July 9 (Reuters) - A business method for reducing risk in
financial transactions is eligible for patent protection, a
federal appeals court ruled on Monday, reversing a lower court.
The Federal Circuit Court of Appeals in Washington concluded
that four patents owned by Alice Corporation, which cover a
computerized system for exchanging financial obligations, are
unique and patentable.
Alice, which is owned in part by National Australia Bank
Ltd, specializes in innovative financial patents, according to
its website. In 2007, the company was sued by the London-based
CLS Bank International, which runs a system for minimizing risk
in foreign-exchange transactions.
In its lawsuit, CLS claimed that Alice's patents were
invalid under Section 101 of the Patent Act. The section holds
that "laws of nature, natural phenomena and abstract ideas" are
not patentable but that unique applications of an idea are.
In 2010, the U.S. Supreme Court further defined Section 101
in Bilski v. Kappos when it ruled that a business-method patent
for guarding against investment risk in certain markets
qualified as an abstract idea.
Following the logic of the Bilski decision, a district court
in Washington found that Alice could not patent its method to
insure the execution of a deal by using a third party. But on
Monday the Federal Circuit disagreed, ruling 2-1 to overturn the
"The abstractness of the 'abstract ideas' test to patent
eligibility has become a serious problem, leading to great
uncertainty," Judge Richard Linn wrote for the majority. He
noted that all innovations to some degree rest on natural
phenomena and abstract principles. Inventions simply need to
attach an idea to a specific application to qualify for patent
protection, Linn wrote.
Alice's patents do involve the creation of computerized
credit and debit records for each party to ensure that there are
sufficient funds in each side's account to complete the
transaction. Such so-called "shadow" records are a specific
application, the majority found.
Dissenting Judge Sharon Prost criticized the majority for
flouting the Supreme Court's directive in recent cases to be
more discriminating in deciding what can be patented.
"Just a few months ago, the Supreme Court reversed us in a
Section 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," Prost wrote. In March the
Supreme Court overturned the Federal Circuit in Mayo v.
Prometheus, finding that Prometheus Laboratories could not
patent a diagnostic process because it was a law of nature. The
Supreme Court has also called for the Federal Circuit to
reconsider its prior ruling upholding Myriad Genetics' patents
on breast cancer genes.
Prost said Alice was trying to patent the basic idea of
"credit intermediation," which dates back to the Roman Empire.
Steven Glassman, a lawyer for CLS with Kaye Scholer, said
the majority decision creates confusion for businesses over what
is eligible for patent protection.
"This is really a very basic, fundamental concept
implemented on a computer. There's no advance in computer
technology of any sort," Glassman said.
Adam Perlman, a lawyer for Alice at Williams & Connolly,
declined to comment on the pending litigation.
The case is CLS Bank International et al v. Alice
Corporation Pty Ltd, U.S. Court of Appeals for the Federal
Circuit, No. 11-1301.
For CLS Bank: Steven Glassman, William Tanenbaum, Stephen
Elliott and David Bickart of Kaye Scholer.
For Alice: Adam Perlman, Bruce Genderson, Ryan Scarborough,
Stanley Fisher and David Krinsky of Williams & Connolly;
Constantine Trela of Sidley Austin.
(Reporting By Terry Baynes)
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