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Groklaw's Report from the CLS Bank v. Alice En Banc Hearing at the Federal Circuit ~pj Updated
Friday, February 08 2013 @ 06:46 PM EST

I hope you were not expecting too much from today's en banc hearing by the Federal Circuit on CLS Bank v. Alice. A split decision is the best we can hope for, according to Bloomberg's report on the day's festivities, Google Joins JPMorgan in Seeking Software Patent Limits, quoting a patent lawyer, Brad Wright:
Based on their questions and their past rulings, the judges seemed divided, said Brad Wright, a patent lawyer with Banner & Witcoff in Washington who attended the hearing. “The court appears fractured and a split decision is likely,” Wright said.
Fractured. Indeed. Le mot juste. A split decision is what Mark Lemley predicted, as well.

I have collected a couple of other reports on the hearing, and then we have our own. Ours is hilarious, in the way that only geek pain plus indignation plus despair plus a touch of amazement at tech cluelessness can provide.

Yes. Another 'is software patentable' case. Or is this patent so blazingly obvious it is invalid? If so, how about if the patent claims the magic happens when folks do it "using a computer"?

First from ItWorld:

Still, when U.S. Patent and Trademark Office (USPTO) lawyer Nathan Kelley argued Friday that simply using a reconfigured computer to run an abstract idea doesn't make it patentable, Judge Kimberly Moore suggested that all software basically reconfigures a computer.

Alice's patents describe specific ways a computer is configured to run the company's trading platform, and contain detailed flow charts describing the process, Moore said. The Alice patents are "so far" from an abstract idea, she said.

"What you effectively said is software patents are dead," she said to Kelley.

Kelley disagreed, saying the USPTO's argument was more narrowly focused on abstract ideas and whether adding a computer process to them should be patentable.

And the Legal Times tells us:
Judge Pauline Newman questioned Perry on the definition of abstract. He responded by saying that it's something that can be done "entirely in the human mind or made with pen and paper." Using a computer to accelerate this process does not make the method unique, it simply accelerates the process. "In this context, a computer is a neutral," Perry said.

Nathan Kelley, the deputy solicitor for the U.S. Patent and Trademark Office, supported Perry's claims.

"We reject the notion that a general purpose computer and software would never be eligible for a patent," Kelley told the judges. "Adding a general purpose to an abstract idea is not a claim."

We had our own reporter in the room, Webster Knight, a geek and an attorney. Here's his take:

Preface:

PJ has sent out the order. Go to the Federal Circuit for the en banc oral argument of CLS Bank v Alice Corporation. This is a Biggie for software patent haters, right up there with Bilski. This adventure will shorten the usual commute, one of the most wondrous a dutiful worker could have. If he eschews the speed and risks of the subway, as he often does, he can take the express bus down embassy row to Dupont Circle, then cross downtown on H Street to Madison Place on Lafayette Square situs of the Federal Circuit and the White House. If the commuter is a little early, he can sit on a bench and contemplate which of the statues is Lafayette. If it is not the one in the middle, It will be reported here. [It was Jackson in the rain.]

History:

The procedural history starts with a suit by Alice Corporation against CLS Bank for violating its patents that involve a computerized trading platform for exchanging obligations so as to eliminate “settlement risk.” This can be used for trading stock and commodities. Such products and practices have centuries of precedent. They are not new or inventive, but they invoked a computer and impressed the USPTO. The District Court, in a summary judgment, invalidated the patents as abstract ideas under Section 101, ineligible for a patent. The Federal Circuit reversed, so now CLS is asking the Circuit en banc to reinstate the District Court summary judgment.

The petition en banc was granted because they had to. The dissent by Judge Sharon Prost invoked the panel's disregard of the Supreme Court precedents in an extended and authoritative manner. She also accused the majority of creating a new category for patentability without specifying a test or basis. These issues have become the basis of a duel with the Supreme Court. With Judge Prost's dissent aiming this case at the Supreme Court, the Court en banc has to deal with it now or after a likely remand on the very issues Prost called them out on. The Order granting the petition called for the following:

a. What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible "abstract idea”; and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?; and

b. In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?

The fox does not want to leave the henhouse and neither do the roosters. The Federal Circuit loves patents and perceives innovation where it may not exist. There are some among them who love computer instruction patents. They use the word "software" unabashedly.

In the Room:

The Bosch v. Pylon argument was scheduled first so the en banc panel initially laid out was to change for Alice, however the Alice dissenter, Prost, sat next to her majority rival, Kathleeen M. O'Malley. The author of the discarded Alice decision, Judge Richard Linn was not present. The Circuit's issue with the Supreme Court is also an issue amongst themselves. Who favored a bright line standard for patenting that was easy to follow? Who would hang tough against the Supreme Court and their colleagues? The Circuit appears not to make the standard too bright or easy to follow lest there be fewer patents and their services not be needed. But how long can they snub the Supreme Court? They had better do something clear and decisive with this case or ...

Bosch v. Pylon Goes First:

The first case, Bosch v. Pylon should have been argued second. Bosch had patents on wiper blades. They asked for an injunction and were denied. Bosch appealed to the Federal Circuit which reversed the District court, presumed irreparable damages and ordered the permanent injunction. Talk about loving patents! After all of this, someone in the Circuit itself said, "Wait a minute. Do we have jurisdiction yet? The judgment was not final save for an accounting." So they stopped themselves and ordered an en banc review sua sponte. It should have been second because it was somniferous with the issues being the definitions of "an accounting" over the centuries -- and something else about willful infringement. There was not a word about wiper blade design, sadly.

