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The Federal Circuit Continues to Struggle to Define What Constitutes Patentable Subject Matter Under Section 101 After Bilski

Stan Gibson's Notes from the Inventor Underground

The Federal Circuit Continues to Struggle to Define What Constitutes Patentable Subject Matter Under Section 101 After Bilski

Patent and Technology trial lawyer Stan Gibson discusses the impact of Bilski on cases involving the patentability of processes and methods.

Stan Gibson, Intellectual Property Trial Attorney

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Bancorp Services, LLC (“Bancorp”) owns two United States patents, the 5,926,792 (“the ‘792 patent”) and the 7,249,037 (“the ‘037 patent”), both of which are entitled “System for Managing a Stable Value Protected Investment Plan.” The patents have a common specification and a priority date of September 1996. The patents disclose systems and methods for administering and tracking the value of life insurance policies in separate accounts and they also disclose specific formulae for determining the values required to manage a stable value protected life insurance policy, including claims with methods and computer-readable media.

An example of one such claim that the Federal Circuit focused upon is Claim 9, which reads: “A method for managing a life insurance policy on behalf of a policy holder, the method comprising the steps of:

generating a life insurance policy including a stable value protected investment with an initial value based on a value of underlying securities;

calculating fee units for members of a management group which manage the life insurance policy;

calculating surrender value protected investment credits for the life insurance policy;

determining an investment value and a value of the underlying securities for the current day;

calculating a policy value and a policy unit value for the current day;

storing the policy unit value for the current day; and

one of the steps of:

removing the fee units for members of the management group which manage the life insurance policy, and

accumulating fee units on behalf of the management group.”

At the trial court level, the patents were found invalid by the Eastern District of Missouri for failing to meet the patent eligibility requirements of Section 101 of the Patent Act. The district court reached this conclusion without construing the disputed terms.

Bancorp appealed and asserted that the district court should have construed the claims before reaching the issue of validity. The Federal Circuit began its analysis by noting that “we perceive no flaw in the notion that claim construction is not an inviolable prerequisite to a validity determination under § 101. We note, however, that it will ordinarily be desirable–and often necessary–to resolve claim construction disputes prior to a § 101 analysis, for the determination of patent eligibility requires a full understanding of the basic character of the claimed subject matter.”

Although the district court declined to construe the claims, the Federal Circuit noted that it could do so for the first time on appeal and it then proceeded to adopt its own analysis of the claims before proceeding with the § 101 analysis. “Before proceeding to our § 101 analysis, we construe the claims as follows. We conclude that the asserted system claims require ‘one or more computers,’ as Bancorp asserts and as Sun Life appears to concede. The plain language of the system claims requires particular computing devices, such as a ‘generator,’ a ‘calculator,’ and ‘digital storage.’ The specification supports our construction, explaining that figure 1, which shows ‘an embodiment of the system of the present invention,’ depicts a ‘computer’ and ‘a central processing unit for a memory subsystem.’ ‘037 patent col. 6 11.44-47.” After setting forth that construction, the Federal Circuit stated that “[w]e conclude that the asserted independent method claims do not require implementation on a computer. The plain language of those claims does not require a computer, and the doctrine of claim differentiation creates a presumption that the independent claims, unlike the dependent claims, do not require a computer to be implemented. Bancorp fails to rebut that presumption with its unpersuasive assertion that a computer is ‘inherent’ in the independent method claims. Bancorp Br. 52. As the district court observed, ‘although it would be inefficient to do so, the steps for tracking, reconciling and administering a life insurance policy with a stable value component can be completed manually.’ Bancorp, 771 F. Supp. 2d at 1065. Unlike the independent claims, however, the dependent method claims are plainly limited to being ‘performed by a computer.'”

The Federal Circuit then addressed the issue of patent eligibility under section 101. “Section 101 of the Patent Act defines patentable subject matter, stating that “[w]hoever 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 therefore, subject to the conditions and requirements of this title.””

Bancorp asserted that its system and medium claims cover tangible machines and therefore could not be considered patent-ineligible abstract ideas under § 101. To make this argument, Bancorp also asserted that the district court’s conclusions were inconsistent with other Federal Circuit decisions, particular Research Corp. Tech. Inc. v. Microsoft Corp., 627 F.3d 859 (Fed. Cir. 2010) and Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011) (the latter of which the Supreme Court has vacated).

