New England Law Review: Volume 49, Number 1 - Fall 2014

How Prometheus Has Upended Patent Eligibility:

An Anatomy of Alice Corporation Proprietary Limited v. CLS Bank International

BRUCE D. SUNSTEIN*

[49 NEW ENG. L. REV. 1 (2014)]

The 2014 decision by the Supreme Court in Alice Corporation Proprietary Ltd. v. CLS Bank International, concerns the eligibility of a computer-related invention for a patent.¹ Ahead of that decision, the extent to which the Court’s 2012 decision in Mayo v. Prometheus,² concerning the patent eligibility of a diagnostic method, would apply to a computer-related invention was a matter of conjecture. Although the statute determining eligibility for a patent, 35 U.S.C. § 101, specifies that an invention of [a] process, machine, manufacture, or composition of matter can be patented,³ the Court has injected three exceptions to these statutory categories: laws of nature, natural phenomena, and abstract ideas.⁴ At issue in Alice and in Prometheus is the scope of these exceptions.

This article focuses on the Alice decision by the Court, the decision below by the Federal Circuit, and the roots of the Alice decision in Prometheus. It concludes with a proposal for enactment of legislation that would remove these judicial exceptions and require adherence to the eligibility standards specified in the statute.⁵

The inventions in Alice and Prometheus concern two totally different technical fields. The patent claims⁶ in Alice relate to a computer-implemented trading platform for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate counterparty or settlement risk.⁷ The patent claims in Prometheus are directed to administering a thiopurine drug to a subject with a gastrointestinal disorder and determining the level of a specific metabolite in the subject, wherein a level below a first threshold indicates a need to increase drug dosage and wherein a level above a second threshold indicates a need to decrease drug dosage.⁸

In Prometheus, the Court asserted that the patent claims under consideration involved natural laws: [t]he claims purport to apply natural laws describing the relationships between the concentration in the blood of certain thiopurine metabolites and the likelihood that the drug dosage will be ineffective or induce harmful side-effects.⁹ In the view of the Prometheus Court, [w]e must determine whether the claimed processes have transformed these unpatentable natural laws into patent-eligible applications of those laws. We conclude that they have not done so and that therefore the processes are not patentable.¹⁰

In Prometheus, Justice Breyer, writing for a unanimous Court, staked out new ground by finding ineligible for a patent—because drawn to laws of nature—a diagnostic method that admittedly requires human intervention in administering a drug and in determining the level of a metabolite in the subject.¹¹ Prometheus cited with approval cases like Gottschalk v. Benson¹² (finding patent-ineligible a method of converting binary coded decimal numbers to pure binary numbers in a digital computer system) and Parker v. Flook¹³ (finding patent-ineligible a computer-implemented method of updating alarm limits in a process for catalytic chemical conversion of hydrocarbons)—cases which many felt had been overruled silently by Diamond v. Diehr¹⁴ (method of manufacturing molded articles is not precluded from being patented simply because it uses a mathematical formula, computer program, or digital computer). Prometheus also cited with approval Funk Brothers Seed Co. v. Kalo Inoculant Co.¹⁵ (finding patent-ineligible claims to a mixture of bacterial strains developed so as to avoid inhibiting each other’s ability to fix nitrogen), which many felt had been overruled silently by Diamond v. Chakrabarty¹⁶ (finding patent-eligible a human-made, genetically engineered bacterium, capable of breaking down multiple components of crude oil).

The resuscitation by Prometheus of the nearly dead-letter decisions of Gottschalk, Parker, and Funk Brothers Seed Co. in combination with its unprecedented invalidation of diagnostic method claims on the ground of patent-ineligibility, unquestionably heralded a retrenchment in what subject matter would be deemed patent-eligible. However, the scope of that retrenchment was uncertain immediately after Prometheus.

