Ruling Makes Certain Software Patent Claims Ineligible for Patent Protection
August 22, 2011

In an opinion with potentially far-reaching consequences for the software industry, the United States Court of Appeals for the Federal Circuit found in CyberSource Corp. v. Retail Decisions Inc. that certain software patent claims may be ineligible for patent protection under 35 U.S.C. § 101.


While recent court cases have emphasized the “machine-or-transformation” test to disqualify patent-ineligible abstract or mental processes from patent protection, software claims have generally been considered patent-eligible by virtue of being a tangible product of manufacture--a non-transitory computer readable storage medium.

In an unexpected move, however, the Federal Circuit panel disregarded the recited structure of the non-transitory storage medium and instead looked to “the underlying invention.” Finding that the “underlying invention” as claimed was the subject of examination--not the non-transitory medium--the CyberSource panel applied the “machine-or-transformation” test to the underlying method and held that the software claim was invalid for lack of statutory subject matter.

Background on Section 101
Separate from any considerations of novelty or innovation, section 101 is a threshold inquiry as to whether the claimed invention fits into one of the categories of subject matter that are patent-eligible: process, machine, manufacture, or composition of matter. In applying section 101, the U.S. Supreme Court has held that three categories of subject matter are never patent-eligible: laws of nature, physical phenomena, and abstract ideas.

Recent court cases on patent-eligibility under section 101 have dealt with such categories of subject matter as business methods, methods for determining drug efficacy, and isolated DNA. Bilski v. Kappos, 130 S. Ct. 3218 (2010); Prometheus Laboratories v. Mayo Collaborative, 628 F.3d 1347 (Fed. Cir. 2010), Ass’n for Molecular Pathology v. U.S. Patent & Trademark Office, 2010-1406 (Fed. Cir. 2011).

With respect to method claims, the Supreme Court held in the Bilski decision that while not an exclusive requirement the “machine-or-transformation” test was a strong indicator of patent-eligibility. While the argument against conferring patent-eligibility to software claims has traditionally been that software was abstract or purely mental, the Federal Circuit found in the matter of In re Beauregard that “computer programs embodied in a tangible medium, such as floppy diskettes, are patentable subject matter under 35 U.S.C. § 101.” In re Beauregard, 53 F.3d 1583 (Fed. Cir. 1995)

Software Claims
In evaluating the claimed method in CyberSource, the Federal Circuit panel found that the method claim was not tied to any “machine-or-transformation.” Although the patent-holder argued that the method could not be performed without access to the Internet thereby conferring subject matter eligibility, the panel noted that the plain language of the claim did not require the method to be performed by any particular machine (e.g., having access to the Internet), or any machine at all. Moreover, the panel stated that the method claim encompassed abstract mental steps, which further supported its conclusion that the method was not patent-eligible.

CyberSource argued, however, that the software claim was directed to a tangible, man-made article of manufacture and therefore cannot be categorized as abstract or a purely mental process. Specifically, it argued that the claimed recitation of a “computer-readable medium (e.g., a disk, hard drive, or other data storage device)” and execution of instructions thereon by “one or more processors of a computer system” provided the requisite tangible, non-abstract subject matter. The Federal Circuit panel rejected that argument reasoning that the “underlying invention” is a method and that therefore, the machine-or-transformation test should be applied. Application of the test in turn found the software claim lacking statutory subject matter.

The CyberSource opinion relied heavily on In re Abele, in which an apparatus claim comprising “means for calculating” and “means for displaying” were considered to have a “broad” and “functionally defined” nature, thereby making treatment as a method claim appropriate. In re Abele, 684 F.2d 902 (CCPA 1982). It should be noted, however, that the apparatus claim in Abele was written in a “means-plus-function” format, thereby encompassing “any and every means for performing the recited functions.” Similarly, a method or process claim would be recognized as encompassing all possible means for performing the same.

The panel also acknowledged that under In re Alappat “programming a general purpose computer to perform an algorithm ‘creates a new machine, because a general purpose computer in effect becomes a special purpose computer once it is programmed to perform particular functions.’” In re Alappat, 33F.3d 1526,1545 (Fed. Cir. 1994). Notwithstanding, the panel stated that it was “never suggested that simply reciting the use of a computer to execute an algorithm that can be performed entirely within the human mind falls within the Alappat rule.”

At this point, the patent-holder may challenge the decision by requesting a rehearing en banc or seeking an appeal directly to the Supreme Court of the United States. In the meantime, patent applicants are encouraged to remain vigilant as to how their patent claims are drafted and to “diversify” their patent claims as much as possible in terms of process, machine, manufacture, or composition of matter. For those entities currently in litigation involving software patents, the CyberSource decision offers another weapon to be wielded--or feared--depending on which side of the versus sign the entity finds itself.

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