The Federal Circuit addressed Bancorp’s assertion that the district court erred by extending the Supreme Court’s prohibition against patenting abstract ideas to Bancorp’s system and medium claims. The Federal Circuit, based on prior cases, stated that in some cases machine, system or medium may be equivalent to an abstract mental process for purposes of patent ineligibility. The Federal Circuit then concluded that based on the facts of this case the district court correctly treated the asserted system and medium claims as no different from the asserted method claims for patent eligibility purposes. The Federal Circuit reached this conclusion by comparing the system and medium claim to the method claim and then concluded that “[t]he only difference between the claims is the form in which they were drafted. The district court correctly treated the system and method claims at issue in this case as equivalent for purposes of patent eligibility under § 101.”

After reaching that conclusion, the Federal Circuit turned to the district court’s ruling on the invalidity of the asserted claims under § 101. Bancorp’s argument essentially boiled down to the contention that because its claims are limited to being performed on a computer they therefore could not claim an abstract idea. The Federal Circuit disagreed with this argument, concluding that “[t]o salvage an otherwise patent-ineligible process, a computer must be integral to the claim invention, facilitating the process in a way that a person making calculations or computations could not.”

The Federal Circuit then concluded that there was no difference between the claim at issue here and those invalidated under Bilski. “We agree with the district court that for purposes of § 101 there is no material difference between the claims invalidated in Bilski and those at issue here. Bancorp, 771 F. Supp 2d at 1066. In Bilski, the patent applicant “attempt[ed] to patent the use of the abstract idea of hedging risk in the energy market and then instruct[ed] the use of well-known random analysis techniques to help establish some of the inputs into the equation.” 130 S. Ct. at 3231. Here, Bancorp’s patents “attempt to patent the use of the abstract idea of [managing a stable value protected life insurance policy] and then instruct the use of well-known [calculations] to help establish some of the inputs into the equation.” Id. As in Bilski, the claims do not effect a transformation, and the fact that the required calculations could be performed more efficiently via a computer does not materially alter the patent eligibility of the claimed subject matter. We discern no fault in the conclusion of the district court. Bancorp, 771 F. Supp. 2d at 1066, that the asserted claims do not meet either prong of the machine-or-transformation test — which, while ‘not the sole test for deciding whether an invention is a patent-eligible process,’ remains ‘a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101.’ Bilski, 130 S. Ct. at 322.”

The Federal Circuit then distinguished Bancorp’s citation to the Research Corp decision finding that this case was different in two critical respects. “First, the claimed processes in Research Corp. plainly represented improvements to computer technologies in the marketplace” and ” [s]econd, the method in Research Corp., which required the manipulation of computer data structures (the pixels of a digital image and the mask) and the output of a modified computer data structure (the halftoned image), was dependent upon the computer components required to perform it.”

The Federal Circuit then found that “[w]hen the insignificant computer-based limitations are set aside from those claims that contain such limitations, the question under § 101 reduces to an analysis of what additional features remain in the claims.”

Accordingly, the Federal Circuit concluded that the district court correctly held that without the computer limitations nothing remains in the claims but the abstract idea of managing a stable value protected life insurance policy by performing calculations and manipulating the results.

Lastly, the Federal Circuit concluded that its conclusion in this case was not inconsistent with its decision in CLS Bank Int’l v. Alice Corp, No. 2011-1301, 2012 WL 2708400 (Fed. Cir. July 9, 2012) because “the asserted claims in CLS were patent eligible because “it [wa]s difficult to conclude that the computer limitations . . . d[id] not play a significant part in the performance of the invention or that the claims [we]re not limited to a very specific application of the [inventive] concept,” id. at *12 (emphasis added).” Here, in contrast, “the district court evaluated the limitations of the claims as a whole before concluding that they were invalid under § 101. Bancorp, 771 F. Supp. 2d at 1056-57, 1064-66. As we explained above, the computer limitations do not play a “significant part” in the performance of the claimed invention. And unlike in CLS, the claims here are not directed to a “very specific application” of the inventive concept; as noted, Bancorp seeks to broadly claim the unpatentable abstract concept of managing a stable value protected life insurance policy. See id. at 1066.”

* * *
The Federal Circuit continues to offer differing standards for patentability under § 101, between Bancorp, CLS, Research Corp. and Ultramercial. With the Supreme Court’s decision in Bilski not accepting the machine-or-transformation test but not rejecting it either, the Federal Circuit has reached different conclusions on patentability. Although there remains confusion over what will satisfy the standard for patentability, the recent decision in Bancorp does confirm in line with Bilski that mere recitation of a computer to perform steps that could be performed by a person will not be sufficient to establish patentability under § 101.

Bancorp Services, LLC v. Sun Life Assurance Company of Canada and Analect LLC, Case No. 2011-1467 (Fed. Cir. July 26, 2012)