The Federal Circuit’s handling of CLS Bank International v. Alice Corporation Proprietary Limited,¹⁷ which was later reviewed by the Court in Alice, reflected the uncertainty created by Prometheus. The Federal Circuit, sitting en banc, with an evenly divided vote, upheld the patent invalidity determination of the trial court¹⁸ and thus failed to provide a determination having precedential effect.¹⁹

The Federal Circuit decision in CLS Bank produced, in addition to the single paragraph per curiam announcement of the decision, opinions by Judge Lourie (for himself and Judges Dyk, Prost, Reyna, and Wallach), Judge Rader (for himself and Judge Moore, and in some aspects, for Judges Linn and O’Malley), Judge Moore (for herself and Judge Rader, and, in some aspects, for Judges Linn and O’Malley), Judges Linn and O’Malley, Judge Newman, and Judge Rader (again). Each one of these opinions stakes out a different view of the implications of Prometheus on patent eligibility, and each of these opinions, for different reasons, is informative of the meaning of Prometheus.

The core question addressed by the Federal Circuit in CLS Bank is the eligibility of a computer-related invention for a patent.²⁰ We begin first with the opinion of Judge Lourie, who characterizes the patents as relating to a computerized trading platform used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate ‘counterparty’ or ‘settlement’ risk.²¹ The settlement risk is that the counterparty will fail to perform and thus deprive a party of the benefit of the bargain in the transaction.²² As disclosed in Alice’s patents, a trusted third party can be used to verify each party’s ability to perform before actually exchanging either of the parties’ agreed-upon obligations.²³

In evaluating patent eligibility, Judge Lourie posits an integrated approach to 35 U.S.C. § 101.²⁴ He characterizes the analysis under section 101 thus:

If the invention falls within one of the statutory categories [of section 101], we must then determine whether any of the three judicial exceptions nonetheless bars such a claim—is the claim drawn to a patent-ineligible law of nature, natural phenomenon, or abstract idea? If so, the claim is not patent eligible. Only claims that pass both inquiries satisfy § 101.²⁵

Judge Lourie aptly points out that identifying a judicial exception to patent eligibility is not easy:

While simple enough to state, the patent-eligibility test has proven quite difficult to apply. The difficulty lies in consistently and predictably differentiating between, on the one hand, claims that would tie up laws of nature, natural phenomena, or abstract ideas, and, on the other, claims that merely embody, use, reflect, rest upon, or apply those fundamental tools.²⁶

Judge Lourie sought to articulate an approach to the eligibility determination that would be predictable, so as to provide guidance to those using the patent system: [w]hat is needed is a consistent, cohesive, and accessible approach to the § 101 analysis—a framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts.²⁷ To arrive at his approach to section 101, Judge Lourie analyzed Gottschalk,²⁸ Parker,²⁹ Diehr,³⁰ Bilski,³¹ and Prometheus.³²

The integrated approach posited by Judge Lourie involves a series of tests. The first question is whether the claimed invention fits within one of the four statutory classes set out in § 101. Assuming that condition is met, the analysis turns to the judicial exceptions to subject-matter eligibility.³³ Next, one determines whether the claim raises § 101 abstractness concerns.³⁴ Does the claim pose any risk of preempting an abstract idea? In most cases, the answer plainly will be no.³⁵ If, however, a patent eligibility question is deemed to be posed, then the analysis proceeds by seeking a fundamental concept that is involved:

[I]t is important at the outset to identify and define whatever fundamental concept appears wrapped up in the claim so that the subsequent analytical steps can proceed on a consistent footing. With the pertinent abstract idea identified, the balance of the claim can be evaluated to determine whether it contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself.³⁶

In that respect, the requirement of additional substantive limitations, according to Judge Lourie, corresponds to what the Supreme Court has called the inventive concept, namely a genuine human contribution to the claimed subject matter.³⁷ According to Judge Lourie, an abstract idea cannot be invented but only discovered, and the inventive concept must be a product of human ingenuity.³⁸ Moreover, [l]imitations that represent a human contribution but are merely tangential, routine, well-understood, or conventional, or in practice fail to narrow the claim relative to the fundamental principle therein, cannot confer patent eligibility.³⁹

