CLS Bank International v. Alice Corporation Pty. Ltd.

United States Court of Appeals
for the Federal Circuit
__________________________
CLS BANK INTERNATIONAL,
Plaintiff-Appellee,
AND
CLS SERVICES LTD.,
Counterclaim-Defendant Appellee,
v.
ALICE CORPORATION PTY. LTD.,
Defendant-Appellant.
__________________________
2011-1301
__________________________
Appeal from the United States District Court for the
District of Columbia in No. 07-CV-0974, Judge Rosemary
M. Collyer.
__________________________
Decided: July 9, 2012
__________________________
STEVEN J. GLASSMAN, Kaye Scholer LLP, of New York,
New York, argued for plaintiff-appellee and counterclaim-
defendant-appellee. With him on the brief were WILLIAM
A. TANENBAUM and STEPHEN J. ELLIOTT; and DAVID O.
BICKART, of Washington, DC.
CLS BANK v. ALICE CORPORATION 2
ADAM L. PERLMAN, Williams & Connolly LLP, of
Washington, DC, argued for defendant-appellant. With
him on the brief were BRUCE R. GENDERSON, RYAN T.
SCARBOROUGH, STANLEY E. FISHER, and DAVID M.
KRINSKY. Of counsel on the brief was CONSTANTINE L.
TRELA, JR., Sidley Austin, LLP, of Chicago, Illinois.
__________________________
Before LINN, PROST, and O’MALLEY, Circuit Judges.
Opinion for the court filed by Circuit Judge LINN.
Dissenting opinion filed by Circuit Judge PROST.
LINN, Circuit Judge.
This case presents, once again, the question of patent
eligibility under 35 U.S.C. § 101 of an invention
implemented by computers. For the reasons explained
below, this court concludes that the system, method, and
media claims at issue are not drawn to mere “abstract
ideas” but rather are directed to practical applications of
invention falling within the categories of patent eligible
subject matter defined by 35 U.S.C. § 101. The decision of
the district court to the contrary is reversed.
I. BACKGROUND
A. The Patents in Suit
Alice Corporation (“Alice”) is the owner of U.S. Patent
Nos. 5,970,479 (“the ’479 Patent”), 6,912,510 (“the ’510
Patent”), 7,149,720 (“the ’720 Patent”), and 7,725,375
(“the ’375 Patent”). These patents cover a computerized
trading platform for exchanging obligations in which a
trusted third party settles obligations between a first and
second party so as to eliminate “settlement risk.”
Settlement risk is the risk that only one party’s obligation
will be paid, leaving the other party without its principal.
The trusted third party eliminates this risk by either (a)
CLS BANK v. ALICE CORPORATION 3
exchanging both parties’ obligations or (b) exchanging
neither obligation.
As Alice’s expert explained in a declaration attached
to Alice’s cross-motion for summary judgment and
opposition to CLS Bank International and CLS Services
Ltd.’s (collectively “CLS Bank”) motion for summary
judgment, “[w]hen obligations arise from a trade made
between two parties, e.g., a trade of stock or a trade of
foreign currency, typically, there is a gap in time between
when the obligation arises and when the trade is
‘settled.’” Ginsberg Decl., ECF No. 95-3, Ex. 1 ¶ 21. “In a
number of financial contexts, the process of exchanging
obligations, or settlement, is separate from the process of
entering into a contract to perform a trade.” Id. For
example, if two banks wish to exchange large sums of
currency, they would enter into a binding agreement to
make a particular exchange but would postpone the
actual exchange until after the price is set and the
agreement confirmed, typically two days. After those two
days, both banks would “settle” the trade by paying their
predetermined amounts to each other. But there is a risk
that, at settlement time, one bank will no longer have
enough money to satisfy its obligation to the other. The
asserted patent claims—claims 33 and 34 of the ’479
Patent, and all claims of the ’510, ’720, and ’375 Patents—
seek to minimize this risk. The relevant claims of the
’479 and ’510 Patents are method claims, whereas the
claims of the ’720 and ’375 Patents are system and
product (media) claims.
Claim 33 of the ’479 Patent, representative of the
method claims, recites:
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:
CLS BANK v. ALICE CORPORATION 4
(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 [sic]
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 one 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.
’479 Patent col.65 ll.23-50.
Claim 1 of the ’720 Patent, representative of the
system claims, recites:
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
CLS BANK v. ALICE CORPORATION 5
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.
’720 Patent col.65 ll.42-61.
Claim 39 of the ’375 Patent, representative of the
product (media) claims, recites:
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
CLS BANK v. ALICE CORPORATION 6
(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.
’375 Patent col.68 ll.5-35.
B. District Court Proceedings
In May 2007, CLS Bank filed suit against Alice
seeking a declaratory judgment that the ’479, ’510, and
’720 Patents are invalid, unenforceable, or otherwise not
infringed. In August 2007, Alice filed a counterclaim
alleging that CLS Bank infringes claims 33 and 34 of the
’479 Patent, and all claims of the ’510 and ’720 Patents.
In March 2009, CLS Bank moved for summary
judgment contending that the asserted claims of the ’479,
’510, and ’720 Patents are invalid under 35 U.S.C. § 101.
Alice opposed and cross-moved for summary judgment.
CLS BANK v. ALICE CORPORATION 7
Following the Supreme Court’s grant of certiorari in In re
Bilski, 545 F.3d 943 (Fed. Cir. 2008) (en banc) (“Bilski I”),
cert. granted sub. nom. Bilski v. Doll, 129 S. Ct. 2735(June 1, 2009), the district court denied the parties’ cross
motions for summary judgment as to subject matter
eligibility without prejudice to re-filing following the
Supreme Court’s decision on certiorari.
In May 2010, the ’375 Patent issued to Alice. In
August 2010, Alice filed amended counterclaims
additionally asserting that CLS Bank infringes all claims
of the ’375 Patent. After the Supreme Court decided
Bilski v. Kappos, 130 S. Ct. 3218 (2010) (“Bilski II”),
affirming Bilski I, 545 F.3d 943, the parties renewed their
cross-motions for summary judgment, CLS Bank
additionally asserting that the ’375 Patent is invalid
under 35 U.S.C. § 101. The district court granted CLS
Bank’s motion for summary judgment and denied Alice’s
cross-motion, holding that each asserted claim of Alice’s
four patents is invalid for failure to claim patent eligible
subject matter. CLS Bank Int’l v. Alice Corp., 768 F.
Supp. 2d 221 (D.D.C. 2011). Alice timely appealed. This
court has jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).
II. DISCUSSION
A. Standard of Review
This court reviews the grant or denial of summary
judgment under the law of the regional circuit.
MicroStrategy, Inc. v. Bus. Objects, S.A., 429 F.3d 1344,
1349 (Fed. Cir. 2005). The D.C. Circuit reviews de novo a
district court’s grant of summary judgment. Theodore
Roosevelt Conservation P’ship v. Salazar, 661 F.3d 66, 72
(D.C. Cir. 2011). “We apply our own law with respect to
issues of substantive patent law.” Aero Prods. Intern.,
Inc. v. Intex Recreation Corp., 466 F.3d 1000, 1016 (Fed.
Cir. 2006). “Whether a claim is drawn to patent eligible
subject matter under § 101 is an issue of law that we
review de novo.” Bilski I, 545 F.3d at 951.
