“The Black Box is Never Described”: CLS Tries to Teach the Federal Circuit the Difference Between Methods Claims and Systems Claims, and about Abstract Ideas

For those who are interested, a reader has shared a transcript of the oral arguments in CLS Bank v. Alice en banc at the Federal Circuit.  As we have written, a lot is at stake in this case as it takes a deep dive into the eligibility of many software patents.  There are many issues presented in this case, including whether a Section 101 subject matter analysis needs to occur before other analyses (recall that Section 101 is a screening tool, used to declare ineligible patents without the expense and time of full patent litigation).  But the key issue is a return to a question many had hoped answered by the Supreme Court in Mayo:  when (if ever) does the inclusion of a computer as a method for implementing an otherwise abstract idea constitute an “inventive concept” or something “significantly more than an abstract idea” sufficient to confer patentability?

Perhaps reassuring the audience this confusion is not hyperbole, Judge Newman interrupted CLS Bank (“CLS”) attorney Mark Perry’s opening statement to ask “Mr. Perry, that’s easy, but how do you know what’s an abstract idea?”  CLS dealt well with the question by stating that “a method that can be performed entirely in the human mind or with the aid of merely a pen and paper is an abstract idea,” and pointed out that this definition is consistent with the Supreme Court, the United States Patent and Trademark Office, and the Federal Circuit.  Determined to maintain the confusion, Judge Moore interrupted several minutes later to dispute the notion that something can be abstract despite the presence of a computer:

“How is a computer…I walk over, and here I am carrying with me an enormous system. It has four tangible components, four separate machines accompanying this system. How is that an abstract idea?”

At this point it is clear that at least one member of the panel is confusing a method claim (the concept of how something is done) with a systems claim (the precise tool with which something is done).  Perry pushed back by pointing out that “the question is not tangibility.”  He later clarified the point:  “it makes no difference whether the circuits are physically wired or instructed by software – that is irrelevant for patent eligibility.”  And when the panel suggested that Alice’s claims were systems claims instead of method claims, Perry drove the point home, arguing:

“That is a method claim dressed up in a generic system. It says use any computer, any telephone, any hard drive. And then look at the programming claims, look at figure 36. This isn’t a logic flow. This is a parody of a logic flow. This cannot allow a person skilled in the art to program this computer. This simply says, do we have multi-lateral netting available? Put it in the black box and see what comes out. The black box is never claimed. The black box is never described.”

Mr. Perry concluded his opening statement with two points.  First he referenced an idea of a self-driving car and suggested Google “will probably get a patent on it, but the person who just wrote down the idea and brought it to the PTO should not.”  Second, he emphasized the focus on the patentability and abstract nature of the Alice patent says nothing about either validity or infringement.  These are issues for litigation after the initial screen – presuming Alice survives.

Nathan Kelly spoke briefly for the USPTO, and advised the court not to implement a bright line test.  Kelly argued:

“The fact that a claim simply recites computer along with an abstract idea is not going to make that claim patentable as structure, whether you write it in a process claim, or whether you write it as a systems claim… We have to know if the computer is there and how it’s connected to the other elements. But then we think we have to ask an additional question: How is the computer working in the claimed invention? Is it inseparable from the claimed abstract idea if there is one there or is it just simply added on to the claim? Can the two things be pulled apart?”

The panel resurrected its confusion between methods claims and systems claims, and how something could be abstract when it incorporates a computer, with Judge Moore asking “What I don’t understand, Mr. Kelly, is when you have a system claim that is nothing but hardware and it’s articulated… four different pieces of hardware… and then you have specification which spans two columns of detail and includes flow charts for how the software will operate. How can that ever be an abstract idea?”  Kelly responded by first pointing out that just because something claims not to be a law of nature does not mean that it is in fact not a law of nature.  The review must be more piercing than to merely take the claims at their face value.  He then followed up by arguing, “The problem is, your honor, if you take an abstract idea and simply write a system, however detailed, you want to write – if that system… is just there to add on to the idea for the purposes of making it eligible we think that the Supreme Court has clearly stated that that is not enough.”

Finally, Adam Perlman spoke on behalf of Alice Corp. (“Alice”) and was asked immediately if he saw a difference between “a free-standing computer or machine claim” and one “attached to a method claim where it is clear that the machine is simply a reconfiguration of the method claim.”  Perlman answered that for the purposes of the Section 101 patentable subject matter threshold he does not believe there is a difference.

Alice’s counsel stated their main position several times:  Alice has not claimed the abstract idea of using a middle man to settle international exchange transactions, they have claimed one particular computerized way.  Alice fervently argues that the process they patented cannot be separated from a computer because of the speed and efficiency and because of the use of shadow accounts.

As Groklaw pointed out, Perlman fell into the panel’s gambit.  They pushed him several times to discuss other methods for performing “end of day netting” without infringing upon Alice’s patent.  Perlman refused to answer.  There was no good answer: to say yes would openly admit there is a way to perform this function without infringing, thereby severely limiting Alice’s ability to prevail in infringement litigation.  On the other hand, to say no would be to suggest that Alice held a patent covering the entirety of a very abstract idea.  It was a lose-lose scenario, and Alice lost.

Judge Moore unleashed the most insightful question during Perry’s rebuttal.  She asked:

“If [Bilski] had disclosed the actual software in Bilski and claimed nothing but the actual code, the particular way they were executing hedging on the computer line by line, code by code, and clearly we don’t see claims written this way but suppose that were the case…would it still be an abstract idea?”

Perry’s reply: “No, your honor.”