After articulating this form of analysis for patent eligibility, Judge Lourie turns to the patent claims. Three types of patent claims were presented and discussed: method claims, storage medium claims, and system claims. As a representative method claim, Judge Lourie discussed claim 33 of United States patent 5,970,479, which reads as follows:

33. 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 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 ones 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.⁴⁰

Claim 33 is notable for failing to recite explicitly the presence of a computer or computer component. In the District Court, however, the parties had stipulated that Alice’s claims should all be interpreted to require a computer including at least ‘a processor and memory.’⁴¹

After deciding that claim 33 is directed to a process in accordance with section 101, Judge Lourie concludes that [t]he methods claimed here draw on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary (here, the supervisory institution) empowered to verify that both parties can fulfill their obligations before allowing the exchange—i.e., a form of escrow.⁴² According to Judge Lourie, Standing alone, that abstract idea is not patent-eligible subject matter.⁴³ The question, then, in the mind of Judge Lourie, is whether the claim adds significantly more than is in the abstract idea.⁴⁴

While recognizing that the parties have conceded that the claimed method is carried out using a computer, Judge Lourie concludes that the claim fails to provide significantly more than is in the abstract idea:

At its most basic, a computer is just a calculator capable of performing mental steps faster than a human could. Unless the claims require a computer to perform operations that are not merely accelerated calculations, a computer does not itself confer patent eligibility. In short, the requirement for computer participation in these claims fails to supply an inventive concept that represents a nontrivial, nonconventional human contribution or materially narrows the claims relative to the abstract idea they embrace.⁴⁵

Consequently, the method claims fail to recite subject matter eligible for a patent.⁴⁶ According to Judge Lourie, the method claims here are similar to those examined in Bilski v. Kappos and adding generic computer functions to facilitate performance provides no substantial limitation and therefore is not ‘enough’ to satisfy § 101.⁴⁷ As in Bilski, upholding Alice’s claims to methods of financial intermediation ‘would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.’⁴⁸

Next, Judge Lourie turned to the storage medium claims. Specifically, he considered claim 39 of United States patent 7,725,375, which reads as follows:

39. A computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party, the computer program product comprising:

program code for causing a computer to send a transaction from said first party relating to an exchange obligation arising from a currency exchange transaction between said first party and said second party; and

program code for causing a computer to allow viewing of information relating to processing, by a supervisory institution, of said exchange obligation, wherein said processing includes (1) maintaining information about a first account for the first party, independent from a second account maintained by a first exchange institution, and information about a third account for the second party, independent from a fourth account maintained by a second exchange institution; (2) electronically adjusting said first account and said third account, in order to effect an exchange obligation arising from said transaction between said first party and said second party, after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and (3) generating an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.⁴⁹

This claim specifically recites a computer. Of this feature, Judge Lourie comments:

[T]he claim term computer readable storage medium is stated in broad and functional terms—incidental to the claim—and every substantive limitation presented in the body of the claim (as well as in dependent claims 40 and 41) pertains to the method steps of the program code embodied in the medium. Therefore, claim 39 is not truly drawn to a specific computer readable medium, rather than to the underlying method of reducing settlement risk using a third-party intermediary.⁵⁰

Accordingly, Judge Lourie would rule that the storage medium claims fail to surmount the patent eligibility criteria for the same reasons as the method claims.⁵¹

Finally, Judge Lourie turns to the system claims and considers claim 1 of United States patent 7,149,720, which reads as follows:

1. 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.⁵²

Manifestly, this claim requires a data storage unit and a computer. This set of differences from the method claim, according to Judge Lourie, however, fails to render the claim patent eligible: The computer-based limitations recited in the system claims here cannot support any meaningful distinction from the computer-based limitations that failed to supply an ‘inventive concept’ to the related method claims.⁵³

