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    Supreme Court Hears Oral Arguments in Alice v. CLS Bank

    3/31/2014
        The U.S. Supreme Court recently heard oral arguments in the case of Alice Corp v. CLS Bank (13-298, March 31, 2014). The question on review was 

        Whether claims to computer-implemented inventions-including claims to systems and
    machines, processes, and items of manufacture-are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by the Court? 

        The Federal Circuit had summarily deemed Alice Corp.'s asserted claims as patent-ineligible. Though the Federal Circuit issued six separate opinions, none of them garnered a majority. The main concurring opinion did question whether the claims were merely directed to an abstract concept, which was also reflected in the Justices' questioning.

    Petitioner's (Patent Holder) Presentation 
        During the hearing, the Justices Breyer and Ginsburg queried Petitioner's counsel on whether on whether the patent was simply directed to the abstract idea of settlement of accounts through an intermediary. Of course, Petitioner needed to characterize the claims as describing more than the mere account settlement in order preserve patent eligibility. In this regard, the Petitioner described the invention in terms of solving a complex problem of sequencing a large volume of accounts globally across different time zones and settling them properly. In the present situation, the Petitioner urged that the specific implementation using a computer was what satisfied the coarse filter of Section 101 as it relates to patent eligibility, recognizing that performing steps of an abstract concept on a computer would not be sufficient to satisfy Section 101. 

        Justices Kennedy, Sotomayor, Scalia and Kagan directed questions on the role of the computer-implementation and in the Section 101 question. Petitioner's counsel did concede that the programming of the computer itself against the disclosed functions was not itself particularly difficult. Justice Kagan requested Petitioner's counsel to disaggregate the computer-implementation aspect of the invention from the process being implemented to clarify what was the concept in the patent fell beyond the concept of a third party settlement. Petitioner's response was that the computer was required in order to provide the real-time processing and correct chronological sequencing. This lead to Justice Scalia's question of framing the question of whether the patent was not directed merely to the question of "what" was being performed but also "how" it was being performed. In response, Petitioner directed the Justices' attention to several flow charts disclosed in the patent, though it is questionable whether the essence of those charts is captured within the contested claims themselves.1

    Judge Kagan also inquired the extent of overlap of novelty and Section 101. Petitioner acknowledged that there would be an overlap, but that Section 101 is a coarse filter, and novelty should fall more in the province of Sections 102 and 103.

    Respondent's Presentation 
        Respondent's counsel urged that the claims at issue were merely directed to settlement of accounts and thus in every way an abstract idea, similar to the hedging concept in Bilski. On the Petitioner's point regarding the complexity of the transactions, such as the multilateral and global nature, Respondent's counsel noted that the claims did not reflect these characteristics. In answer to Justice Scalia's question of "how" a computer could impart patentability, Respondents' counsel explained that a patent that describes sufficiently how a computer does a new or useful thing, whether it's data compression, encryption or any other technological solution to a business problem, a social problem or technological problem, would be within the realm of the patent law. Respondent emphasized that the patent as issue did not fall into that category, and that the flow charts relied upon by Petitioner were directed to a non-asserted claim. Rather, Respondent urged that the correct inquiry was whether the invention could have been implemented in the pre-electronic era using something other than a computer. Here, it was argued that the invention could have been done via an abacus, or a handwritten ledger, pencil and paper, and that migration of the process to a computer was not sufficient to qualify for patent eligibility under the Court's prior decisions in Benson and Flook.

    Justice Kagan inquired about how the test for patent eligibility should be framed. Respondent offered two suggestions. First, the patentee must not simply describe the desired result, which would be a throw-back to State Street Bank. Second, the claim must recite significantly more than the abstract idea itself. This requires a contextual analysis based on the claims and specification and file history. Respondent indicated that the Section 101 issue was not amenable to a bright line rule.

    Amicus Presentation     
        The Justices also finally heard from General Verrilli, Solicitor General on behalf of the United States, as amicus curiae, supporting Respondents and taking a step further in voicing a general disfavor for business method patents. Chief Justice Roberts made note of a six-factor test in the United States' brief and voiced skepticism that those tests would provide any greater clarity on the Section 101 question. General Verrilli summarized the inquiry on how the patent eligibility question should be framed as follows. The key is that the proffered tests are all directed to answering the question of whether the claimed invention is an innovation in A) improvement of the computers functioning or B) use of the computer technology to improve the functioning of another technological process. 

        Notably, none of the parties were advocating that software patents should not be patent eligible, and to different degrees, none of the parties were advocating a bright line rule that business methods were not patent eligible. Rather, the parties as well as the Justices continue to struggle with what is too abstract to be patent eligible, such that adding a computer-implementation would not necessarily cast the invention within the realm of patent eligibility. While several possible statements of a Section 101 test were offered, it is not clear that any one will be adopted. What is important is that all the parties directed the Justices to the language of the claims in one form or another. As stated by Respondent, and echoed in various degrees by Petitioner and Amicus, contextual analysis is important. It seems that Petitioner's claims may hinge on how much of the flowchart and other details of the patent that should imputed into the claims at issue. 

        An estimated date for decision is mid-summer 2014.

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    133. 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:

    (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 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 ones 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.