

Patently O recently highlighted some activity in the software patent eligibility area in the case of CLS Bank v. Alice Corporation [PDF], where the Federal Circuit has once again utterly ignored the direction the US Supreme Court provided in In Re Bilski [PDF] and in Mayo v. Prometheus. Instead, it has come up with a new rule, one that throws open the doors to patentability that the higher court has been trying to narrow. CLS Bank has asked for a rehearing en banc [PDF] and Google has joined with Red Hat, HP, and Twitter to file an amicus brief [PDF] that I think you'll find of interest, so I've done it as text for you. There are other amici briefs as well. The EFF amicus brief with Public Knowledge and British Airway's amicus brief [PDF] with eHarmony, LinkedIn, SAP America, and Travelocity are also of great interest to us here at Groklaw, so I'll show you some snips from them as well, because it's on the subject of what is patentable subject matter. CLS is asking the en banc panel not only to take the case for rehearing but to make clear that the Supreme Court precedent rules. The CLS filing opens with the statement by its counsel: Based on my professional judgment, I believe the panel decision is contrary to the following decisions of the Supreme Court of the United States and precedent of this Court: Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012); Bilski v. Kappos, 130 S. Ct. 3218 (2010); Dealertrack, Inc. v. Huber, 674 F.3d 1315 (Fed. Cir. 2012); Fort Props., Inc. v. Am. Master Lease LLC, 671 F.3d 1317 (Fed. Cir. 2012); and CyberSource Corp. v. Retail Decisions, Inc., 654 F.3d 1366 (Fed. Cir. 2011). Based on my professional judgment, I believe this appeal requires an answer to two precedent-setting questions of exceptional importance: (A) Whether the new test for patent-eligibility articulated by the panel ma- jority is inconsistent with Bilskis and Mayos approach to 35 U.S.C. § 101; and (B) Whether the method, system, and media claims at issue are patent-ineligible because, albeit computer-implemented, they recite no more than an abstract fundamental mechanism of financial intermediation with no inventive concept. This is, I'm afraid, going to be long, but it's important, and there's no other way to explain to you what is going on and what is at stake. I'll divide it into chunks, so you can focus on the parts that interest you the most, if you want to.



