CLS Bank Int'l v. Alice Corp. Pty. Ltd.--NEWMAN opinion

Bitlaw Summary and Analysis

The Federal Circuit in this case was reversed by the U.S. Supreme Court in its Alice Corp. decision.

This Federal Circuit decision was issued in five different opinions, none of which received support of a majority of the members of the Federal Circuit. These decisions are as follows:

NEWMAN, Circuit Judge, concurring in part, dissenting in part.

The ascendance of section 101 as an independent source of litigation, separate from the merits of patentability, is a new uncertainty for inventors. The court, now rehearing this case en banc, hoped to ameliorate this uncertainty by providing objective standards for section 101 patent-eligibility. Instead we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation. With today's judicial deadlock, the only assurance is that any successful innovation is likely to be challenged in opportunistic litigation, whose result will depend on the random selection of the panel.

Reliable application of legal principles underlies the economic incentive purpose of patent law, in turn implementing the benefits to the public of technology-based advances, and the benefits to the nation of industrial activity, employment, and economic growth. Today's [**1733] irresolution concerning section 101 affects not only this court and the trial courts, but also the PTO examiners and agency tribunals, and all who invent and invest in new technology. The uncertainty of administrative and judicial outcome and the high cost of resolution are a disincentive to both innovators and competitors.



In deciding to rehear the patent dispute between CLS Bank and Alice Corporation, the en banc court undertook to remedy distortions flowing from inconsistent precedent on section 101. This remedial effort has failed. This failure undoubtedly reflects the difficulty of the question; I suggest that it also demonstrates that an all-purpose bright-line rule for the threshold portal of section 101 is as unavailable as it is unnecessary. Experience over two centuries of United States patent law supports this conclusion.

Section 101 is not the appropriate vehicle for determining whether a particular technical advance is patentable; that determination is made in accordance with the rigorous legal criteria of patentability. Contrary to the diverse protocols offered by my colleagues, it is not necessary, or appropriate, to decide whether subject matter is patentable in order to decide whether it is eligible to be considered for patentability.

This section 101 issue appears to have its foundation in a misunderstanding of patent policy, for the debate about patent eligibility under section 101 swirls about concern for the public's right to study the scientific and technologic knowledge contained in patents. The premise of the debate is incorrect, for patented information is not barred from further study and experimentation [***53] in order to understand and build upon the knowledge disclosed in the patent.

Judicial clarification is urgently needed to restore the understanding that patented knowledge is not barred from investigation [*1322] and research. The debate involving section 101 would fade away, on clarification of the right to study and experiment with the knowledge disclosed in patents.

These issues have arisen in connection with today's newest fields of science and technology; that is, computer-based and related advances, and advances in the biological sciences. These fields have spawned today's dominant industries, and produced spectacular benefits. I have seen no competent analysis of how these technologies and industries would be affected by a fundamental reduction in patent-eligibility. Dramatic innovations, and public and economic benefits, have been achieved under the patent law as it has existed.

Thus I write separately to propose that the court resolve the present impasse by returning to the time-tested principles of patent law. I propose that the court reaffirm three basic principles relating to section 101, as follows:

1. The court should hold that section 101 is an inclusive statement of patent-eligible subject matter -- I propose that the court reaffirm that patent-eligible subject matter is as stated in the patent statute. The court should acknowledge the statutory purpose of section 101, to provide an inclusive listing of the "useful arts." Then, upon crossing this threshold into the patent system, examination of the particular subject matter on the substantive criteria of patentability will eliminate claims that are "abstract" or "preemptive," on application of the laws of novelty, utility, prior art, obviousness, description, enablement, and specificity. There is no need for an all-purpose definition of "abstractness" or "preemption," as heroically attempted today.

2. The court should hold that the form of the claim does not determine section 101 eligibility -- I propose that the court make clear that patent eligibility does not depend on the form of the claim, whether computer-implemented innovations are claimed as a method or a system or a storage medium, whether implemented in hardware or software. Patent eligibility does not turn on the ingenuity of the draftsman. The differences among my colleagues' views of this aspect simply add to the instability and uncertainty of patenting and enforcement.

3. The court should confirm that experimental use of patented information is not barred -- Misunderstanding of this principle appears to be the impetus for the current debate, for the popular press, and others who know better, have stated that patented subject matter cannot be further studied. This theory is presented to support section 101 ineligibility, on the reasoning that important discoveries should be ineligible for patenting so that they can be further studied. I propose that the court reaffirm the long-standing rule that study and experimentation are not infringement, whether the experimentation [***54] is for basic or applied purposes.

On adoption of these principles the law of section 101 will be stabilized, and patentability [**1734] can continue to be determined in accordance with statute and precedent.



