The Software IP Report

Where to Draw the Patent-Eligibility Line?

By Charles Bieneman

Categories: Patent Eligibility, The Software IP Report

There is no surprise, in light of the vast body of case law questioning business method patent claims since the 2014 Alice case, that the Federal Circuit has affirmed a district court’s grant of a motion for judgment on the pleadings based on the patent-ineligibility, under 35 U.S.C. § 101, of claims directed to handling payment for rides in a mass transit system.  Smart Systems Innovations, LLC v. Chicago Transit Authority, No. 2016-1233 (October 18, 2017) (precedential).  And yet, differences amongst the three-judge panel in this case (Judges Reyna, Wallach, and Linn) show that one certainly cannot yet predict with much accuracy, over three years after Alice was decided, how to apply Alice to patent-eligibility questions. Especially where business methods are involved, one can have little confidence that any random judge will analyze patent claims in a manner consistent with some other judge.

Here, while the panel was unanimous that applicable caselaw mandated patent-ineligibility of claims of U.S. Patent Nos., 8,505,816, and 8,662,390, Judge Linn dissented from the majority holding that claims of U.S. Patent Nos. 7,566,003 and 7,568,617 are patent-ineligible.  In so doing, he made some interesting comments about the state of the law.

The Majority Opinion

The district court had found that all of the patents “really only cover an abstract concept: paying for a subway or bus ride with a credit card.”  The Federal Circuit agreed.  Judge Wallach’s majority opinion dismissed the argument that “the Asserted Claims are patent eligible because they improve prior systems of fare collection by speeding up the process at the turnstile.”  Cases like Enfish, LLC v. Microsoft Corp. and McRO, Inc. v. Bandai Namco Games America Inc. support patent-eligibility of claims that improve technology.  Here, the claims simply limited a field of use to particular area, fare collection.  Arguments that the claims speeded up the process of fare collection improperly conflated step one of the Alice test (abstract idea) with step two (inventive concept). And there was no inventive concept here – the claims simply recited conventional technology.

Judge Linn’s Concurring and Dissenting Opinion

Judge Linn, taking the majority to task for not applying the “abstract idea exception . . . narrowly, consistent with its genesis,” dissented from the holding that claims of the ’003 and ’617 patents are patent-ineligible.  In remarks that surely have every patent practitioner – regardless of one’s views on the proper outcome here – nodding in agreement, Judge Linn noted that

The narrow character of the law of nature and natural phenomenon exceptions is relatively self-evident, but the contours of the abstract idea exception are not easily defined. For that reason, the abstract idea exception is almost impossible to apply consistently and coherently.

(Emphasis added.)  And who can disagree with Judge Linn that the application of the Supreme Court’s Mayo/Alice test is fraught with logical inconsistency, and is at best a foggy and subjective exercise:

Step one cannot be a hunt for the abstract idea underlying the claim, because underlying virtually every claim is an abstract idea. And if the task under step one is to assess whether the claim is directed to no more than an abstract idea, what is left for determination under step two? Where do you draw the line between properly determining what the claim is directed to and improperly engaging in an overly reductionist exercise to find the abstract idea that underlies virtually every claim?

Judge Linn went on to emphasize the importance of looking at the precise language of the patent claims under analysis, and of reading the claims in light of the patent specification.  True – yet anyone who has been through any claim construction or claim interpretation exercise might wonder how much clarity and consensus such close attention would bring.  Perhaps illustrating the difficulties in reaching such consensus, Judge Linn went on to state his view that both the district court and the majority erred in treating “all of the patents as if they were essentially the same despite the differences that are apparent from the language of the claims.”

Thus, Judge Linn thought that the four patents-in-suit should be considered in two groups:  the ’003 and ’617 patents, as characterized by the patent owner, “claim systems and methods for using a bank card directly at a physical gate or terminal to enter a mass transit system.”  The ’816 and ’390 patents, on the other hand, “claim features relating to the use of conventional bankcards to implement time-based fare rules despite the inability of bankcards to accept and store data.”

The majority, said Judge Linn, considered the ’003 and ’617 patents at too high of a level of abstractedness.  The patent claims were not simply directed to financial transactions or gathering information, but “contain limitations that together enable the identification of a bankcard as authorized for use in accessing a transit system.”  The majority, said Judge Linn, had ignored claim limitations tying the recited method to recited elements of the transit system.  The recited transit system was not simply a “generic environment.”  Instead the claims recited a system to meet the “particular challenge of facilitating use of conventional bankcards to access mass transit.”

The ’816 and ’390 patents, in contrast, were directed “generally to the processing of data and the performance of data calculations and comparisons related to the funding of transit rides using a bankcard.”  “Regrettably,” Judge Linn said, the law required patent-ineligibility of patents such as these that “are the result of human activity and facilitate the use of bankcards for a new purpose heretofore considered practically foreclosed.”  While deploring such “categorical exclusions,” Judge Linn agreed that Alice required excluding such ““fundamental economic practice” from patentable subject matter.

Lessons for Practice

In the years since Alice, it is clear that (1) software patents, and perhaps also some business method patents, are not going away, and (2) permissible scope of software patent claims – and certainly of business method patent claims – has been unquestionably curtailed since Alice.  And regardless of how you feel about the first two questions, surely it is a problem that the contours of patent-eligibility law remain painfully unclear.  But whether you agree or disagree with Judge Linn’s conclusions here, it is hard to disagree with the proposition that “the abstract idea exception is almost impossible to apply consistently and coherently.”

Uncertainly forces clients to hedge, i.e., incur legal costs they may not really need to incur, both in filing patent applications and in positions they take in litigation.  These are real, and unnecessary, business costs that far exceed the usual uncertainty inhering in any legal proceeding.  Whatever the economic benefits of our patent system, these are offset by the erratic pendulum of patent-eligibility law that has erratically bobbed around at least since the Federal Circuit decided the State Street Bank case almost twenty years ago.

I am more and more wishing that proposals for legislative reform, such as the AIPLA Legislative Proposal and Report On Patent Eligible Subject Matter, and the IPO’s Proposed Amendments to Patent Eligible Subject Matter under 35 U.S.C. § 101, would get more traction.