Jump To Comments Federal Circuit's Decision

The Dissent

Amici Briefs

Google's Amici Brief The Federal Circuit's Decision - Its Arguments: The District Court first found Alice's four patents invalid, relying on Bilski, but then the Federal Circuit on appeal reversed [PDF], claiming that the precedent is unclear and what an abstract idea is therefore allows for "great uncertainty". It wrote: The abstractness of the abstract ideas test to patent eligibility has become a serious problem, leading to great uncertainty and to the devaluing of inventions of practical utility and economic potential.... Our Constitution gave Congress the power to establish a patent system [t]o promote the Progress of Science and useful Arts . . . . U.S. Const. art. I, § 8, cl. 8. The patent system is thus intended to foster, not foreclose, innovation. So that's their worry, that patents were being found invalid that this court thought should be valid. And their concept of fostering innovation is to grant all the patents possible, I gather. That's the fundamental problem, that the court equates innovation with patents. The ruling quotes various treatises that highlighted the vagueness of the Bilski decision to justify coming up with its own solution. But rather than offer a definition of an abstract idea, it set forth a new rule that directly contradicts Bilski, that unless a claim is "manifestly evident" that it is "directed to a patent ineligible abstract idea" it is valid, as it explains: Unless the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application, it is inappropriate to hold that the claim is directed to a patent ineligible abstract idea under 35 U.S.C. § 101. You can count on the Federal Circuit to keep defining patent law more and more broadly, and they did. They ruled all four of Alice's patents were valid. And wait until I show you their concept of a limitation. The outcry was inevitable, beginning with a strong dissent by Judge Prost, who pointed out that not only did the court ignore precedent in Bilski, it actually responded "to a unanimous Supreme Court decision against patentability with even a stricter subject matter standard" -- meaning there is a clear incompatibility between the US Supreme Court and this decision by the Federal Circuit. Remember when Bilski came out and Gene Quinn at IP Watchdog wrote that the Federal Circuit would just keep ignoring Bilski and the higher court wouldn't be able to address all the conflicting decisions it would issue? Here we are. The ruling describes the patents like this: These patents cover a computerized trading platform for exchanging obligations in which a trusted third party settles obligations between a first and second party so as to eliminate settlement risk. Settlement risk is the risk that only one partys obligation will be paid, leaving the other party without its principal. The trusted third party eliminates this risk by either exchanging both parties obligations or (b) exchanging neither obligation.(a) I know what you are thinking. Where's the invention? Here's how the ruling describes how Alice felt its patents qualified: With respect to its method claims, Alice argues that they are patent eligible because, unlike the claims at issue in Bilski, its method claims are: (1) tied to a particular machine or apparatusi.e., they are to be performed on a computer, Appellant Br. 42; and (2) not directed to an abstract idea, but rather are limited to a particular practical and technological implementation, which requires a particular series of concrete steps performed by an intermediary, id. 48-50; see Research Corp. v. Microsoft Corp., 627 F.3d 859, 868-69 (Fed. Cir. 2010). With respect to its computer system and media claims, Alice argues that computer systems are concrete machines, not abstract ideas, Appellant Br. 23, and [n]either this [c]ourt nor the Supreme Court has ever invalidated a claim to a computer system under 35 U.S.C. § 101, id. 2. So adding "with a computer" is the magic? Not a specific computer. Any old computer, like the one on your desk, for example, or mine? What the patents are about is, in essence, an escrow agreement between two parties, something that lawyers have been doing as far back as you can go, and without an inventive step, by adding "with a computer", it's now patentable as an *invention*? What could not be patented if "with a computer" is added to the claim for any old process or method since the world began, if this ruling stands? The court acknowledged that issue, saying that adding "with a computer" isn't enough, but it finds a way: The mere implementation on a computer of an otherwise ineligible abstract idea will not render the asserted invention patent eligible....On the other hand, where the addition of a machine impose[s] a meaningful limit on the scope of a claim, and play[s] a significant part in permitting the claimed method to be performed, rather than function[ing] solely as an obvious mechanism for permitting a solution to be achieved more quickly, i.e., through the utilization of a computer for performing calculations, that machine limitation renders the method patent eligible. SiRF Tech., Inc. v. Intl Trade Commn, 601 F.3d 1319, 1333 (Fed. Cir. 2010) ...; see also Diehr, 450 U.S. at 187 (It is now commonplace that an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection.); Research Corp., 627 F.3d at 868 (holding that a process is patent eligible subject matter when it presents functional and palpable application in the field of computer technology.); Alappat, 33 F.3d at 1544-45 (holding that claims directed to a specially-programmed computera specific machine to produce a useful, concrete, and tangible resultare directed to patent eligible subject matter). It can, thus, be appreciated that a claim that is drawn to a specific way of doing something with a computer is likely to be patent eligible whereas a claim to nothing more than the idea of doing that thing on a computer may not.... In light of the foregoing, this court holds that when  after taking all of the claim recitations into consideration  it is not manifestly evident that a claim is directed to a patent ineligible abstract idea, that claim must not be deemed for that reason to be inadequate under § 101. It would undermine the intent of Congress to extend a judicially-crafted exception to the unqualified statutory eligibility criteria of § 101 beyond that which is implicitly excluded as a fundamental truth that is free to all men and reserved exclusively to none. It's like Bilski and Mayo never happened. Isn't the Federal Circuit supposedly bound by the US Supreme Court precedent, you are asking, or do they get to broaden patent law by fiat in the opposite direction of the Supreme Court precedent? The US Supreme Court in Bilski called § 101 a threshold test. The Federal Circuit in CLS v. Alice said not necessarily -- it doesn't always need to be addressed first, because, they wrote, district courts are "masters" of their own dockets. Is that defiance, or how do they justify it? If you think about it their way, all claims are abstract ideas at a fundamental level, or so they argue, so there has to be a way to decide where the line is: As the Supreme Court has recently acknowledged, too broad an interpretation of [the exceptions to § 101] could eviscerate patent law. For all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas. Prometheus, 132 S. Ct. at 1293. Any claim can be stripped down, or simplified, removing all of its concrete limitations, until at its core, something that could be characterized as an abstract idea is revealed. But nothing in the Supreme Courts precedent, nor in ours, allows a court to go hunting for abstractions by ignoring the concrete, palpable, tangible, and otherwise not abstract invention the patentee actually claims. It is fundamentally improper to paraphrase a claim in overly simplistic generalities in assessing whether the claim falls under the limited abstract ideas exception to patent eligibility under 35 U.S.C. § 101. Patent eligibility must be evaluated based on what the claims recite, not merely on the ideas upon which they are premised. In assessing patent eligibility, a court must consider the asserted claim as a whole. Sigh. A new rule, worse than before, one not in any statute, but an invention of this court. Some of you have been asking me what I think about Mark Lemley's paper on functionality as a way to address the software patent problem. Here's my answer: All hail to any effort to deal with the software patents problem, but the Federal Circuit always finds a way to