The Software IP Report

Patentable Subject Matter: New Federal Circuit Case

By Charles Bieneman

Categories: Patent Eligibility, Software Patents, The Software IP Report

Yet another post-Bilski pronouncement: the Federal Circuit has held that patent claims directed to “an investment tool designed to enable property owners to buy and sell properties without incurring tax liability” do not recite patentable subject matter under 35 U.S.C.  § 101.  Fort Properties v. American Master Lease, No. 2009-1242 (February 27, 2012).


United States Patent No. 6,292,788 recites a method for taking advantage of exceptions to taxes on real estate transactions.  For example, independent claim 1 recites:

A method of creating a real estate investment instrument adapted for performing tax-deferred exchanges comprising:

aggregating real property to form a real estate portfolio;

encumbering the property in the real estate portfolio with a master agreement; and

creating a plurality of deedshares by dividing title in the real estate portfolio into a plurality of tenant-in-common deeds of at least one predetermined denomination, each of the plurality of deedshares subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval.

Two other independent claims were “nearly identical to claim 1 — though claim 32 contains an additional limitation requiring a computer to ‘generate a plurality of deedshares.’”  The defendants moved for summary judgment on the ground that the claims failed to recite patentable subject matter.  Applying the “machine-or-transformation” test, the District Court agreed, invalidating all claims of the ’788 patent.


“Because claims 1-41 of the ’788 patent attempt to capture unpatentable abstract subject matter, they are invalid under 35 U.S.C.  § 101.  Therefore, we affirm the district court’s grant of summary judgment in favor of Fort Properties.”


After summarizing the case law of Section 101, up to and including the U.S. Supreme Court’s decision in Bilski v. Kappos, the Court began by saying that “these claims, like the invention in Bilski, disclose an investment tool not requiring the use of a computer.”  The patent owner argued that the claims required “a series of steps to take place in the real world that involve real property, deeds, and contracts,” and “that the deeds remove the invention from the realm of the abstract because they are physical legal documents signifying real property ownership that must be publicly recorded.”  The accused infringer, on the other hand, argued that “the claimed method of aggregating property, making it subject to agreement, and then issuing ownership interests to multiple parties consists entirely of mental processes and abstract intellectual concepts.”

The Court agreed with the accused infringer.  An investment tool is an abstract concept, said the Court, which under Bilski “cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property.”

Although claim 32 recited use of a computer, the Court explained that this recitation did not impose meaningful limits on the claim scope.  Thus, the Court distinguished its recent decision in Ultramercial v. Hulu, in which it held that claims directed to an Internet advertising system did recite patentable subject matter.  According to the Court, the claims here were more like the claims in Dealertrack v. Huber, where “claims to the method of applying for credit did not satisfy § 101 even though the claims contained a limitation requiring the invention to be ‘computer aided.’”


After Bilski, it would have been unfathomable for this case to go the other way.  Perhaps the most interesting portion of the Court’s opinion was its discussion of the recent Ultramercial decision, in which it surprised many by upholding the patentability of the claims there.  Although the Court took pains to distinguish Ultramercial, one wonders whether that decision will turn out to be an outlier.  Moreover, as I have previously reported, one of the accused infringers in Ultramercial has petitioned the U.S. Supreme Court for certiorari in that case, so there is at least some chance we have not heard the last of it.

For a complete summary of District Court and Federal Circuit decisions following the US Supreme Court’s decision in Bilski v. Kappos, visit The Software Intellectual Property Report’s patentability page.