Federal Circuit’s Split Decision on Software Patents in CLS Bank Satisfied No One and Confused All

1. The Windup

Section 101 of the patent statute lists the categories of subject matter eligible for patent protection as including “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”¹ The Supreme Court long ago indicated that the four classes of statutory subject matter listed “include[s] anything under the sun that is made by man” with three extremely limited exceptions.² The exceptions are “laws of nature, physical phenomena, and abstract ideas.”³ To be entitled to a patent, the applicant must still demonstrate that the invention meets the other requirements of the patent statute, such as being novel and unobvious.⁴ Thus, Section 101 less the three judicially-created exceptions defines whether an invention is eligible for patent (i.e., “patent-eligibility” or “patent-eligible subject matter”), while other statutory sections define whether the invention represents a sufficient contribution to the store of knowledge to be worthy of receiving the legal monopoly that a patent affords (i.e., “patentability”).

Now, a software program running on a computer is a “machine,” and a method of doing business whether implemented in software or on paper, is a “process,” as required by Section 101. But the Federal Circuit was tasked with responsibility for promulgating a test for determining whether a software program or business method is nevertheless a patent-ineligible “abstract idea.” The Federal Circuit embraced that responsibility with gusto, defining a bright-line standard known as the Machine-or-Transformation (“MOT”) test. An en banc panel of the court held that “[a] claimed process is surely patent-eligible under §101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”⁵ The court concluded this “machine-or-transformation test” is “the sole test governing §101 analyses,”⁶ and thus the “test for determining patent eligibility of a process under §101.” Thus, while lower courts would still have to grapple with determining whether the MOT test was met on a case-by-case basis, at least the court had a bright-line test.

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1. 35 U.S.C. § 101.
2. Diamond v. Chakrabarty, 447 U. S. 303, 309 (1980) (quoting 182 S.Rep. No.1979, 82d Cong., 2d Sess., 5 (1952) and H.R.Rep. No.1923, 82d Cong., 2d Sess., 6 (1952)).
3. Chakrabarty, at 309.
4. See 35 U.S.C. §§ 102 and 103.
5. See In re Bilski, 545 F.3d 943, 954 (Fed. Cir. 2008) (en banc), aff’d, Bilski v Kappos, 130 S. Ct. 3227 (2010).
6. Id., at 955.