As announced by Chief Judge Randall R. Rader, there was a break for the en banc panel to be reconstituted, with more and different judges as it turned out. In the men's room an arguing attorney from each side shouted his priority for use of a facility and cut the line. All deferred.

CLS v. Bank:

Back in the courtroom one immediately noted that there was an additional tenth seat. How would they break a tie? Seated on the left was the original panel with Judge Richard Linn who wrote for the majority, Judge Sharon Prost of the (winning) dissent, and Judge Kathleen M. O'Malley, the rest of the majority.

The opening argument: Attorney Mark Cronin for CLS Bank held that the patent should have been invalidated because it was too abstract. An abstract idea was one that was purely mental. The banking transactions covered by the patent existed before the patent and consisted of mental steps.

The argument was spectacularly interrupted by the twelfth judge of the Court, Judge Kimberly A. Moore. "How can this not be patentable? Look at these long elaborate flow charts! Look at this list of hardware specifications: controllers, a Unix Sparc Station, data storage, connectors ...!" She was whole-hog into the patentability of the technology. It is too vast and complex not to be. It is hard to call her clueless when she is one of the ones who makes the clues. She repeated this several times throughout. At one point the lights flickered inducing one of her many, witty quips about a "Super Bowl" moment and the subsequent near-collapse of the Ravens. After reassuring all of her affections for the Ravens, and not even excluding retiring linebackers, she moved on in support of patents. She interrupted long and often. Judges Linn and O'Malley entered the discussion on the side of patentability and their earlier decision. Judge Prost entered a little at the end but certainly did no "set-up" questioning to emphasize her position in her dissent. About four judges seem to reveal themselves for each side leaving two indecipherables, Chief Judge Rader and the eldest, Judge Pauline Newman. [PJ: However their record speaks for itself. And another attorney who was in the peanut gallery today (the courtroom was packed) tells me that Judge Rader didn't ask a single substantive question, which may mean, "given his expansive view of patent eligible subject matter, he may just have already made his mind up." He says Judge Moore at one point compared *herself* to the Ravens in the Super Bowl.]

One judge noted that house settlements could be done in the way of this patent. This claim pre-empted the field of secure transactions. This was rebutted by the argument that it is patentable but ruled out for obviousness under sections 102 and 103.

Next up was Nathan Kelly for the United States Patent Office who was invited to participate by the Court. He said a bright line test was not workable, but that a computer plus an abstraction did not make for a patentable invention. He, as everyone else, did not want to say that that computer instructions should not be patentable. He just says that it should not be patentable "in this case."

Judge Moore struck loudly as he was mentioning the Alappat case, "Didn't you just say software patents are dead?" She repeated it and repeated her marvel of the machine specifications and flow charts.

Now and then, there is a dramatic, telling moment in a courtroom that betrays a significance beyond the words in exchange. Judge Timothy Dyk entered the discussion with Mr. Cronin and asked if the patented settlement methods were valid without a machine. The response in favor of the patents was that using shadow accounts was one method to secure transactions used in their patent. There were other particular ways. Judge Dyk said that the patent was an "end of day netting" method. The response was a defensive "this is our patent from 1993 that we have improved."

Judge Dyk then asked if there was a way to do "end of day netting" transactions without using the patents. The lawyer for Alice, Adam Perlman, refused to answer. He said he did not want to answer that question. There was a pause and there was silence. This clearly fell on an issue of pre-emption discussed at another time. The lawyer couldn't answer since to admit of another method would show a dodge of their patents, and to say there was no other method would confirm pre-emption of an accounting method that predated computers. It was a touché moment.

What type of claim has to be made for an invention "with a computer?" Judge O'Malley noted that the computer could calculate, store and print. The shadow accounts were used by the computer. It is complex. It must be patentable. Mr. Cronin ended with the presumption of validity of duly issued patents.

Mr. Perry was given his rebuttal time. Judge Prost finally entered the discussion. Judge Linn got in that it was an "inventive concept." And as Perry was concluding with his ace referral to Bilski, Judge Moore re-entered the discussion to note that the patents should be evaluated claim by claim.

Conclusion: Expect them to give some lip service to the Supreme Court precedents like Bilski and Mayo but surely they will uphold the patent.

I'll add more media coverage as I come across it, if it adds anything new. But I liked this touch from Grant Gross's account at ITWorld:
Patents should be reserved for real inventions, not just general ideas, Perry countered. Some people have thought that self-driving cars would be useful, but Google is the company that finally spent the money to create the invention, he said. Google should be able to get a patent on a self-driving car, not a person who thought of a self-driving car without designing one, he added.

"There are companies that spend tremendous assets -- money, time -- to develop real things," he said.

Some background, for any who are new to the case:

And here's Groklaw's collection of articles on software patents, where we've tried to explain to non-geeks what software actually is and why it should not be patent eligible subject matter. Note there is a difference between limiting software patents and outlawing them.

From Bloomberg's account, there is this:

International Business Machines Corp., which has received the most U.S. patents for the past 20 years, and a lobbying group whose members include Microsoft Corp. and Apple Inc., said software needs legal protection because it contributes to the nation’s economy.
I don't believe that. Software contributes, beyond a doubt. But software patents do not, from all the evidence I've seen. On Google's side also were British Airways, Intuit Inc., Twitter Inc., Yelp Inc. and SAP AG. And Dell and Facebook, according to Reuters. Here's Google et al's amicus brief, and the full list is Google, Dell, Facebook, Homeaway, Intuit, Rackspace, Red Hat and Zynga.

Here is a list of all the judges on the Federal Circuit Court of Appeals.

Update: Here is the mp3 of the oral argument in CLS Bank v. Alice, and if you are interested in the wiper blades case, despite Webster's description, you can find it here.


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