Judge Lourie states that [a]lthough the system claims associate certain computer components with some of the method steps, none of the recited hardware offers a meaningful limitation beyond generally linking ‘the use of the [method] to a particular technological environment,’ that is, implementation via computers.⁵⁴ In support of this proposition, Judge Lourie quotes Prometheus: "‘[The Court in Benson⁵⁵] held that simply implementing a mathematical principle on a physical machine, namely a computer, was not a patentable application of that principle.’⁵⁶ Judge Lourie’s take on these cases leads him to the conclusion that [f]or all practical purposes, every general-purpose computer will include ‘a computer,’ ‘a data storage unit,’ and ‘a communications controller’ that would be capable of performing the same generalized functions required of the claimed systems to carry out the otherwise abstract methods recited therein."⁵⁷

According to Judge Lourie, the Supreme Court has told us that, while avoiding confusion between § 101 and §§ 102 and 103, merely adding existing computer technology to abstract ideas—mental steps—does not as a matter of substance convert an abstract idea into a machine.⁵⁸ For Judge Lourie, [t]he system claims are instead akin to stating the abstract idea of third-party intermediation and adding the words: ‘apply it’ on a computer.⁵⁹

According to Judge Lourie, therefore, none of the claims presented in CLS Bank v. Alice Corp. defines subject matter eligible to be patented, and the most important jurisprudential contribution to Judge Lourie’s analysis is Prometheus.

The opinion by Judge Rader, joined by Judge Moore and, for some purposes, by Judges Linn and O’Malley, would find the system claims patent eligible. Judge Rader begins with legislative history of section 101, of 35 U.S.C., stating that whether a new process, machine, and so on is ‘inventive’ is not an issue under Section 101; the condition for ‘more’ than novelty is contained only in Section 103.⁶⁰ In noting that Congress added the words or discovered to section 100(a), Judge Rader concludes that Congress made it irrelevant whether a new process, machine, and so on was ‘discovered’ rather than ‘invented.’⁶¹ Furthermore, in relating in considerable detail the legislative history behind section 103, Judge Rader points out that the central thrust of the 1952 Act removed ‘unmeasurable’ inquiries into ‘inventiveness’ and instead supplied the nonobviousness requirement of Section 103.⁶² Moreover, the basis for the principle, articulated in Prometheus, that [l]aws of nature, natural phenomena, and abstract ideas are not patent eligible, is to prevent the ‘monopolization’ of the ‘basic tools of scientific and technological work,’ which ‘might tend to impede innovation more than it would tend to promote it.’⁶³ Judge Rader quotes excerpts from Bilski, Diehr, and Benson to the effect that "an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection."⁶⁴

In applying section 101, it is necessary to consider the claim as a whole.⁶⁵ Judge Rader explicitly criticizes Judge Lourie’s abstraction analysis for purposes of determining patent eligibility:

Any claim can be stripped down, simplified, generalized, or paraphrased to remove all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. Such an approach would if carried to its extreme, make all inventions unpatentable because all inventions can be reduced to underlying principles of nature which, once known, make their implementation obvious. [Diamond v. Diehr, 450 U.S.] at 189 n. 12, 101 S. Ct. 1048; see also Prometheus, 132 S. Ct. at 1293. A court cannot go hunting for abstractions by ignoring the concrete, palpable, tangible limitations of the invention the patentee actually claims.⁶⁶

After these preliminary observations, Judge Rader offers a different reading of Prometheus for its evaluation of patent eligibility. "The relevant inquiry must be whether a claim includes meaningful limitations restricting it to an application, rather than merely an abstract idea."⁶⁷ Moreover,

The key to this inquiry is whether the claims tie the otherwise abstract idea to a specific way of doing something with a computer, or a specific computer for doing something; if so, they likely will be patent eligible, unlike claims directed to nothing more than the idea of doing that thing on a computer. While no particular type of limitation is necessary, meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology.⁶⁸

Finally, [a]t bottom, where the claim is tied to a computer in such a way that the computer plays a meaningful role in the performance of the claimed invention, and the claim does not pre-empt virtually all uses of an underlying abstract idea, the claim is patent eligible.⁶⁹

As to the requirement of inventiveness in connection with the Prometheus patent eligibility analysis, Judge Rader says that the term "must be read as shorthand for its inquiry into whether implementing the abstract idea in the context of the claimed