I start with this issue, for the misperception that study of patented subject matter is precluded, has placed a misdirected spin on section 101.

The idea that experimentation with patented information is restricted is the basis of the view that patenting inhibits scientific advance. For example, the Court stated [*1323] in Mayo Collaborative Servs. v. Prometheus Labs., In6., ___ U.S. ___, 132 S.Ct. 1289, 1301, 182 L.Ed.2d 321 (2012) that "there is a danger that the grant of patents that tie up their use 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."

However, the Court has recognized that "[t]he federal patent system thus embodies a carefully crafted bargain for encouraging the creation and disclosure of new, useful, and unobvious advances in technology and design in return for the exclusive right to practice the invention for a period of years." Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U.S. 141, 150-51, 109 S.Ct. 971, 103 L.Ed.2d 118 (1989). See J.EM. Ag Supply, Inc. v. Pioneer Hi-Bred Int'l Inc., 534 U.S. 124, 142, 122 S.Ct. 593, 151 L.Ed.2d 508 (2001) ("The disclosure required by the Patent Act is 'the quid pro quo of the right to exclude.'"); Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 484, 94 S.Ct. 1879, 40 L.Ed.2d 315 (1974) (same).

This disclosure is available to produce further advance, on further study and experimentation. The Court long ago recognized that the scientific and technological information in patents may be studied, evaluated, tested, improved upon, compared, etc., as explained by Justice Story in Whittemore v. Cutter.

It could never have been the intention of the legislature to punish a man, who constructed such a machine merely for philosophical[fn1] experiments, -or for the purpose of ascertaining the sufficiency of the machine to produce its described effects.

29 F. Cas. 1120, 1121 (C.C.D.Mass.1813). The Court reiterated this principle in Graham v. John Deere Co., referring to the "inherent requisites in a patent system":

Innovation, advancement, and things which add to the sum of useful knowledge are inherent requisites in a patent system which by constitutional command must "Promote the Progress of . . . useful Arts." This is the standard expressed in the Constitution and it may not be ignored.

383 U.S. 1, 6, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966) (ellipses in original). The reference to "useful knowledge" cannot mean that the knowledge disclosed in patents is un-touchable for seventeen years.

The Federal Circuit has reaffirmed that "patenting does not deprive the public of the right to experiment with and improve upon the patented subject matter." In re Rosuvastatin Calcium Patent Litig., 703 F.3d 511, 527 (Fed.Cir.2012). However, in Embrex, Inc. v. Service Engineering Corp., 216 F.3d 1343, 1349 (Fed.Cir.2000), the court stated that the experimental use defense was "very narrow" and unavailable when "the inquiry has definite, cognizable, and not insubstantial commercial purpose," [***55] the concurrence adding that "neither the statute nor any past Supreme Court precedent gives any reason to excuse infringement because it was committed with a particular purpose or intent, such as for scientific experimentation," id. at 1353. Precedent does not support this theory.

The right to study and experiment, to evaluate and improve upon the information in patents was discussed by our predecessor Court of Claims in Ordnance Engineering Corp. v. United States, 84 Ct.Cl. 1 (1936) and in Chesterfield v. United States, 159 F.Supp. 371 (Ct.C1.1958), the court explaining that experimentation does not [*1324] infringe the patent. Factual distinctions may arise, as in Pitcairn v. United States, 212 Ct.Cl. 168, 547 F.2d 1106 (1976), where the Court of Claims held that of 2200 infringing helicopters, the use of 93 helicopters for testing or demonstration was not an "experimental use," as compared with the truly "experimental helicopters" that the patentee did not accuse of infringement.

Scholars have explained this essential policy of patent systems, whereby patented information adds to the body of knowledge, and the right to exclude does not prohibit further [**1735] study of patented technology. See Rebecca S. Eisenberg, Patents and the Progress of Science: Exclusive Rights and Experimental Use, 56 U. Chi. L.Rev. 1017, 1022 (1989):

If the public had absolutely no right to use the disclosure without the patent holder's consent until after the patent expired, it would make little sense to require that the disclosure be made freely available to the public at the outset of the patent term. The fact that the patent statute so plainly facilitates unauthorized uses of the invention while the patent is in effect suggests that some such uses are to be permitted.

See Janice M. Mueller, The Evanescent Experimental Use Exemption from United States Patent Infringement Liability: Implications for University and Nonprofit Research and Development, 56 Baylor L.Rev. 917, 921 (2004):

The publication of information about a new invention in the form of an issued patent is of little use to society if that information is effectively kept 'on ice' for seventeen-eighteen years by means of a patent owner's unchecked right to exclude others from use for any purpose.

