive 6 factor test was going to provide greater clarity and certainty.  The government responded that it really boils down to whether the claimed innovation improves a computer’s functioning or improves the functioning of another technological process.  If neither of those is true, the innovation is not patent eligible.

Conclusion

Justices Breyer, Kennedy, Ginsburg, and Sotomayor in particular seemed concerned that the precedents they had set so far had not led to clarity for the Court of Appeals for the Federal Circuit regarding the application of Section 101 to software claims.  Many questions were directed to trying to find proposed language to use to provide better guidance.  However, the suggested guidance did not seem to be what they were looking for.  Petitioners argued for a very narrow reading of the abstract idea exception.  Respondents and the government argued for a very broad one.  Since the Court appears to be sensitive to the set expectations of patentees and yet unwilling to give up on the abstract idea exception, it will have to craft its own answer, with very little help from any of the parties who argued before it today.

Transcript of S.Ct. Hearing in CLS Bank

My thanks to Domenico Ippolito of Schwegman, Lundberg & Woessner, P.A., for this post.

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