ignore anything that doesn't foster profligate issuing of patents. And patent lawyers do too. Nothing will work, in my view, except to outlaw software patents so clearly and with such utter finality that there are no clever workarounds left. Let me show you an example. The Federal Circuit, while clearly to our eyes defying the US Supreme Court, writes: If a court, in applying all of the guidance of the Supreme Court in cases like Prometheus, Bilski II, Diehr, Flook, and Benson, and in considering all of the precedent from this court in cases like Fort Properties, Dealertrack, CyberSource, Research Corp., SiRF, and Alappat, is not wholly convinced that the subject matter of the claims is abstract, the claims in question must be held patent eligible. They write that as if all those cases agree. They don't, except in the strained way this ruling finds to present matters. And did you notice that the list of cases one should rely on are not just US Supreme Court cases but several of the Federal Circuits? So in this ruling they quote themselves. But what I see is that they, in their minds, think they *are* following Bilski and Prometheus, even though they obviously are not: In Bilski, CyberSource, Dealertrack, and Fort Properties (the Bilski line of cases), the Supreme Court or this court found some basis in the claims upon which to determine that they were directed to nothing more than patent ineligible abstract ideas. Unlike the Bilski line of cases, however, it is difficult to conclude that the computer limitations here do not play a significant part in the performance of the invention or that the claims are not limited to a very specific application of the concept of using an intermediary to help consummate exchanges between parties. The dissent criticizes the majority for failing to explain why the specific computer implementation in this case brings the claims within patentable subject matter, Dissent 3, but this criticism is misplaced. The limitations of the claims as a whole, not just the computer implementation standing alone, are what place meaningful boundaries on the meaning of the claims in this case. The asserted claims appear to cover the practical application of a business concept in a specific way, which requires computer implemented steps of exchanging obligations maintained at an exchange institution by creating electronically maintained shadow credit and shadow debit records, and particularly recite that such shadow credit and debit records be held independently of the exchange institution by a supervisory institution; that start-of-the-day balances be obtained from the exchange institution; that adjustments be made to the credit records based on only certain specified allowed transactions under the adjusting limitation; that such adjustments be made in chronological order; that at the end of the day, instructions be given to the exchange institution to reflect the adjustments made on the basis of the permitted transactions; and that such adjustments affect irrevocable, time invariant obligations placed on the exchange institution. 479 Patent col.65 ll.28-50. 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 are not permitted under the adjusting limitation, and do not result in any ultimate exchange of obligations in the INVENTICO system. Id. col.65 ll.36-43, col.24 l.59-col.25 l.2. The claim limitations can be characterized as being integral to the method, as play[ing] a significant part in permitting the method to be performed, and as not being token post-solution activity. It is clear, moreover, that the limitations requiring specific shadow records leave broad room for other methods of using intermediaries to help consummate exchanges, whether with the aid of a computer or otherwise, and, thus, do not appear to preempt much in the way of innovation. While the use of a machine in these limitations is less substantial or limiting than the industrial uses examined in Diehr (curing rubber) or Alappat (a rasterizer), the presence of these limitations prevents us from finding it manifestly evident that the claims are patent ineligible under § 101. That's the computer magic they think they see that impresses them so much they decided that the patents are valid. What in the above could you not do with paper and pen? Or in your head if you were super gifted in the memory department? What is the computer doing except making the process faster? They are saying that the so-called limitations that they allege are required to make a computer-related claim patent-eligible don't have to be much of a limitation at all. Do they not understand how computers work, I wonder? While Bilski and Mayo tried to limit the profligacy of the patent-issuing process at the USPTO, the Federal Circuit just threw open the door again, but wider than it was before Bilski. Just writing this is disturbing. But do you see what I mean about finding a way to ignore anything that gets in the way of broad patentability? All the reforms seem to result only in patent lawyers and this particular court figuring out ways around the reforms, even when they issue from the highest court in the land, and the only solution to that problem seems to be to remove the lottery aspect from patent law and to make clear even to these judges that patents can encourage innovation, but they can also block it. As long as there is treasure at the end of the rainbow, there will be pirates, so to speak, trying to dig it up. And until someone gets it through this court's head that some patents are damaging to innovation, they'll see patents as doing their assigned job of encouraging innovation when there are more of them. I mean, try anything you can think of, by all means, as an interim reform, but in my view software and patents need to get a clean divorce. As the EFF points out, a lot of the litigation these days is over software patents: "In the United States, for example, software patents are more than twice as likely to be the subject of a lawsuit than other patents and account for one quarter of all patent lawsuits." How do you like it? Are you enjoying the smartphone push and pull, forcing all sides to remove functionality from your phones? How is that encouraging innovation? The public interest? It's not like back in the '90s when a lot of folks tried to warn that software patents would be disastrous. We can just look around and see the results of ignoring that warning. The Dissent, by Judge Prost: Don't take my word for it, though. Here's a snip from the dissent: The majority resists the Supreme Courts unanimous directive to apply the patentable subject matter test with more vigor. Worse yet, it creates an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under § 101 whenever they so desire. I too find it difficult to answer the questions presented here with absolute certainty. Nonetheless, I believe that precedent and common sense counsel that the asserted patent claims are abstract ideas repackaged as methods and systems. Thus, with respect, I dissent.... When it comes to subject matter patentability, we do not write on a blank slate. Just a few months ago, the Supreme Court reversed us in a § 101 case for a second time in its last three terms, hinting (not so tacitly) that our subject matter patentability test is not sufficiently exacting. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012); Bilski v. Kappos, 130 S. Ct. 3218 (2010); see also WildTangent, Inc. v. Ultramercial, LLC, (No. 11-962), 2012 WL 369157 (2012), granting cert., vacating, and remanding Ultramercial, LLC v. Hulu, LLC, 657 F.3d 1323 (Fed. Cir. 2011). The Court once again iterated that the prohibition against patenting abstract ideas cannot be circumvented by attempting to limit the use of the formula to a particular technological environment. Prometheus, 132 S. Ct. at 1294 (quoting Bilski, 130 S. Ct. at 3230). But this time the Court also made clear what had been written between the lines before: It is not sufficient to put an abstract idea into use with [p]urely conventional or obvious pre-solution activity. Prometheus, 132 S. Ct. at 1298; cf. Bilski, 130 S. Ct. at 3231 (noting that the claimed invention was directed at a fundamental economic practice long prevalent in our system of commerce); Parker v. Flook, 437 U.S. 584, 594 (1978) (Respondents process is unpatentable under § 101, not because it contains a mathematical algorithm as one component, but because once that algorithm is assumed to be within the prior art, the application, considered as a whole, contains no patentable invention.). The Court accordingly declined the Solicitor