CLS BANK v. ALICE CORPORATION 8
B. District Court’s Analysis
In deciding CLS Bank’s summary judgment motion,
the district court first analyzed the method claims under
the machine-or-transformation test. CLS Bank, for the
purposes of advancing its § 101 motion, agreed to assume
a claim construction favorable to Alice. CLS Bank, 768 F.
Supp. 2d at 236. Thus, the district court interpreted the
shadow credit and debit records to require electronic
implementation and a computer. Id. However, after a
careful examination of the specification and the claims,
the district court concluded that the “nominal recitation of
a general-purpose computer in a method claim does not
tie the claim to a particular machine or apparatus or save
the claim from being found unpatentable under § 101.”
Id. at 237.
The district court also analyzed the method claims
under the abstract idea exception. Id. at 242-43; see
Bilski II, 130 S. Ct. at 3226 (holding that the machine-or-
transformation test is an important and useful clue but
that it should not be the sole test). Under this analysis,
the district court found the methods to be invalid under
§ 101 as directed to the “fundamental idea of employing a
neutral intermediary to ensure that parties to an
exchange can honor a proposed transaction, to
consummate the exchange simultaneously to minimize
the risk that one party does not gain the fruits of the
exchange, and then irrevocably to direct the parties, or
their value holders, to adjust their accounts or records to
reflect the concluded transaction.” CLS Bank, 768 F.
Supp. 2d at 243-44.
The district court then analyzed the computer system
and media claims. The district court assumed that these
claims were directed to machines or manufactures, and
thus analyzed these claims only to see whether they
nonetheless represented nothing more than an abstract
idea. Id. at 250. After noting its earlier conclusion that
the method claims were directed to an abstract concept,
CLS BANK v. ALICE CORPORATION 9
the court concluded that “[t]he system claims . . .
represent merely the incarnation of this abstract idea on a
computer, without any further exposition or meaningful
limitation.” Id. at 252. Similarly, with respect to the
product claims, the court concluded that they “are also
directed to the same abstract concept, despite the fact
they nominally recite a different category of invention
under § 101 than the other claims.” Id. at 255.
C. The Parties’ Arguments on Appeal
With respect to its method claims, Alice argues that
they are patent eligible because, unlike the claims at
issue in Bilski, its method claims are: (1) “tied to a
particular machine or apparatus—i.e., they are to be
performed on a computer,” Appellant Br. 42; and (2) not
directed to an abstract idea, but rather “are limited to a
particular practical and technological implementation,”
which requires a particular series of concrete steps
performed by an intermediary, id. 48-50; see Research
Corp. v. Microsoft Corp., 627 F.3d 859, 868-69 (Fed. Cir.
2010). With respect to its computer system and media
claims, Alice argues that “computer systems are concrete
machines, not abstract ideas,” Appellant Br. 23, and
“[n]either this [c]ourt nor the Supreme Court has ever
invalidated a claim to a computer system under 35 U.S.C.
§ 101,” id. 2. According to Alice, the district court erred
by: (1) identifying and considering only the “heart” of
Alice’s invention—which it found to be an abstract
concept—instead of the claims “as a whole, with all of
[their] limitations given effect,” id. 26; (2) determining
that “computers that are programmable with software—
so-called ‘general purpose’ computers—should be
analyzed differently from other machines under section
101,” id. 31; In re Alappat, 33 F.3d 1526, 1545 (Fed. Cir.
1994); and (3) focusing on the “preemptive force” of the
claims as an independent test for eligibility when
“[n]either the Supreme Court nor this [c]ourt has ever
suggested that ‘preemption’ of a method or idea that is not
CLS BANK v. ALICE CORPORATION 10
a fundamental principle renders a patent claim invalid
under section 101, nor that preemption is a separate step
of the section 101 analysis if a claim has been determined
not to be abstract,” id. 35-36.
CLS Bank responds that “[a]ll of Alice’s claims are
directed to the unpatentable concept of ‘exchanging an
obligation’ between parties (i.e., effectuating a legal
obligation) after an intermediary ensures that there is
‘adequate value’ in independent accounts maintained for
the parties to allow the exchange to go forward—in effect,
a two-sided escrow arrangement.” Appellee Br. 7-8. With
respect to Alice’s method claims, CLS Bank contends that:
(1) they fail the machine or transformation test because,
“even assuming a broad claim construction . . . requiring
computer implementation, such implementation does not
impose a ‘meaningful limitation’ on the scope of the
claims, because the computer does not play a ‘significant
part in permitting the claimed method to be performed,’
but rather ‘function[s] solely as an obvious mechanism for
permitting a solution to be achieved more quickly,’” id. 11,
37-38 (citing SiRF Tech., Inc. v. Int’l Trade Comm’n, 601
F.3d 1319, 1333 (Fed. Cir. 2010)); (2) like “the claims in
Bilski, [Gottshalk v.] Benson[, 409 U.S. 64 (1972)], and
[Parker v.] Flook[, 437 U.S. 584 (1978)], Alice’s method
claims would effectively preempt the use of the abstract
business concept for exchanging an obligation which is
recited in all of the claims,” id. 30; and (3) “[l]ike the
claims at issue in Benson and Flook, Alice’s method
claims . . . [are] effectively drawn to a formula or
algorithm . . . with data collection preceding use of the
algorithm, and account adjustments and instructions that
are ‘post-solution activity,’” id. 38. With respect to Alice’s
computer-implemented system and product claims, CLS
Bank contends that they are also directed to abstract
ideas because, under Benson, a mere “redrafting of
method claims” to recite a “computer’” and “data storage
unit” that are “‘configured’ to carry out the abstract
CLS BANK v. ALICE CORPORATION 11
method” does not save the claims from abstractness. Id.
41-42.
For the reasons discussed below, this Court agrees
with Alice that its asserted method, system, and product
claims are all directed to patent eligible subject matter
under 35 U.S.C. § 101.
D. Analysis
i. Patent Eligibility
The Patent Act defines patent eligible subject matter
broadly: “Whoever invents or discovers any new and
useful process, machine, manufacture, or composition of
matter, or any new and useful improvement thereof, may
obtain a patent therefor, subject to the conditions and
requirements of this title.” 35 U.S.C. § 101 (emphasis
added). Section 101 is a “dynamic provision designed to
encompass new and unforeseen inventions.” J.E.M. Ag.
Supply, Inc. v. Pioneer HiBred Int’l, Inc., 534 U.S. 124,
135 (2001). As the Supreme Court has recognized,
“Congress intended statutory subject matter to ‘include
anything under the sun that is made by man,’” Diamond
v. Chakrabarty, 447 U.S. 303, 309 (1980) (citing S. Rep.
No. 82-1979, at 5 (1952) and H.R. Rep. No. 82-1923, at 6
(1952)).
It is true, however, that not everything can be
patented. The Supreme Court has explained that “laws of
nature, physical phenomena, and abstract ideas” fall
outside the scope of § 101, and are reserved to the public
domain. Bilski II, 130 S. Ct. at 3225. In Mayo
Collaborative Services v. Prometheus Laboratories, Inc.,
the Supreme Court explained that these exceptions to
statutory subject matter are “implicit” in the statute. 132
S. Ct. 1289, 1293 (2012). “Such discoveries are
‘manifestations of . . . nature, free to all men and reserved
exclusively to none.’” Id. at 2 (citing Chakrabarty, 447
U.S. at 309 (quoting Funk Bros. Seed Co. v. Kalo
Inoculant Co., 333 U.S. 127, 130 (1948)). In practice,
CLS BANK v. ALICE CORPORATION 12
these three exceptions should arise infrequently and
should not be understood to subvert the patent’s
constitutional mandate “[t]o promote the Progress of
Science and useful Arts.” U.S. Const. art. I, § 8, cl. 8; see,
e.g., Research Corp., 627 F.3d at 868 (Fed. Cir. 2010)
(“[S]ection 101 does not permit a court to reject subject
matter categorically because it finds that a claim is not
worthy of a patent.”).