See also Katherine J. Strandburg, What Does the Public Get? Experimental Use and the Patent Bargain, 2004 Wis. L.Rev. 81 (2004) (distinguishing between infringing and non-infringing uses of information disclosed in patents, by differentiating between permissible "experimenting on" patented inventions, and impermissible "experimenting with" things that are patented); Andrew S. Baluch, Relating the Two Experimental Uses in Patent Law: Inventor's Negation and Infringer's Defense, 87 B.U. L.Rev. 213 (2007) (proposing that the right of experimental use by others balances the experimental use exception to § 102(b)).

Patents do not prevent experimentation with patented subject matter, whether the purpose is scientific knowledge or commercial potential. To hold otherwise would be to deny a foundation of the system of patents. However, the popular press [***56] has accepted the theory that experimentation is barred for patented subject matter,fn2 as have my colleagues, who cite that position as grounds for restricting eligibility under section 101.fn3

The patent statute requires that the patented information is made known ("patent" is derived from the latin "patere," which means "to lie open"), and that the patentee provide details of how to make and use the [*1325] patented subject matter. In return, the patentee receives a term of exclusivity that has traditionally been applied only against commercial practice. On this simple bargain the industrial age blossomed, built on improvements and advances in patented subject matter.

Judicial precedent is sparse on the issue of experimental use, for until recently the principle was not in question. Technical publications often describe research in patent-heavy fields, apparently without fear of lawsuits. At a recent conference reported in the Patent, Trademark, & Copyright Journal, a spokesman stated that "research has been spurred rather than inhibited as a result of the [Myriad] patents, citing 18,000 researchers who have published over 10,000 articles. . . ." 85 PTCJ 759 (2013).

In summary, experimental use of patented information can take various forms, including:

a. experiments to improve or build upon patented subject matter -- Such studies are encouraged by the patent system; it has never been the law that such experimentation is infringement.

b. experiments to compare patented subject matter with alternatives to determine relative performance and properties -- Improvements would be inhibited if new developments could not be compared with the old. Such a position has never been the law.

c. experimental study of patented subject matter to understand its mechanism -- Such scientific study is an important attribute of patent systems. Scientific understanding may or may not lead to new commercial embodiments, which are not excused from infringement if covered by valid claims; but study of patented subject matter is not infringement.

d. experimental study of patented subject matter to find new applications or modifications[**1736] -- Such new directions are a benefit of the patent system; the experimentation is not infringement.

The courts, the press, and the public, have been led down a path that is contrary to patent principles. Let us remove the doubts we have sown. With clarification of the right to experiment with the information disclosed in patents, it will no longer be necessary to resort to the gambit of treating such information as an "abstraction" in order to liberate the subject matter for experimentation, whether for scientific or commercial purposes. I respectfully dissent from the contrary majority position.



I turn briefly to the concept of "abstraction" in connection with section 101 eligibility of computer-implemented subject matter. In the case before us, the diverse theories of the role of section 101, presented by the parties and the many amid curiae, show not only the complexity but [***57] also the importance of the issue. However, it is not necessary to rewrite the law of patent eligibility.

All scientific and technologic advance starts with fundamental principles, described by my colleagues as "abstract ideas," although the Court has recognized that "all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas." Mayo, 132 S.Ct. at 1293. Scientific principles are "a creation of the human mind, with its freely invented ideas and concepts,"fn4 while the adaptation of such principles to public benefit is the milieu of patents. The Court explained in Mackay [*1326] Radio & Telegraph Co. v. Radio Corp. of America, 306 U.S. 86, 94, 59 S.Ct. 427, 83 L.Ed. 506 (1939) that "While a scientific truth, or the mathematical expression of it, is not a patentable invention, a novel and useful structure created with the aid of knowledge of scientific truth may be."

My colleagues today attempt to devise universal criteria of eligibility under section 101. Some colleagues rely on "abstraction;" while others invoke "preemption;" others look for "meaningful" limitations. I quite agree that it is not easy to define "abstraction" or "preemption" or "meaningful limitation," yet my colleagues propose that these terms bar the gateway to the patent system. Such definition is as elusive for Alice Corporation's escrow banking system as for the most complex of phenomena:

The intrinsic uncertainty of the meaning of words was of course recognized very early and has brought about the need for definitions, or -- as the word "definition" says -- for the setting of boundaries that determine where the word is to be used and where not to. But definitions can be given only with the help of other concepts, and so one will finally have to rely on some concepts that are taken as they are, unanalyzed and undefined.

Werner Heisenberg, Physics and Philosophy 168 (1958).