Generals invitation to leave the screening of low quality patents to § 102 and § 103, even though the government promised that the claims are likely invalid under those provisions. Brief for the United States as Amicus Curiae in Support of Neither Party at 9, Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) (No. 10-1150). Now there is no doubt that to be patent eligible under § 101, the claims must include an inventive concept. Prometheus, 132 S. Ct. at 1294. The majority has failed to follow the Supreme Courts instructionsnot just in its holding, but more importantly in its approach. The majority does not inquire whether the asserted claims include an inventive concept. Even more fundamentally, the majority questions whether the Supreme Courts abstract idea test is workable at all. Maj. Op. 13-14. Based on this apprehension, I take it, the majority devises a new approach to subject matter patentability. We must now avoid deciding a § 101 case unless unpatentability is manifestly evident. Maj. Op. 20. By my reading, I think she is saying that the majority have gone rogue. What effect does that have on the rule of law, if a lower court defies the highest court? Of course, CLS asked for an en banc rehearing. And then the horrified amicus briefs were filed, begging for an en banc rehearing as well, from various perspectives. The Amici Briefs: Here's the introduction to the British Airways' group's amicus brief: Amici urge the en banc Court to vacate the panel ruling and decide these two questions in the affirmative: 1. Should courts enforce the patent eligibility requirement evenhandedly without imposing a manifestly evident or coarse filter hurdle on the patent challenger? 2. Is patent eligibility a threshold requirement well-suited for decision on the pleadings and on early summary judgment? All agree that the Constitution and the Patent Act limit what can be patented. These limits protect a core goal of our patent system: innovation. Patents on abstract ideas or natural phenomena are more apt to harm innovation than spur it. It is this realization which has motivated the U.S. Supreme Court to grant certiorari twice on this issue in recent years, each time unanimously striking down patent claims exceeding the limits on patentable subject matter. Despite the Supreme Court reinvigorating the limits on patent eligibility, innovation-harming patents on abstract ideas, etc., remain a significant problem today. In part, this is because most extant U.S. patents were issued under the more lenient useful, concrete and tangible result test for patent eligibility since rejected by this Court en banc and by the Supreme Court. Consequently, technology companies continue to face a wave of expensive and burdensome patent suits on patent claims the Patent Office never would have issued had it applied todays governing precedents on patent eligibility. Fortunately, trial courts have alleviated this problem by evenhandedly applying the Supreme Courts precedents, on early motion practice. The majority opinion here, however, threatens to change that. CLS Bank Intl v. Alice Corp., 685 F.3d 1341 (Fed. Cir. 2012). Indeed, it encourages trial courts to do the opposite. It urges trial courts to side with patent owners unless a patent claims ineligibility for patenting is manifestly evident. Id. at 1352. The disqualifying characteristic of abstractness must exhibit itself manifestly. Id. at 1349 (citations omitted). And, it encourages trial courts to delay deciding this threshold issue of law, allowing innovation-harming patents to stand for months or years without any judicial scrutiny under the Supreme Courts precedents. Id. at 1348. The panel tells trial courts that patent claims violating Section 101 should arise infrequently and that they may wish to delay considering Section 101 in favor of other comprehensive patentability requirements where those might be discerned by the trial judge as having the promise to resolve a dispute more expeditiously or with more clarity and predictability. Id. at 1347, 1348. In sum, as the dissent observes, the majority resists the Supreme Courts unanimous directive to apply the patentable subject matter test with more vigor. Worse yet, it creates an entirely new framework that in effect allows courts to avoid evaluating patent eligibility under § 101 whenever they so desire. Id. at 1356 (Prost, J., dissenting). Both suggestions by this panel are irreconcilable with Supreme Court precedent. Both will undermine the innovation-protection purpose of the exclusions to patent eligibility. Therefore, this Court en banc should vacate this panel ruling and expressly reject both of its suggestions to trial courts. And here's the opening from the EFF brief: The Supreme Courts decision in Bilski v. Kappos has been cited by nearly 70 district and appellate courts since it was handed down just over two years ago. Some of those cases, unfortunately, fail to heed Justice Stevens warning that in the area of patents, it is especially important that the law remain clear and stable. Bilski v. Kappos, 130 S. Ct. 3218, 3231 (2010) (Stevens, J., concurring). This Court alone, for example, has issued at least eight rulings in the past year that appear to contradict each other, andwhen read togethercould be understood to inappropriately imply a stringent rule not contemplated by the Supreme Courts guidance in Bilski and, more recently, in Prometheus v. Mayo, namely, that an otherwise abstract invention is patentable subject matter when tied to the Internet or other computerized material. Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012). Indeed, Mayo, in clarifying § 101s important screening role, should have put the matter to rest. Unfortunately, however, only one of two rulings from this Court that issued after Mayo heeded the Supreme Courts instructions, leaving litigants facing more confusion surrounding § 101 than before. The threshold question of whether an invention is impermissibly abstract is one of great and growing importance before the courts. Because the ruling in this case conflicts with the Supreme Court precedent and other rulings of this Court, and because it will negatively impact potential litigants and others affected by patent rights, this Court should agree to rehear it en banc. ARGUMENT Amici are particularly concerned that there be clear and understandable boundaries for patentable subject matter under 35 U.S.C. § 101 because the rise in patent litigation has disproportionately affected the areas in which it and its members work. In the United States, for example, software patents are more than twice as likely to be the subject of a lawsuit than other patents and account for one quarter of all patent lawsuits. James Bessen & Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovators at Risk 22, 192 (2008). As interpreted, § 101 leaves parties unable to discern a patents metes and bounds or assess its validity. As a result, the patent system fails [i]nnovators deciding to invest in new technology [who] have to consider the risk of inadvertent infringement as a cost of doing business. James Bessen, et al., The Private and Social Costs of Patent Trolls (Boston Univ. Sch. of Law, Working Paper No. 11-45, 2011). Further, the costs associated with litigating software patents (in the form of diminution of market value resulting from that litigation) vastly exceed their benefits. I've left out the footnotes, so look for them in the PDF. From the Google amicus: Second, the issue of patent eligibility is critically important in the high-tech context. The biotech patent claims rejected in Mayo and other cases reflected valuable discoveries. In contrast, a disturbing number of high-tech patents amount to no more than describing an abstract idea at a high level of generality and saying to perform it on a computer or over the Internet -- without providing any of the specifics that transform abstract ideas into patentable inventions. Such patents leave to others the truly inventive work of developing applications of the idea. Far from promoting innovation, they impair it by granting exclusive rights over the abstract idea itself. Google's Amici Brief Here's the amicus brief [PDF] by Google, Red Hat, HP, and Twitter, as text: ****************** 2011-1301 _________________ UNITED STATES COURT OF APPEALS FOR THE FEDERAL CIRCUIT CLS BANK INTERNATIONAL, Plaintiff-Appellee, and CLS SERVICES LTD., Counterclaim-Defendant Appellee, v. ALICE CORPORATION PTY. LTD., Defendant-Appellant. ______________ On Appeal from the United States District Court for the District of Columbia in