In contrast to § 101, which sets forth the type of
subject matter that is patent eligible, §§ 102 and 103
broadly ensure that the public remains free to use that
which is known and obvious variants thereof. See 35
U.S.C. §§ 102, 103. In addition, § 112 protects the public
storehouse of knowledge by preventing persons from
obtaining patent protection for inventions not fully
disclosed, enabled, or claimed with particularity. See 35
U.S.C. § 112. The comprehensive provisions of 35 U.S.C.
§§ 102, 103, and 112 do the substantive work of
disqualifying those patent eligible inventions that are
“not worthy of a patent.” Research Corp., 627 F.3d at 868.
“Section 101 is a general statement of the type of subject
matter that is eligible for patent protection ‘subject to the
conditions and requirements of this title.’ Specific
conditions for patentability follow . . . . The question
therefore of whether an invention is novel ‘is wholly apart
from whether the invention falls into a category of
statutory subject matter.’” Diamond v. Diehr, 450 U.S.
188, 198-90 (1981) (citing In re Bergy, 596 F.2d 952, 961
(CCPA 1979)).
It should be self-evident that each of these four
statutory provisions—§§ 101, 102, 103, and 112—serves a
different purpose and plays a distinctly different role. No
one section is more important than any other. Together,
they evince the intent of Congress in furthering the
constitutional objective of promoting the progress of the
useful arts. Because each of these sections serves a
different purpose and plays a different role, invalidity,
CLS BANK v. ALICE CORPORATION 13
patentability, and patent eligibility challenges under
these sections present distinctly different questions. See
Prometheus, 132 S. Ct. at 1303-04. District courts have
great discretion to control the conduct of proceedings
before them, including the order of presentation of issues
and evidence and the sequence of events proscribed by the
Federal Rules and leading up to judgment. See, e.g.,
Amado v. Microsoft Corp., 517 F.3d 1353, 1358 (Fed. Cir.
2008) (“District courts . . . are afforded broad discretion to
control and manage their dockets, including the authority
to decide the order in which they hear and decide issues
pending before them.”). Although § 101 has been
characterized as a “threshold test,” Bilski II, 130 S. Ct. at
3225, and certainly can be addressed before other matters
touching the validity of patents, it need not always be
addressed first, particularly when other sections might be
discerned by the trial judge as having the promise to
resolve a dispute more expeditiously or with more clarity
and predictability. See MySpace, Inc. v. GraphOn Corp.,
672 F.3d 1250, 1260 (Fed. Cir. 2012). Thus, consistent
with its role as the master of its own docket, a district
court properly acts within its discretion in deciding when
to address the diverse statutory challenges to validity.
Here, the district court exercised its discretion to
entertain a challenge to the validity of the patents in suit
under 35 U.S.C. § 101. The district court’s decision
ultimately turned on, and thus this appeal is primarily
directed to, the issue of whether the claimed inventions
fall within the “abstract ideas” exception to patent
eligibility. While the Supreme Court’s recent decision in
Prometheus reiterated the trilogy of “implicit” exceptions
to patent eligibility, including the exception for abstract
ideas, it did not directly address how to determine
whether a claim is drawn to an abstract idea in the first
instance.
The abstractness of the “abstract ideas” test to patent
eligibility has become a serious problem, leading to great
CLS BANK v. ALICE CORPORATION 14
uncertainty and to the devaluing of inventions of practical
utility and economic potential. See Donald S. Chisum,
Weeds and Seeds in the Supreme Court’s Business Method
Patent Decision: New Directions for Regulating Patent
Scope, 15 Lewis & Clark L. Rev. 11, 14 (2011) (“Because of
the vagueness of the concepts of an ‘idea’ and ‘abstract,’
. . . the Section 101 abstract idea preemption inquiry can
lead to subjectively-derived, arbitrary and unpredictable
results. This uncertainty does substantial harm to the
effective operation of the patent system.”). In Bilski, the
Supreme Court offered some guidance by observing that
“[a] principle, in the abstract, is a fundamental truth; an
original cause; a motive; these cannot be patented, as no
one can claim in either of them an exclusive right.” Bilski
II, 130 S. Ct. at 3230 (quoting Le Roy v. Tatham, 55 U.S.
(14 How.) 156, 175 (1852)). This court has also attempted
to define “abstract ideas,” explaining that “abstract ideas
constitute disembodied concepts or truths which are not
‘useful’ from a practical standpoint standing alone, i.e.,
they are not ‘useful’ until reduced to some practical
application.” Alappat, 33 F.3d at 1542 n.18 (Fed. Cir.
1994). More recently, this court explained that the
“disqualifying characteristic” of abstractness must exhibit
itself “manifestly” “to override the broad statutory
categories of patent eligible subject matter.” Research
Corp., 627 F.3d at 868. Notwithstanding these well-
intentioned efforts and the great volume of pages in the
Federal Reporters treating the abstract ideas exception,
the dividing line between inventions that are directed to
patent ineligible abstract ideas and those that are not
remains elusive. “Put simply, the problem is that no one
understands what makes an idea ‘abstract.’” Mark A.
Lemley et al., Life After Bilski, 63 Stan. L. Rev. 1315,
1316 (2011).
Several decisions have looked to the notion of
“preemption” to further elucidate the “abstract idea”
exception. In Bilski, the Supreme Court explained that
CLS BANK v. ALICE CORPORATION 15
“[a]llowing petitioners to patent risk hedging would pre-
empt use of this approach in all fields, and would
effectively grant a monopoly over an abstract idea.” 130
S.Ct. 3231 (emphasis added). Previously, in O’Reilly v.
Morse, 56 U.S. 62 (1853), the Supreme Court held that a
claim to electromagnetism was not eligible for patent
protection because the patentee “claim[ed] the exclusive
right to every improvement where the motive power is the
electric or galvanic current, and the result is the marking
or printing intelligible characters, signs, or letters at a
distance.” Id. at 112-13 (emphases added). The Morse
Court reasoned that the claim would effectively “shut[] the
door against inventions of other persons . . . in the
properties and powers of electro-magnetism” because “it
matters not by what process or machinery the result is
accomplished.” Id. at 113 (emphasis added). Again, in
Gottshalk v. Benson, 409 U.S. 64 (1972), the Supreme
Court emphasized the concept of “pre-emption,” holding
that a claim directed to a mathematical formula with “no
substantial practical application except in connection with
a digital computer” was directed to an unpatentable
abstract idea because “the patent would wholly pre-empt
the mathematical formula and in practical effect would be
a patent on an algorithm itself.” Id. at 71-72 (emphasis
added). In Parker v. Flook, 437 U.S. 584 (1978), the Court
again emphasized the importance of claims not “pre-
empting” the “basic tools of scientific and technological
work,” and further held that mere field of use
limitations—there, to the oil refining and petrochemical
industries—or the addition of “post-solution” activity—
there, adjusting an “alarm limit” according to a claimed
mathematical calculation—could not “transform an
unpatentable principle into a patentable process.” Id. at
589.