I propose that the court return to the statute, and hold that when the subject matter is within the statutory classes in section 101, eligibility is established. This conforms with legislative intent. See Diamond v. Chakrabarty, 447 U.S. 303, 308, 100 S.Ct. 2204, 65 L.Ed.2d 144 (1980) ("In choosing such expansive terms as 'manufacture' and 'composition of matter,' modified by the comprehensive 'any,' Congress plainly contemplated that the patent laws would be given wide scope."). The Court in Diamond v. Diehr, 450 U.S. 175, 182, 101 S.Ct, 1048, 67 L.Ed.2d 155 (1981), reiterated that the system of patents embraces "anything under the sun that is made by man"; it cannot be that computer-implemented developments may or may not be eligible under section 101 depending on how broadly they are sought to be claimed. Breadth of claiming, and undue breadth, are determined under sections 102, 103, and 112, not section 101.

The Court in J.E.M. v. Pioneer recognized that section 101 is a general and "dynamic provision designed to encompass new and unforeseen inventions." 534 U.S. at 135, 122 S.Ct. 593. In its study of "A Patent System for the 21st Century" (2004) the National Research Council focused on the emerging technologies in a "Knowledge-Based Economy," and observed that the patent system is "a unitary system with few a priori exclusions." Id. at 57. It is beyond cavil that the patent [***58] system is intended to be receptive to the advances of science and technology.

This court referred to section 101 as a "coarse filter," see Research Corporation Technologies, Inc. v. Microsoft Corp., 627 F.3d 859, 869 (Fed.Cir.2010). On traversing the coarse filter, the subject matter is subjected to the statutory rigors of novelty, unobviousness, enablement, specificity, [**1737] etc. This approach places inventions in the statutory framework of patentability, not merely eligibility to be considered for participation in the patent incentive system.

No substitute has been devised for the incentive of profit opportunity through market exclusivity.fn5 The court should return to these basic principles, and abandon [*1327] its failed section 101 ventures into abstraction, preemption, and meaningfulness.

I repeat my concern for the court's preservation of legal uncertainty through our inconclusive treatment of the law of section 101. The escrow banking mechanism of the patents in suit is claimed in the Alice Corporation patents as a method or a system or a media device. The form of the claim does not determine section 101 patent eligibility. Nor does the scope of the claim. In claim drafting, it is customary to start with broad claims and then draft claims of progressively narrower scope; this does not determine "abstraction" under section 101. As in O'Reilly v. Morse, 56 U.S. 62, 15 How. 62, 14 L.Ed. 601 (1853), Samuel Morse's broadest claim was rejected for undue breadth because it was directed to "the use of the motive power of the electric or galvanic current . . . for making or printing intelligible characters, letters or signs, at any distances," id. at 86; the Court did not discuss "eligibility," but simply held that this claim was not limited to the "specific machinery" described in the specification, and was unduly broad.

I share the majority view that all of the claims stand or fall together. I would hold that the system, the method, and the media claims are eligible under section 101, and would remand to the district court for determination of patentability under the substantive provisions of the statute.

1 "Philosophical" means "scientific" in the language of that era. Integra Lifesciences I, Ltd. v. Merck KGaA, 331 F.3d 860, 874-75 n. 8 (Fed.Cir.2003) (Newman, J., dissenting).

2 2. See, e.g., Adam Liptak, Supreme Court to Look at a Gene Issue, N.Y. Times, Nov. 30, 2012 ("Myriad and other gene patent holders have gained the right to exclude the rest of the scientific community from examining the naturally occurring genes of every person in the United States"); Michael Specter, Can We Patent Life?, The New Yorker, April 2, 2013 ("Any scientist who wants to conduct research on such a gene -- even on a small sequence of its DNA -- has to pay license fees.").

3 See Lourie Op. at 1281 ("Guarding against the wholesale preemption of fundamental principles should be our primary aim in applying the common law exceptions to § 101."); Rader Op. at 1300 n. 3 (permissible experimentation is limited to "academic research" "without commercial ends").

4 Albert Einstein & Leopold Infeld, The Evolution of Physics 310 (1938).

5 Illustration is seen in the Orphan Drug Act, 21 U.S.C. § 360aa-360ee (1997), which provides patent-like exclusivity and is reported to have provided treatment for many previously untreated diseases. Food & Drug Admin., Developing Products for Rare Diseases & Conditions, Conditions/default.htm ("The [Orphan Drug] program has successfully enabled the development and marketing of more than 400 drugs and biologic products for rare diseases since 1983. In contrast, fewer than 10 such products supported by industry came to market between 1973 and 1983."). And the experience of the Bayh-Dole Act is that patent exclusivity has moved much university research into public benefit. See Wendy H. Schacht, Cong. Research Serv., RL 32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of Technology 7 (2005).