Case No. 07-CV-0974, Judge Rosemary M. Collyer ____________ BRIEF OF AMICUS CURIAE GOOGLE INC., HEWLETT-PACKARD CO.,

RED HAT, INC., AND TWITTER INC. IN SUPPORT OF PETITIONERS Daryl Joseffer

Adam Conrad

KING & SPALDING LLP

[address, phone, fax, email] Attorneys for Amici Curiae CERTIFICATE OF INTEREST Counsel for amici certifies the following: 1. The full names of every party represented by me are Google Inc., Hewlett-Packard Co., Red Hat, Inc., and Twitter Inc. 2. The names of the real parties in interest represented by me are Google Inc., Hewlett-Packard Co., Red Hat, Inc., and Twitter Inc. 3. No parent corporations or publicly held companies own 10 percent or more of the stock of Google Inc., Hewlett-Packard Co., or Twitter Inc. Red Hat, Inc. has no parent corporation. More than 10% of Red Hat's common stock is held by both Fidelity Management and Research Company and T. Rowe Price Associates, Inc. (a subsidiary of publicly held corporation T. Rowe Price Group, Inc.). 4. The names of all law firms and the partners or associates that appeared for the parties now represented by me in the trial court or are expected to appear in this Court are: King & Spalding LLP: Daryl L. Joseffer; Adam M. Conrad This 5th day of September, 2012. [signature]

Daryl L. Joseffer TABLE OF CONTENTS TABLE OF AUTHORITIES........................ii STATEMENT OF INTEREST .................................. 1 INTRODUCTION............................................. 1 ARGUMENT ................................................ 3 I. MAYO SETS FORTH GUIDEPOSTS FOR DETERMINING

WHETHER A PATENT CLAIMS ONLY AN ABSTRACT IDEA............. 3 II. ENFORCEMENT OF SECTION 101 IS CRITICALLY

IMPORTANT TO THE HIGH-TECH INDUSTRY............................ 8 CONCLUSION ............................... 10 PROOF OF SERVICE i TABLE OF AUTHORITIES Cases Ass'n for Molecular Pathology v. PTO,

No. 2010-1406, slip op. (Fed. Cir. Aug. 16, 2012)................................... 9 Bancorp Servs., L.L.c. v. Sun Life Assurance Co. of Canada (US.),

687 F.3d 1266 (Fed. Cir. 2012) ................................ 8 Bilski v. Kappos,

130 S. Ct. 3218 (2010) .......................... 7, 8 Gottschalk v. Benson,

409 U.S. 63 (1972) ........................... 7 In re Bilski,

545 F.3d 943 (Fed. Cir. 2008) (en banc) ............................... 6 Mayo Collaborative Services v. Prometheus Laboratories, Inc.,