In contrast to Morse, Benson, and Flook—where the
claims were found to “pre-empt” an “idea” or algorithm—
in Diehr, the Supreme Court held that the claims at issue
CLS BANK v. ALICE CORPORATION 16
(directed to a process for curing rubber using the
mathematical “Arrhenius” equation) did not “pre-empt
the use of that equation.” Diehr, 450 U.S. at 187. Rather,
the claims “only foreclose[d] from others the use of that
equation in conjunction with all of the other steps in the[]
claimed process.” Id. (emphasis added). The Diehr Court
held that the claims were “not barred at the threshold by
§ 101” because they were “an application of a law of
nature or mathematical formula to a known structure or
process,” which “incorporate[d] in it a more efficient
solution of the equation.” Id. at 187, 188.
Our Constitution gave Congress the power to
establish a patent system “[t]o promote the Progress of
Science and useful Arts . . . .” U.S. Const. art. I, § 8, cl. 8.
The patent system is thus intended to foster, not
foreclose, innovation. See id. While every inventor is
granted the right to exclude, or “pre-empt,” others from
practicing his or her claimed invention, no one is entitled
to claim an exclusive right to a fundamental truth or
disembodied concept that would foreclose every future
innovation in that art. See Morse, 56 U.S. at 112-13. As
the Supreme Court has “repeatedly emphasized . . .
patent law [must] not inhibit further discovery by
improperly tying up the future use of laws of nature.”
Prometheus, 132 S. Ct. at 1301. “[T]here is a danger that
grant of patents that tie up [laws of nature, physical
phenomena, and abstract ideas] will inhibit future
innovation premised upon them, a danger that becomes
acute when a patented process amounts to no more than
an instruction to ‘apply the natural law,’ or otherwise
forecloses more future invention than the underlying
discovery could reasonably justify.” Id. (emphasis added);
see also Benson, 409 U.S. at 68 (“Here the ‘process’ claim
is so abstract and sweeping as to cover both known and
unknown uses of the BCD to pure binary conversion.”
(emphasis added)). Thus, the essential concern is not
preemption, per se, but the extent to which preemption
CLS BANK v. ALICE CORPORATION 17
results in the foreclosure of innovation. Claims that are
directed to no more than a fundamental truth and
foreclose, rather than foster, future innovation are not
directed to patent eligible subject matter under § 101. No
one can claim the exclusive right to all future inventions.
Morse, 56 U.S. at 112-13; Benson, 409 U.S. at 68.
In determining whether a claim is directed to a non-
statutory abstract idea, the Supreme Court acknowledged
this court’s “machine-or-transformation test [as] a useful
and important clue, an investigative tool,” but not as a
dispositive test. Bilski II, 130 S. Ct. at 3227. As four
Supreme Court Justices acknowledged, during the
Industrial Age, few patents were granted for discoveries
that did not satisfy the machine-or-transformation test.
Id. Today, computers play a role in every part of our daily
life. They are found in everything from toasters to
transponders. The computer, with all of its hardware and
software variations, may be one of the greatest inventions
of all time, and there can be no question that advances in
computer technology have fostered and will continue to
foster innovation in all areas of science and technology.
Many patents drawn to inventions implemented in
computer hardware or software, however, are argued not
to pass the machine-or-transformation test. Thus, courts
must sometimes look beyond the machine-or-
transformation test to distinguish eligible from ineligible
computer-related claims. See Bilski II, 130 S. Ct. at 3227.
The mere implementation on a computer of an
otherwise ineligible abstract idea will not render the
asserted “invention” patent eligible. See Fort Props. Inc.
v. Am. Master Lease LLC, 671 F.3d 1317, 1322 (Fed. Cir.
2011) (“[An] abstract concept cannot be transformed into
patentable subject matter merely because of connections
to the physical world.”); Dealertrack Inc. v. Huber, 674
F.3d 1315, 1333 (Fed. Cir. 2012) (“Simply adding a
‘computer aided’ limitation to a claim covering an abstract
concept, without more, is insufficient to render the claim
CLS BANK v. ALICE CORPORATION 18
patent eligible.”); CyberSource Corp. v. Retail Decisions,
Inc., 654 F.3d 1366, 1375 (Fed. Cir. 2011) (“[W]e have
never suggested that simply reciting the use of a
computer to execute an algorithm that can be performed
entirely in the human mind” is sufficient to render a claim
patent eligible.). On the other hand, where the “addition
of a machine impose[s] a meaningful limit on the scope of
a claim,” and “play[s] a significant part in permitting the
claimed method to be performed, rather than function[ing]
solely as an obvious mechanism for permitting a solution
to be achieved more quickly, i.e., through the utilization of
a computer for performing calculations,” that machine
limitation renders the method patent eligible. SiRF
Tech., Inc. v. Int’l Trade Comm’n, 601 F.3d 1319, 1333
(Fed. Cir. 2010) (emphasis added); see also Diehr, 450
U.S. at 187 (“It is now commonplace that an application of
a law of nature or mathematical formula to a known
structure or process may well be deserving of patent
protection.”); Research Corp., 627 F.3d at 868 (holding
that a process is patent eligible subject matter when it
“presents functional and palpable application in the field
of computer technology.”); Alappat, 33 F.3d at 1544-45(holding that claims directed to a specially-programmed
computer—a “specific machine to produce a useful,
concrete, and tangible result”—are directed to patent
eligible subject matter). It can, thus, be appreciated that
a claim that is drawn to a specific way of doing something
with a computer is likely to be patent eligible whereas a
claim to nothing more than the idea of doing that thing on
a computer may not. 1 But even with that appreciation,
1 See Lemley, 63 Stan. L. Rev. at 1345 (“Under an
appropriate § 101 scope analysis, the relevant concern is
not whether there is a physical machine per se in the
specification or claim language. Rather, the question
should be whether the claim is so abstract and sweeping
as to preclude all uses of the inventive idea, or whether it
is sufficiently applied.”).
CLS BANK v. ALICE CORPORATION 19
great uncertainty remains, and the core of that
uncertainty is the meaning of the “abstract ideas”
exception.
As the Supreme Court has recently acknowledged,
“too broad an interpretation of [the exceptions to § 101]
could eviscerate patent law. For all inventions at some
level embody, use, reflect, rest upon, or apply laws of
nature, natural phenomena, or abstract ideas.”
Prometheus, 132 S. Ct. at 1293. Any claim can be
stripped down, or simplified, removing all of its concrete
limitations, until at its core, something that could be
characterized as an abstract idea is revealed. But nothing
in the Supreme Court’s precedent, nor in ours, allows a
court to go hunting for abstractions by ignoring the
concrete, palpable, tangible, and otherwise not abstract
invention the patentee actually claims. It is
fundamentally improper to paraphrase a claim in overly
simplistic generalities in assessing whether the claim
falls under the limited “abstract ideas” exception to
patent eligibility under 35 U.S.C. § 101. Patent eligibility
must be evaluated based on what the claims recite, not
merely on the ideas upon which they are premised. In
assessing patent eligibility, a court must consider the
asserted claim as a whole. Diehr, 540 U.S. at 188.
It is inappropriate to dissect the claim into old
and new elements and then to ignore the presence
of the old elements in the analysis. This is
particularly true in a process claim because a new
combination of steps in a process may be
patentable even though all the constituents of the
combination were well known and in common use
before the combination was made. The ‘novelty’ of
any element or steps in a process, or even of the
process itself, is of no relevance in determining
whether the subject matter of a claim falls within
the § 101 categories of possibly patentable subject
matter.
