CLS Bank Int'l v. Alice Corp.

685 F.3d 1341

103 U.S.P.Q.2d 1297

CLS BANK INTERNATIONAL, Plaintiff–Appellee,andCLS Services Ltd., Counterclaim–Defendant Appellee,

v.ALICE CORPORATION PTY. LTD., Defendant–Appellant.

No. 2011–1301.

United States Court of Appeals, Federal Circuit.

July 9, 2012.

Steven J. Glassman, Kaye Scholer LLP, of New York, New York, argued for plaintiff-appellee and counterclaim-defendant-appellee. With him on the brief were William A. Tanenbaum and Stephen J. Elliott; and David O. Bickart, of Washington, DC.

Adam L. Perlman, Williams & Connolly LLP, of Washington, DC, argued for defendant-appellant. With him on the brief were Bruce R. Genderson, Ryan T. Scarborough, Stanley E. Fisher, and David M. Krinsky. Of counsel on the brief was Constantine L. Trela, Jr., Sidley Austin, LLP, of Chicago, IL.

Before LINN, PROST, and O'MALLEY, Circuit Judges.

Opinion for the court filed by Circuit Judge LINN. Dissenting opinion filed by Circuit Judge PROST.

LINN, Circuit Judge.

This case presents, once again, the question of patent eligibility under 35 U.S.C. § 101 of an invention implemented by computers. For the reasons explained below, this court concludes that the system, method, and media claims at issue are not drawn to mere “abstract ideas” but rather are directed to practical applications of invention falling within the categories of patent eligible subject matter defined by 35 U.S.C. § 101. The decision of the district court to the contrary is reversed.

I. Background

A. The Patents in Suit

Alice Corporation (“Alice”) is the owner of U.S. Patent Nos. 5,970,479 (“the '479 Patent”), 6,912,510 (“the '510 Patent”), 7,149,720 (“the '720 Patent”), and 7,725,375 (“the '375 Patent”). 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 (a) exchanging both parties' obligations or (b) exchanging neither obligation.

As Alice's expert explained in a declaration attached to Alice's cross-motion for summary judgment and opposition to CLS Bank International and CLS Services Ltd.'s (collectively “CLS Bank”) motion for summary judgment, “[w]hen obligations arise from a trade made between two parties, e.g., a trade of stock or a trade of foreign currency, typically, there is a gap in time between when the obligation arises and when the trade is ‘settled.’ ” Ginsberg Decl., ECF No. 95–3, Ex. 1 ¶ 21. “In a number of financial contexts, the process of exchanging obligations, or settlement, is separate from the process of entering into a contract to perform a trade.” Id. For example, if two banks wish to exchange large sums of currency, they would enter into a binding agreement to make a particular exchange but would postpone the actual exchange until after the price is set and the agreement confirmed, typically two days. After those two days, both banks would “settle” the trade by paying their predetermined amounts to each other. But there is a risk that, at settlement time, one bank will no longer have enough money to satisfy its obligation to the other. The asserted patent claims—claims 33 and 34 of the '479 Patent, and all claims of the '510, '720, and '375 Patents—seek to minimize this risk. The relevant claims of the '479 and '510 Patents are method claims, whereas the claims of the '720 and '375 Patents are system and product (media) claims.

Claim 33 of the '479 Patent, representative of the method claims, recites:

33. 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 debitrecord, allowing only these [sic] 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 one 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.

'479 Patent col.65 ll.23–50.

Claim 1 of the '720 Patent, representative of the system claims, recites:

1. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a data storage unit having stored therein information about a shadow credit record and shadow debit record for a party, independent from a credit record and debit record maintained by an exchange institution; and

a computer, coupled to said data storage unit, that is configured to (a) receive a transaction; (b) electronically adjust said shadow credit record and/or said shadow debit record in order to effect an exchange obligation arising from said transaction, allowing only those transactions that do not result in a value of said shadow debit record being less than a value of said shadow credit record; and (c) generate an instruction to said exchange institution at the end of a period of time to adjust said credit record and/or said debit record in accordance with the adjustment of said shadow credit record and/or said shadow debit record, wherein said instruction being an irrevocable, time invariant obligation placed on said exchange institution.

'720 Patent col.65 ll.42–61.

Claim 39 of the '375 Patent, representative of the product (media) claims, recites:

39. A computer program product comprising a computer readable storage medium having computer readable program code embodied in the medium for use by a party to exchange an obligation between a first party and a second party, the computer program product comprising:

program code for causing a computer to send a transaction from said first party relating to an exchange obligation arising from a currency exchange transaction between said first party and said second party; and

program code for causing a computer to allow viewing of information relating to processing, by a supervisory institution, of said exchange obligation, wherein said processing includes

(1) maintaining information about a first account for the first party, independent from a second account maintained by a first exchange institution, and information about a third account for the second party, independent from a fourth account maintained by a second exchange institution;

(2) electronically adjusting said first account and said third account, in order to effect an exchange obligation arising from said transaction between said first party and said second party, after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and

(3) generating an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.

'375 Patent col.68 ll.5–35.

B. District Court Proceedings

In May 2007, CLS Bank filed suit against Alice seeking a declaratory judgment that the '479, '510, and '720 Patents are invalid, unenforceable, or otherwise not infringed. In August 2007, Alice filed a counterclaim alleging that CLS Bank infringes claims 33 and 34 of the '479 Patent, and all claims of the '510 and '720 Patents.

In March 2009, CLS Bank moved for summary judgment contending that the asserted claims of the '479, '510, and '720 Patents are invalid under 35 U.S.C. § 101. Alice opposed and cross-moved for summary judgment. Following the Supreme Court's grant of certiorari in In re Bilski, 545 F.3d 943 (Fed.Cir.2008) (en banc) (“Bilski I ”), cert. granted sub. nom. Bilski v. Doll, ––– U.S. ––––, 129 S.Ct. 2735, 174 L.Ed.2d 246 (2009), the district court denied the parties' cross motions for summary judgment as to subject matter eligibility without prejudice to re-filing following the Supreme Court's decision on certiorari.

In May 2010, the '375 Patent issued to Alice. In August 2010, Alice filed amended counterclaims additionally asserting that CLS Bank infringes all claims of the '375 Patent. After the Supreme Court decided Bilski v. Kappos, ––– U.S. ––––, 130 S.Ct. 3218, 177 L.Ed.2d 792 (2010) (“Bilski II ”), affirming Bilski I, 545 F.3d 943, the parties renewed their cross-motions for summary judgment, CLS Bank additionally asserting that the '375 Patent is invalid under 35 U.S.C. § 101. The district court granted CLS Bank's motion for summary judgment and denied Alice's cross-motion, holding that each asserted claim of Alice's four patents is invalid for failure to claim patent eligible subject matter. CLS Bank Int'l v. Alice Corp., 768 F.Supp.2d 221 (D.D.C.2011). Alice timely appealed. This court has jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

II. Discussion

A. Standard of Review

This court reviews the grant or denial of summary judgment under the law of the regional circuit. MicroStrategy, Inc. v. Bus....