132 S. Ct. 1289 (2012).................................passim O'Reilly v. Morse,

56 U.S. (15 How.) 62 (1853) ....................................... 3 Parker v. Flook,

437 U.S. 584 (1978) ............................................. 7 Streck, Inc. v. Research & Diagnostic Sys., Inc.,

665 F.3d 1269 (Fed. Cir. 2012) ........................................ 5 Statutes 35 U.S.C. § 101.......................................... 1 35 U.S.C. § 102 ........................................ 9 35 U.S.C. § 103 ......................................... 9 35 U.S.C. § 112.......................................... 9 Other Authorities Dep't of Commerce,

Patent Reform: Unleashing Innovation, Promoting Economic Growth &

Producing High-Paying Jobs (Apr. 13,2010), available at http://www.commerce.gov/sites/default/files/documents/migrated/ Patent_Reformpaper.pdf...........................................9, 10 ii Federal Trade Comm'n,

Report, Evolving IP Marketplace (Mar. 2011), available at

http://www.fic.gov/os/20111031110307patentreport.pdf............................ 9 James Bessen & Michael J. Meurer,

Patent Failure (2008)........................................... 10 Mark A. Lemley et al.,

Life After Bilski,

63 Stan. L. Rev. 1315 (2011) .................................... 8, 9 iii STATEMENT OF INTEREST 1 Amici are four innovative, high-technology companies that are leaders in a variety of fields, including online advertising, commerce, collaboration, social networking, open source software, computing, and related products and services. Their products are used by everyday citizens, Wall Street investment firms, hundreds of Fortune 500 companies, and the United States government. Having obtained a number of patents based on their own extensive research and development efforts, and having also had to defend against claims of patent infringement, amici support a strong patent system that rewards rather than impedes innovation. All parties consent to the filing of this brief. INTRODUCTION The scope of patent-eligible subject matter under 35 U.S.C. § 101 is one of the most important patent-law issues today. En banc review ofthe question is now imperative because of the unbridgeable rift that opened in this Court's case law following Bilski, and that has continued to grow since Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012). Because the petition for rehearing en banc thoroughly covers those points, this amicus brief focuses on two specific topics. First, the Supreme Court's test for patent eligibility is not hard to apply in cases like this one, making the majority's criticism of that test unwarranted. Mayo laid down four guideposts for determining whether a patent claims significantly more than an abstract idea, and is thus patent-eligible. The asserted patents, and others like them, flunk all of those guideposts because they claim an abstract idea when used on a computer or over the Internet, without more. Significantly, the asserted patents contain no limitations related to how the software or hardware accomplishes the claimed function. They simply divide the abstract idea of financial intermediation into its component parts, thereby claiming the idea itself. At least for high-tech companies like amici, the greatest source of uncertainty today is not Mayo; it is whether any given panel of this Court will apply the Mayo standard and guideposts. Second, the issue of patent eligibility is critically important in the high-tech context. The biotech patent claims rejected in Mayo and other cases reflected valuable discoveries. In contrast, a disturbing number of high-tech patents amount to no more than describing an abstract idea at a high level of generality and saying to perform it on a computer or over the Internet -- without providing any of the specifics that transform abstract ideas into patentable inventions. Such patents leave to others the truly inventive work of developing applications of the idea. Far 2 from promoting innovation, they impair it by granting exclusive rights over the abstract idea itself. ARGUMENT I. MAYO SETS FORTH GUIDEPOSTS FOR DETERMINING