CLS BANK v. ALICE CORPORATION 20
Id. at 188-89. 2
In light of the foregoing, this court holds that when—
after taking all of the claim recitations into
consideration—it is not manifestly evident that a claim is
directed to a patent ineligible abstract idea, that claim
must not be deemed for that reason to be inadequate
under § 101. It would undermine the intent of Congress
to extend a judicially-crafted exception to the unqualified
statutory eligibility criteria of § 101 beyond that which is
“implicitly” excluded as a “fundamental truth” that is
“free to all men and reserved exclusively to none.” Bilski
II, 130 S. Ct. at 3225, 3230 (citations omitted); see also id.
at 3226 (“This Court has ‘more than once cautioned that
2 The dissent contends that following Prometheus,
“there is no doubt that to be patent eligible under § 101,
the claims must include an ‘inventive concept.’” Dissent
3. From this, the dissent criticizes the majority for not
inquiring whether the asserted claims include such an
inventive concept or even whether the claims disclose
anything inventive. But that is precisely what the
majority has done in examining the language of the
claims themselves and in criticizing the district court for
ignoring the invention the patentee actually claims. The
Supreme Court’s reference to an “inventive concept”
cannot be read to endorse overlooking the actual terms of
the claims or the distillation of claim language to mere
generalities. Prometheus simply states “that a process
that focuses upon the use of a natural law also contain
other elements or a combination of elements, sometimes
referred to as an ‘inventive concept,’ sufficient to ensure
that the patent in practice amounts to significantly more
than a patent upon the natural law itself.” Prometheus,
132 S. Ct. at 1294 (emphases added). This is not a new
idea, and imposes no “novelty” or “nonobviousness”
inquiry into the patent eligibility analysis under § 101.
See Diehr, 540 U.S. at 188-89.
CLS BANK v. ALICE CORPORATION 21
courts should not read into the patent laws limitations
and conditions which the legislature has not expressed.’”
(quoting Diehr, 450 U.S. 175, 182 (citation omitted))).
Unless the single most reasonable understanding is that a
claim is directed to nothing more than a fundamental
truth or disembodied concept, with no limitations in the
claim attaching that idea to a specific application, it is
inappropriate to hold that the claim is directed to a patent
ineligible “abstract idea” under 35 U.S.C. § 101. 3
ii. Application
Alice’s asserted claims are directed generally to the
exchange of obligations between parties using a computer.
The asserted patents, with the exception of minor
differences, share a common specification. While the
method, system, and media claims fall within different
statutory categories, the form of the claim in this case
does not change the patent eligibility analysis under
§ 101. CyberSource, 654 F.3d at 1374. “Regardless of
3 The dissent expresses concern that the majority
“devises a new approach to subject matter patentability”
in the face of perceived Supreme Court guidance. Dissent
3. With all due respect for my sister in the dissent, the
majority does no such thing. The majority merely
recognizes that before the “implicit” exception for
abstractness recognized by the Supreme Court and
acknowledged by this court is allowed to overtake the
intent of Congress as reflected in the broad statutory
language of § 101, the determination of abstractness must
be manifest. If a court, in applying all of the guidance of
the Supreme Court in cases like Prometheus, Bilski II,
Diehr, Flook, and Benson, and in considering all of the
precedent from this court in cases like Fort Properties,
Dealertrack, CyberSource, Research Corp., SiRF, and
Alappat, is not wholly convinced that the subject matter
of the claims is abstract, the claims in question must be
held patent eligible.
CLS BANK v. ALICE CORPORATION 22
what statutory category (“process, machine, manufacture,
or composition of matter,” . . . ) a claim’s language is
crafted to literally invoke, we look to the underlying
invention for patent eligibility purposes.” Id. “Labels are
not determinative in § 101 inquiries . . . because the form
of the claim is often an exercise in drafting.” In re
Maucorps, 609 F.2d 481, 485 (CCPA 1979) (internal
citation omitted). Contrary to Alice’s argument, therefore,
the fact that computer systems are “machines” does not
end the inquiry. Alappat, 33 F.3d at 1542 (“Because claim
15 is directed to a ‘machine,’ . . . [it] appears on its face to
be directed to § 101 subject matter. This does not quite
end the analysis, however, because the Board majority
argues that the claimed subject matter falls within . . . the
‘mathematical algorithm’ exception.”). “[T]he basic
character of a process claim . . . is not changed by
claiming only its performance by computers, or by
claiming the process embodied in program instructions on
a computer readable medium.” CyberSource, 654 F.3d at
1375.
Because mere computer implementation cannot
render an otherwise abstract idea patent eligible, see id.
at 1374-75, the analysis here must consider whether the
asserted claims (method, system, and media) are
substantively directed to nothing more than a
fundamental truth or disembodied concept without any
limitation in the claims tying that idea to a specific
application, see supra Part II.D.i. The district court
looked past the details of the claims in characterizing
them as being directed to the fundamental concept “of
employing an intermediary to facilitate simultaneous
exchange of obligations in order to minimize risk.” CLS
Bank, 768 F. Supp. 2d at 243. By doing so, the district
court was able to treat the claims as encompassing
nothing more than fundamental truths, much like the
patent ineligible “abstract ideas” in Bilski, and this
court’s post-Bilski cases: CyberSource, Dealertrack, and
CLS BANK v. ALICE CORPORATION 23
Fort Properties. As explained above, however, ignoring
claim limitations in order to abstract a process down to a
fundamental truth is legally impermissible. 4
Determining whether Alice’s claims are directed to
nothing more than a fundamental truth or disembodied
concept requires this court to consider the scope and
content of the claims. For the purpose of deciding patent
eligibility at the district court, the parties agreed to a
broad claim construction that was favorable to Alice. The
district court concluded that each claim, including each of
Alice’s method claims, discussed below, requires computer
implementation. See CLS Bank, 768 F. Supp. 2d at 236(“CLS has agreed to a broad construction of terms
favorable to Alice, and because the specification reveals a
computer based invention, the Court can reasonably
assume for present purposes that the terms ‘shadow’
credit and/or debit record and ‘transaction’ in the ’479
Patent recite electronic implementation and a computer
or an analogous electronic device.”).
The patent specifications are consistent with the
understanding that each asserted claim requires
computer implementation. The asserted system and
media claims of the ’720 and ’375 Patents explicitly recite
“machine” limitations. See, e.g., ’720 Patent col.65 ll.42-
48 (“A data processing system . . . comprising a data
storage unit . . . ; and a computer . . . .”); ’375 Patent col.68
ll.5-7 (“A computer program product comprising a
computer readable storage medium having computer
readable program code embodied in the medium . . . .”).
4The dissent engages in the same flawed analysis as
the district court by allegedly “[s]tripp[ing the claims] of
jargon” and creating a table of the “plain English
translation” for each claim element. Dissent 5. It is
impermissible for the court to rewrite the claims as it sees
them. The invention is defined in the claims by the
patentee, not the court. See 35 U.S.C. § 112.
CLS BANK v. ALICE CORPORATION 24
With respect to the asserted method claims, the ’510
Patent claims recite an “electronic adjustment” limitation,
see, e.g., ’510 Patent col.64 ll.11-12 (independent claim 1),
which, for the purpose of this motion, CLS Bank agreed
“requir[es] the use of a computer.” Appellee Br. 6. The
’510 Patent specification is consistent with the
understanding that the claims require the use of a
computer system. See ’510 Patent col.3 ll.45-46
(disclosure of the invention) (“The entities submit such
orders to a ‘system’ which seeks to price and match the
most appropriate counter-party . . . .”); col.28 l.45-col.29
l.4 (explaining that the shadow debit/credit records are
electronically stored in a system called “INVENTICO”);
col.29 ll.41-56 (“[E]ach [participating] entity electronically
notifies the applicable CONTRACT APP of the ‘opening
balances’ of all the debit and credit INVENTICO accounts
it maintains. . . . Upon receipt of [these] notifications, the
applicable CONTRACT APP updates/confirms its
stakeholder shadow balances. Thus, at this point-in-time,
all credit and debit shadow account balances should be
equivalent to their actual debit and credit account
balances.”).
The specification of the ’479 Patent is similarly
consistent with the understanding that the asserted
claims require computer implementation. ’479 Patent
col.3 ll.29-38 (disclosure of the invention) (same as ’510
Patent); col.4 ll.8-12 (“The present invention also provides
an automated infrastructure . . . [which] allows the
parties to participate directly without requiring an
intermediary.”) According to Alice’s expert, “the person of
ordinary skill in the art would understand . . . that claims
33 and 34 of the ’479 [P]atent are limited to electronically
implemented methods.” Ginsberg Decl., ECF No. 95-3,
Ex. 1, ¶ 32. While the asserted claims of the ’479 Patent
do not contain the “electronic adjustment” limitation, they
do contain the same “shadow credit record” and “shadow
debit record” limitations as the ’510 Patent claims. The
CLS BANK v. ALICE CORPORATION 25
specification of the ’479 Patent, like the ’510 Patent,
supports the understanding that the shadow debit/credit
record limitations require computer implementation. See
’479 Patent col.24 l.59-col.25 l.2 (explaining that the
“CONTRACT APP” effects debits and credits to accounts
in the INVENTICO system by “debiting/crediting, on a
real-time basis, the relevant shadow records (in the data
file PAYACC SHADOW) of applicable stakeholder
accounts . . ., [which are] external to INVENTICO.”).
Alice’s expert testified in his declaration that one of skill
in the art understands that the “data file PAYACC
SHADOW” is a “data file[] in a data storage unit.”
Ginsberg Decl., ECF No. 95-3, Ex. 1, ¶ 32. We find no
basis to question the district court’s assumption, for the
purposes of this motion, that all of Alice’s asserted claims
require a computer system. See Phillips v. AWH Corp.,
415 F.3d 1303, 1315-16 (Fed. Cir. 2005) (en banc).
Although computer implementation indicates that
these claims would likely satisfy the “machine” prong of
the machine-or-transformation test, see CyberSource, 654
F.3d at 1375 and Alappat, 33 F.3d at 1545, the mere fact
of computer implementation alone does not resolve the
patent eligibility question, see Dealertrack, 674 F.3d at
1333 (“Simply adding a ‘computer aided’ limitation to a
claim covering an abstract concept, without more, is
insufficient to render the claim patent eligible.”);
CyberSource, 654 F.3d at 1375. Indeed, almost every
method in the Digital Age can be implemented on a
specially-programmed computer. See, e.g., SiRF Tech.,
601 F.3d at 1333 (“In order for the addition of a machine
to impose a meaningful limit on the scope of a claim, it
must play a significant part in permitting the claimed
method to be performed, rather than function solely as an
obvious mechanism for permitting a solution to be
achieved more quickly, i.e., through the utilization of a
computer for performing calculations.”).
CLS BANK v. ALICE CORPORATION 26
In Bilski, CyberSource, Dealertrack, and Fort
Properties (“the Bilski line of cases”), the Supreme Court
or this court found some basis in the claims upon which to
determine that they were directed to nothing more than
patent ineligible abstract ideas. Unlike the Bilski line of
cases, however, it is difficult to conclude that the
computer limitations here do not play a significant part in
the performance of the invention or that the claims are
not limited to a very specific application of the concept of
using an intermediary to help consummate exchanges
between parties. The dissent criticizes the majority for
failing to explain “why the specific computer
implementation in this case brings the claims within
patentable subject matter,” Dissent 3, but this criticism is
misplaced. The limitations of the claims as a whole, not
just the computer implementation standing alone, are
what place meaningful boundaries on the meaning of the
claims in this case.
The asserted claims appear to cover the practical
application of a business concept in a specific way, which
requires computer implemented steps of exchanging
obligations maintained at an exchange institution by
creating electronically maintained shadow credit and
shadow debit records, and particularly recite that such
shadow credit and debit records be held independently of
the exchange institution by a supervisory institution; that
start-of-the-day balances be obtained from the exchange
institution; that adjustments be made to the credit
records based on only certain specified allowed
transactions under the “adjusting” limitation; that such
adjustments be made in chronological order; that at the
end of the day, instructions be given to the exchange
institution to reflect the adjustments made on the basis of
the permitted transactions; and that such adjustments
affect irrevocable, time invariant obligations placed on the
exchange institution. ’479 Patent col.65 ll.28-50.
Transactions “that do not result in the value of the
CLS BANK v. ALICE CORPORATION 27
shadow debit record being less than the value of the
shadow credit record at any time” are not permitted
under the “adjusting” limitation, and do not result in any
ultimate exchange of obligations in the INVENTICO
system. Id. col.65 ll.36-43, col.24 l.59-col.25 l.2. The
claim limitations can be characterized as being integral to
the method, as “play[ing] a significant part in permitting
the method to be performed,” and as not being token post-
solution activity. It is clear, moreover, that the
limitations requiring specific “shadow” records leave
broad room for other methods of using intermediaries to
help consummate exchanges, whether with the aid of a
computer or otherwise, and, thus, do not appear to
preempt much in the way of innovation.
While the use of a machine in these limitations is less
substantial or limiting than the industrial uses examined
in Diehr (curing rubber) or Alappat (a rasterizer), the
presence of these limitations prevents us from finding it
manifestly evident that the claims are patent ineligible
under § 101. See Research Corp., 627 F.3d at 868. In
such circumstances, we must leave the question of
validity to the other provisions of Title 35.
Accordingly, this court holds that Alice’s method,
system, and product claims are directed to statutory
subject matter under § 101.
III. CONCLUSION
For the foregoing reasons, this court reverses the
district court’s summary judgment of invalidity under 35
U.S.C. § 101 of claims 33 and 34 of the ’479 Patent and
each claim of the ’510, ’720, and ’375 Patents.
REVERSED
United States Court of Appeals
for the Federal Circuit
__________________________
CLS BANK INTERNATIONAL,
Plaintiff-Appellee,
AND
CLS SERVICES LTD.,
Counterclaim-Defendant Appellee,
v.
ALICE CORPORATION PTY. LTD.,
Defendant-Appellant.
__________________________
2011-1301
__________________________
Appeal from the United States District Court for the
District of Columbia in case no. 07-CV-0974, Judge Rose-
mary M. Collyer.
__________________________
PROST, Circuit Judge, dissenting.
The majority resists the Supreme Court’s unanimous
directive to apply the patentable subject matter test with
more vigor. Worse yet, it creates an entirely new frame-
work that in effect allows courts to avoid evaluating
patent eligibility under § 101 whenever they so desire. I
too find it difficult to answer the questions presented here
with absolute certainty. Nonetheless, I believe that
CLS BANK v. ALICE CORPORATION 2
precedent and common sense counsel that the asserted
patent claims are abstract ideas repackaged as methods
and systems. Thus, with respect, I dissent.