WHETHER A PATENT CLAIMS ONLY AN ABSTRACT IDEA. The limits on patentable subject matter are substantive, not formalistic. As a result, they may not be evaded by clever drafting. In addition to an abstract idea, a claim must also "contain other elements or a combination of elements, sometimes referred to as an 'inventive concept,' sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the" unpatentable subject matter. Mayo, 132 U.S. at 1294. The Supreme Court identified four guideposts for making that determination: (1) adding steps that are conventional or obvious is insufficient to confer patentable subject matter, see id. at 1294, 1298, 1299; (2) adding steps that are so general and non-specific that they do not significantly limit the claim's scope is insufficient, see id. at 1300, 1302; (3) limiting an idea to a particular technological environment is insufficient, see id. at 1294, 1297; and (4) claims that fail the machine-or-transformation test are likewise dubious, see id. at 1296, 1303. These criteria, taken together, are designed to ensure that a patent's relative contribution justifies the extent to which it forecloses the field. See id. at 1301-02; O'Reilly v. Morse, 56 U.S. (15 How.) 62, 113 (1853). 3 The majority, however, chose a different path. After opining that Section 101 jurisprudence has given rise to uncertainty that poses "a serious problem" (Op. 12-13), the majority sought to reduce that uncertainty by curtailing the Mayo standard, as the dissent explained. Diss. 3. The majority went so far as to treat Section 101 as a disfavored requirement, persona non grata in the law, by holding that a court may invalidate a patent under Section 101 only if it is "wholly convinced" that the patent's subject matter is abstract, which in turn must be "manifestly evident." Op. 20, 21 & n.3. Under Mayo, however, any heightened burden runs the other way: a patent claim must include "significantly more" than an abstract idea, in order to give "practical assurance" that the claim is not overbroad. Mayo, 132 S. Ct. at 1297. Congress did not place Section 101 at the beginning ofthe Patent Act because it is all but irrelevant. As Mayo confirms, that threshold requirement performs an important "screening" function. Id. at 1303. The Supreme Court's decision to articulate a flexible standard, as opposed to a bright-line rule, is no reason to reject its test in favor of a stricter one. The Supreme Court's decision is binding. And the law is full of standards, which become more concrete when applied in light of articulated guideposts or factors. The four guideposts here are no less administrable than countless other multi-factor tests, such as this Court's eight-factor test for determining whether required experimentation is "undue" for purposes of the enablement requirement. See 4 Streck, Inc. v. Research & Diagnostic Sys., Inc., 665 F.3d 1269, 1288 (Fed. Cir. 2012). This case proves the point, because the asserted patents fail all of the guideposts. Under the first guidepost, which goes to the heart of the Supreme Court's standard, a claim must contain "an inventive concept" apart from an abstract idea or natural law. Mayo, 133 S. Ct. at 1294. The majority disagreed with the Supreme Court on this point, stating that "[i]t should be self-evident that each of these four statutory provisions- §§ 101, 102, 103, and 112-serves a different purpose and plays a distinctly different role." Op. 12. But considering inventiveness in the Section 101 analysis is legally required by Mayo, and is also essential in cases like this one, to avoid a divide-and-conquer strategy. Otherwise, a patent claim (such as the Mayo claims) might survive Section 101 on the ground that it recites prior-art patentable subject matter in addition to an abstract idea, but then also survive Sections 102 and 103 on the ground that the unpatentable subject matter itself was inventive, even though nothing else was. See Mayo, 133 S. Ct. at 1304. Mayo confirms that such claims do not warrant patent protection because their only contribution to human knowledge is an abstract idea or natural law. Considering inventiveness as part of the Section 101 inquiry also makes the result more clear and predictable by laying down an enforceable standard. As the dissent noted, for example, it is often the case that a patent will describe additional 5 claim elements as well-understood, routine, or conventional -- leaving no doubt that the true target of the patent is the abstract idea or natural law itself. See Diss. l0-11. In some other cases, there can be no serious dispute on that point, as Bilski, Mayo, Funk Brothers, and Morse help to demonstrate. Focusing on inventiveness also alleviates the need to make unpredictable, ad hoc judgments under prior case law about whether a claim step is "token" and should thus be disregarded for this purpose. Cf. In re Bilski, 545 F.3d 943,956 (Fed. Cir. 2008) (en banc). In this case, as the dissent explained, none of the claim steps appears to be the least bit inventive, either singly or in combination with the others. Diss. 5-6. This is not a matter of "ignoring claim limitations" or rewriting claims, as the majority suggested. Op. 23. It is a simple question of considering all of the claim limitations in order to determine whether any of them, alone or in combination, contains anything inventive apart from the abstract idea. Any doubt about the correct result in this case is resolved by the claims' high level of generality, which deprives them of any significant limitations apart from the abstract idea itself. The majority stated that "it is difficult to conclude that the computer limitations here do not playa significant part in the performance of the invention." Op. 26. That misses the point. In any computer-implemented method, a computer is significant in the sense that it is necessary. But that is not the question, and not all computer-implemented methods are patent-eligible. 6 Instead, the question is whether the steps sufficiently limit the claim to "provide practical assurance that the process is more than a drafting effort designed to monopolize the law of nature" or abstract idea. Mayo, 132 S. Ct. at 1297. The asserted claims are not so limited because they simply divide the abstract and ancient idea of financial mediation into its constituent parts, without adding anything else apart from a requirement that the idea be implemented on a computer. See Diss. 5-6. The claims contain no limitations related to how the software or hardware accomplishes the financial mediation function. Nor do they set forth any programming techniques or hardware. Instead, they claim the abstract idea itself on a computer. That computer limitation is insufficient because, as the majority recognized, limiting an abstract idea to a particular technological environment, such as a computerized environment, does not transform the abstract idea into a patentable application. Absent additional, significant limitations, the idea remains abstract within that environment. See Mayo, 132 S. Ct. at 1297; Bilski v. Kappos, 130 S. Ct. 3218, 3231 (2010); Parker v. Flook, 437 U.S. 584, 586 (1978); Gottschalk v. Benson, 409 U.S. 63,64-65 (1972). The ubiquity of computers in modem life and commerce makes that point all the more important in software cases. Finally, the machine-or-transformation test remains a "useful and important clue" in separating abstract ideas from patentable applications. Bilski, 130 S. Ct. at 7 3227. The asserted claims do not satisfy that test for reasons explained above: they do not specify any particular machine (any generic computer could suffice); and their additional steps are "token" or "insignificant" for this purpose because they add nothing inventive to the abstract idea. See Bancorp Servs., L.L.C. v. Sun Life Assurance Co. of Canada (US.), 687 F.3d 1266 (Fed. Cir. 2012). In sum, consistently applying the Mayo test would reduce uncertainty, at least with respect to software inventions. The greater cause of uncertainty is the division within this Court's panel decisions. II. ENFORCEMENT OF SECTION 101 IS CRITICALLY IMPORTANT