I
When it comes to subject matter patentability, we do
not write on a blank slate. Just a few months ago, the
Supreme Court reversed us in a § 101 case for a second
time in its last three terms, hinting (not so tacitly) that
our subject matter patentability test is not sufficiently
exacting. Mayo Collaborative Servs. v. Prometheus Labs.,
Inc., 132 S. Ct. 1289 (2012); Bilski v. Kappos, 130 S. Ct.
3218 (2010); see also WildTangent, Inc. v. Ultramercial,
LLC, (No. 11-962), 2012 WL 369157 (2012), granting cert.,
vacating, and remanding Ultramercial, LLC v. Hulu,
LLC, 657 F.3d 1323 (Fed. Cir. 2011). The Court once
again iterated that “the prohibition against patenting
abstract ideas cannot be circumvented by attempting to
limit the use of the formula to a particular technological
environment.” Prometheus, 132 S. Ct. at 1294 (quoting
Bilski, 130 S. Ct. at 3230). But this time the Court also
made clear what had been written between the lines
before: It is not sufficient to put an abstract idea into use
with “[p]urely ‘conventional or obvious’ ‘pre-solution
activity.’” Prometheus, 132 S. Ct. at 1298; cf. Bilski, 130
S. Ct. at 3231 (noting that the claimed invention was
directed at a “fundamental economic practice long preva-
lent in our system of commerce”); Parker v. Flook, 437
U.S. 584, 594 (1978) (“Respondent’s process is unpat-
entable under § 101, not because it contains a mathemati-
cal algorithm as one component, but because once that
algorithm is assumed to be within the prior art, the
application, considered as a whole, contains no patentable
invention.”). The Court accordingly declined the Solicitor
General’s invitation to leave the screening of low quality
3 CLS BANK v. ALICE CORPORATION
patents to § 102 and § 103, even though the government
promised that “the claims are likely invalid under those
provisions.” Brief for the United States as Amicus Curiae
in Support of Neither Party at 9, Mayo Collaborative
Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012)
(No. 10-1150). Now there is no doubt that to be patent
eligible under § 101, the claims must include an “inven-
tive concept.” Prometheus, 132 S. Ct. at 1294.
The majority has failed to follow the Supreme Court’s
instructions—not just in its holding, but more impor-
tantly in its approach. The majority does not inquire
whether the asserted claims include an inventive concept.
Even more fundamentally, the majority questions
whether the Supreme Court’s abstract idea test is worka-
ble at all. Maj. Op. 13-14. Based on this apprehension, I
take it, the majority devises a new approach to subject
matter patentability. We must now avoid deciding a
§ 101 case unless unpatentability is “manifestly evident.”
Maj. Op. 20.
I would be more empathetic if the majority’s approach
was based on a case-specific determination, made upon
the application of the Supreme Court’s abstract idea test
to the asserted claims. As mentioned, however, the
majority does not even attempt to inquire whether the
claims disclose anything inventive. The bulk of the
analysis focuses on the fact that the claims require “com-
puter implementation,” which the majority itself deems
insufficient to pass muster under § 101. Maj. Op. 21-25.
Nor is there any explanation for why the specific com-
puter implementation in this case brings the claims
within patentable subject matter. See also infra Part III.
The majority merely posits that the additional limitations
in the claims “can be characterized as being integral to
the [invention],” but it does not explain whether they
CLS BANK v. ALICE CORPORATION 4
should be characterized as such, and what “integral”
means in the context of § 101 in the first place. Maj. Op.
27.
So why does the majority reverse the district court?
Frankly, because “it is difficult to conclude that the com-
puter limitations here do not play a significant part in the
performance of the invention.” Maj. Op. 26. That sug-
gests that the majority’s “manifestly evident” standard is
more of an escape hatch than a yardstick. In other words,
the majority has resurrected the very approach to § 101
that the Solicitor General advocated—and the Supreme
Court laid to rest—in Prometheus. I cannot agree.
II
Even if we were to punt the subject matter issue
whenever it is difficult, we would not have any justifica-
tion for reversing the district court in this case—
especially on the method claims. The basic idea behind
the claimed invention is the use of an intermediary in a
financial transaction. At its most basic form, in a trans-
action between parties ‘A’ and ‘B,’ a middle-man collects
funds from ‘A’ but will not pass them to ‘B’ until ‘B’ has
also performed. In more complicated settings, the inter-
mediary makes intelligent choices in selecting the parties
to the transaction in a way to minimize or hedge the
transaction risk. In any event, this basic idea of “credit
intermediation” is not just abstract; it is also literally
ancient. See Temin, Peter, Financial Intermediation in
the Early Roman Empire (November 2002), MIT Depart-
ment of Economics Working Paper No. 02-39, available at
http://ssrn.com/abstract=348103 or http://dx.doi.org/10.21
39/ssrn.348103 (exploring the use of financial intermedi-
aries in the Early Roman Empire).
5 CLS BANK v. ALICE CORPORATION
So where is the invention? The majority states that it
is not the computer implementation, but “the claims as a
whole” that make the invention patentable. Maj. Op. at
26. But setting any need for computer implementation
aside, there is nothing in the method steps themselves
that brings the invention within patentable subject mat-
ter. Stripped of jargon, representative method claim 33
simply breaks down the idea of a financial intermediary
into four steps: (a) creating a debit and credit account for
each party, (b) checking the account balances in the
morning, (c) adjusting the account balances through the
day, and (d) paying the parties at the end of the day if
both parties have performed. 1 The claim in effect pre-
1 Table 1:
CLS BANK v. ALICE CORPORATION 6
sents an abstract idea and then says “apply it.” That is
not enough. Prometheus, 132 S. Ct. at 1294 (“[T]o trans-
form an unpatentable law of nature into a patent-eligible
application of such a law, one must do more than simply
state the law of nature while adding the words ‘apply
it.’”).
The majority objects that “[i]t is impermissible for the
court to rewrite claims as it sees them.” Maj. Op. 23 n.4.
But that is precisely what courts do in claim construction
everyday. Perhaps what the majority actually means is
that the plain English translation in Table 1 somehow
glosses over a limitation that would otherwise narrow the
claims to something that is non-abstract. One would wish
that the majority had not kept that limitation a secret.
The only hint appears where the majority points to the
phrase “shadow records,” as if that alone transmutes the
abstract idea of the claims into patentable subject matter.
Maj. Op. 27. But the claims use “shadow” to simply
define an account that is used to track a party’s payments
(the account is a shadow of the party’s performance).
That is not a limiting feature at all; any financial inter-
mediation would in one way or another use a “shadow”
account. Therefore, the representative method claim does
not limit the method steps in a way that the Supreme
Court considers to be meaningful. It merely recites the
steps of performing as an intermediary in a financial
transaction, which is an abstract idea, nothing more and
nothing less. Cf. Bilski, 130 S. Ct. at 3231.