TO THE HIGH-TECH INDUSTRY. The prohibition on patenting abstract ideas is very important in the high-tech sector. While it is easy to think of abstract ideas about what a computer or website should do, the difficult, valuable, and often groundbreaking part of online innovation comes next: designing, analyzing, building, and deploying the interface, software, and hardware to implement that idea in a way that is useful in daily life. Simply put, ideas are much easier to come by than working implementations. The mere idea of financial intermediation with computers, or searching and finding information on an Internet website, is abstract. "At their limit," such abstract patents "claim everything anq contribute nothing." Mark A. Lemley et al., Life After Bilski, 63 Stan. L. Rev. 1315, 1338 (2011). "By requiring that patent claims be limited to a specific set of practical applications of an idea, the abstract 8 ideas doctrine both makes the scope ofthe resulting patent clearer and leaves room for subsequent inventors to improve upon-and patent new applications of-the same basic principle." Id. at 1317. That space for innovation is critical to amici, their industries, and consumers. When threatened by lawsuits on this and similar patents, however, innovators face a choice of gambling on litigation or paying license fees for technology they already paid once to develop independently. Either path imposes significant costs that effectively tax innovation and drive up prices for consumers. See, e.g., Federal Trade Comm'n, Report, Evolving IP Marketplace 8 (Mar. 2011), http://www.fic.gov/os/20111031110307patentreport.pdf; Dep't of Commerce, Patent Reform: Unleashing Innovation, Promoting Economic Growth & Producing High-Paying Jobs 5-6 (Apr. 13, 2010) ("DOC Report"), http://www.commerce.gov/sites/default/files/documents/ migratedlPatent_Reform-paper.pdf. The majority's cabining of Section 101 also reduces the chances of dismissal at the threshold, making it more likely that defendants will face expensive discovery and other litigation costs concerning, among other things, the other requirements for patentability found in 35 U.S.C. §§ 102, 103, and 112. That increases the nuisance value of settlement and deters product development. See Ass'n for Molecular Pathology v. PTO, No. 2010-1406, slip op. at 19 (Fed. Cir. Aug. 16,2012) (Bryson, J., concurring in part and dissenting in part). 9 This is a senous problem, as low-quality patents in the software and information technology industries have become a scourge that raises costs and places a drag on innovation. One study found that patents in these industries have produced net litigation costs far in excess of the net profits derived from the patents themselves. James Bessen & Michael J. Meurer, Patent Failure 15-16, 144 (2008); see also DOC Report at 5. Weak policing of Section 101 significantly Increases these litigation costs: "Why are software patents more frequently litigated? In a word, abstraction." Patent Failure at 22. For those reasons, proper enforcement of Section 101 is especially important for high-tech industries. "[T]he underlying functional concern is a relative one: how much future innovation is foreclosed relative to the contribution of the inventor." Mayo, 132 S. Ct. at 1303 (emphasis in original). In biotech cases like Mayo, the patentees appear to have made genuine and valuable discoveries, but their patents were still invalid under Section 101. The claims asserted here should fare no better. By claiming a familiar idea (financial intermediation) when done on a computer, without more, these patents deter innovation by adding nothing useful to human knowledge while preempting future development by others. CONCLUSION This Court should grant the petition for rehearing en banc. 10 Respectfully submitted on this 5th day of September 2012. [signature]

Daryl Joseffer

Adam Conrad

KING & SPALDING LLP

[address, phone] Attorneys for Amici Curiae _____________

No counsel for any party authored this brief in whole or in part, and no person or entity, other than amici and their counsel, made a monetary contribution intended to fund the preparation or submission ofthis brief. 11 DECLARATION OF AUTHORITY I, Gary E. Lazar, hereby attest that (1) Daryl L. Joseffer is unavailable to sign the 'Brief of Amici Curiae Google Inc., Hewlett-Packard Co., Red Hat, Inc., and Twitter Inc. In Support Of Petitioner' and (2) I have actual authority to sign said Brief on behalf of Daryl L. Joseffer. I declare under penalty of perjury that this declaration is true and correct. This 5th day of September 2012 [signature]

Gary E. Lazar

Paralegal PROOF OF SERVICE This is to certify that I have this day served the foregoing "Brief of Amici Curiae Google Inc., Hewlett-Packard Co., Red Hat, Inc., and Twitter Inc. In Support of Petitioner" upon counsel by depositing two copies of the motion with UPS for delivery as follows: Mark A. Perry

Brian M. Buroker

Michael F. Murray

Gibson, Dunn & Crutcher LLP.

[address, phone] Counsel for Plaintiff-Appellee CLS

Bank International David M. Krinsky

Bruce R. Gendersen

Ryan T. Scarborough

Stanley E. Fisher

Adam L. Perlman

Williams & Connolly LLP

[address, phone] Constantine L. Trela, Jr.

Sidley Austin LLP

[address, phone] Counsel for Defendant-Appellant Alice

Corporation Pty. Ltd. [signature]

Gary Lazar This 5th day of September 2012.