That leaves determining whether the computer im-
plementation—assuming one is required by the method
claims—makes the invention patentable. It does not. As
the majority itself notes, “the mere fact of computer
implementation alone does not resolve the patent eligibil-
ity question.” Maj. Op. 25. Nor is there anything about
7 CLS BANK v. ALICE CORPORATION
the use of computers in the method claims in this case
that brings them within patentable subject matter. In
Gottschalk v. Benson, 409 U.S. 63, 65 (1972), for example,
the Supreme Court considered a patent “on a method of
programming a general-purpose digital computer to
convert signals from binary-coded decimal form into pure
binary form.” Id. Most of the steps of representative
claim 8 expressly required the use of a shift register, a
form of digital computer. Id. at 73. Indeed, the Supreme
Court emphasized that the conversion method had “no
substantial practical application except in connection with
a digital computer.” Id. at 71. That did not prevent the
Court from holding, however, that the asserted claims
were abstract. Id. at 72-73. More recently, we evaluated
the patentability of a claim for “[a] computer aided
method of managing a credit application” that recited a
“display device” and “terminal devices,” which the district
court correctly construed as some form of computer im-
plementation. Dealertrack, Inc. v. Huber, 674 F.3d 1315,
1331-35 (Fed. Cir. 2012). We nonetheless looked beyond
the computer implementation to the inventive concept of
the patent and held that the claim disclosed an abstract
idea. Id. at 1333 (“Dealertrack’s claimed process in its
simplest form includes three steps: receiving data from
one source (step A), selectively forwarding the data (step
B, performed according to step D), and forwarding reply
data to the first source (step C). The claim ‘explain[s] the
basic concept’ of processing information through a clear-
inghouse [and is therefore abstract].”); see also Fort
Props., Inc. v. Am. Master Lease, LLC, 671 F.3d 1317,
1323-24 (Fed. Cir. 2012) (holding that a claim limitation
that required a computer to generate deedshares was
abstract).
These authorities should have compelled us to hold
that the asserted method claims in this case are abstract.
CLS BANK v. ALICE CORPORATION 8
The connection between the basic idea behind the claimed
invention and the use of computers is not any stronger
here than the relationship between the binary conversion
system and the shift register in Benson, or the credit
application system and computers in Dealertrack. Indeed,
unlike in Benson and Dealertrack, the representative
method claim does not even recite the use of a computer.
And while some of the dependent claims recite computers,
the specification shows that the use of computers is
simply incidental. See also infra Part III. As I see it,
therefore, the method claims do not present a difficult
case. But district courts and litigants will now face a
difficult task in deciphering the law and harmonizing
precedent: What is it that sets Benson, Bilski, and Pro-
metheus—and Dealertrack—apart from this case, and
what legal principle justifies responding to a unanimous
Supreme Court decision against patentability with even a
stricter subject matter standard? I do not know, and I
cannot find the answer in the majority opinion.
III
The system claims present somewhat of a closer ques-
tion, in part because the Supreme Court has not decided a
§ 101 case that involves system claims. There is a per-
fectly reasonable argument that system claims are never
abstract as a matter of law. After all, systems comprise
objects, and objects are literally not abstract. A bright-
line rule that brings all systems within patentable subject
matter is also easy to comprehend and administer.
Evaluating whether systems are abstract, on the other
hand, may run the risk of stepping too far into making
novelty and obviousness determinations under the guise
of the abstractness test.
9 CLS BANK v. ALICE CORPORATION
Nonetheless, I would affirm the district court on the
system claims as well. To begin with, I do not believe that
we are free to decide that system claims may never be
abstract. The Supreme Court has warned that “patent
eligibility [does not] ‘depend simply on the draftsman’s
art.’” Prometheus, 132 S. Ct. at 1294 (quoting Flook, 437
U.S. at 593). A bright-line rule would conflict with the
Supreme Court’s admonition against putting form before
substance in this area of patent law. More fundamen-
tally, however, providing all system claims with immunity
from the subject matter inquiry would eviscerate the
abstract idea test altogether. Any method claim that uses
a general purpose computer may also be drafted as a
system (containing computers) that carries out the
method. The close similarity between the representative
system and method claims in this case provides a great
example. Thus, I generally agree with the majority that
the mere fact that a claim recites a system does not put it
beyond the abstract idea test. Maj. Op. 21-22.
Once we accept that system claims may be abstract,
however, there is little room to suggest that the system
claims in this case fall within patentable subject matter.
As already mentioned, the Supreme Court has directed us
to inquire whether the claim limitations that are added to
the abstract idea are inventive. Of course, I do not under-
stand that prescription as a permit to collapse the obvi-
ousness and novelty inquiries into § 101. But there are
cases where we may simply consult the claims and the
specification in order to conclude that the additions are
mere pre or post solution activity. That is, there are cases
in which we can easily tell that the invention is not about
systems or computers; it is merely an abstract idea
clothed as something more tangible. In those circum-
stances, we may not simply defer the threshold question
of patentability to other provisions of the Act; rather,
CLS BANK v. ALICE CORPORATION 10
where the case squarely presents the issue, we must
invalidate the patent under § 101. See supra Part I.
This is one such case. Apart from the abstract idea of
avoiding transaction risk by using financial intermediar-
ies, representative system claim 1 of the ’720 patent
recites 1) a computer memory that contains account
balance information, and 2) a computer that can track the
account balance. ’720 patent col.65 ll.42-61. One need
not be a computer scientist to suspect that this level of
computer implementation is not inventive. But intuition
is not our only guide; we also have the patent specifica-
tion. The “disclosure of the invention” section of the ’720
patent almost exclusively discusses the concept of risk
minimization in financial transactions. Although it
summarily states that “[t]he invention also encompasses
apparatus . . . dealing with the handling of contracts,” it
does not mention what aspect of the apparatus is an
advancement in the art. Id. col.5 ll.27-29. Quite the
opposite: it explains that the object of the invention can be
“achieved by a computing/telecommunications infrastruc-
ture that is capable of being accessed worldwide by any
enterprise/individual having access to a computer and a
telephone network.” Id. col.5 ll.47-50. The rest of the 65-
column-long specification is similarly devoid of any teach-
ing for how one must implement computer systems. For
example, there is no instruction for connecting various
components of the system and no discussion of how exist-
ing systems need be modified or improved in order to
implement the one that is claimed. Indeed, even the
“preferred embodiment” is not limited to a single system:
According to the specification, the best mode of the inven-
tion may be implemented with “[a] large range of commu-
nication hardware products,” “[o]ne amongst many of
[which] are personal computers and associated printers.”
Id. col.7 l.65–col.8 l.3. Other options include “a mini or
11 CLS BANK v. ALICE CORPORATION
mainframe computer,” “a tone dialing telephone,” or even
“a voice connection via an operator.” Id. col.8 ll.6-12. As
far as an actual system is concerned, therefore, imple-
mentation is irrelevant—anything goes. Instead, the
specification discusses at length and in painful detail
various forms of transactions, contracts, order processing,
order authorization, risk management, and other finan-
cial concepts. Even a quick glance at the ’720 patent
reveals that the claimed invention is not about physical
systems; it is the abstract idea of risk-management in
financial transactions carried out on an already known
infrastructure. That invention, even if new, is an unpat-
entable abstract idea.
In sum, if we are to assess system claims for subject
matter patentability—and I believe that we are currently
so obligated—we must also follow the Supreme Court’s
instructions on how the abstract idea test should be
applied. That is, we must look beyond the non-inventive
aspect of the claims and ask whether the remaining
portion is an abstract idea. Following that approach, in
my view, unavoidably leads to the conclusion that similar
to the method claims, the asserted system claims are not
patentable. Perhaps, the Supreme Court will reconsider
its broad instructions in Prometheus once it considers
system claims, but until then we would only add confu-
sion and uncertainty by creating our own ad-hoc ap-
proach. I respectfully dissent. 2
2 I am also of the view that the computer medium
claims are not patentable under § 101. But since the
majority has not addressed the issue separately, I see no
need to discuss it.