In Smart Systems Innovations, LLC v. Chicago Transit Authority, [2016-1233] (October 18, 2017), the Federal Circuit affirmed the district court’s judgment on the pleadings that the asserted claims of U.S. Patent Nos. 7,566,003, 7,568,617, 8,505,816, and 8,662,390, relating to regulating entry in a transit system using information from a bankcard, were patent ineligible.

The claims of the patent were directed to “a method for validating entry into a first transit system using a bankcard terminal,” “a method of funding transit rides associated with at least one public transit network, from a plurality of funding sources,” and “a method of using a bank card as an identifying token for time-based mass transit fare products, without using writable memory on the bank card.”

The district court held that “[s]tripped of the technical jargon that broadly describes non-inventive elements (e.g., the ‘interfaces’ and ‘processing systems’), and further shorn of the typically obtuse syntax of patents, the patents here really only cover an abstract concept: paying for a subway or bus ride with a credit card.”  The district court further found that “the recent case law has reiterated that whatever bells and whistles may be added, when reduced to their core, claims directed to the performance of certain financial transactions — and paying a fare is a financial transaction — must be categorized as involving abstract ideas.”

The Federal Circuit agreed with the district court, finding that taken together, the Asserted Claims are directed to the formation of financial transactions in a particular field (i.e., mass transit) and data collection related to such transactions.  The Asserted Claims were not directed to a new type of bankcard, turnstile, or database, nor do the claims provide a method for processing data that improves existing technological processes.

The Federal Circuit rejected the argument that the Asserted Claims are patent eligible because they improve prior systems of fare collection by speeding up the process at the turnstile.  The Federal Circuit found that this was not an improvement in computer technology (as in DDR Holdings), but merely the use of computers as a tool.  The Federal Circuit further found that the claims were not directed to a combined order of specific rules that improve any technological process (as in McRo), but rather invoke computers in the collection and arrangement of data.  Finally the Federal Circuit rejected the arguments that the claims applied to a particular concrete field, saying that merely limiting the field of use of the abstract idea to a particular environment does not render the claims any less abstract.

Agreeing with the district court that the claims are directed to an abstract idea at step 1, the Federal Circuit turned to step 2.  The district court held that invoking various computer hardware elements, which save time by carrying out a validation function on site rather than remotely, does not change the fact that in substance, the claims are still directed to nothing more than running a bankcard sale — that is, the performance of an abstract business practice, and the Federal Circuit agreed.  The Federal Circuit distinguished Diehr because the claims at issue merely use generic computer components in which to carry out the abstract idea.  The Federal Circuit distinguished DDR Holdings because the asserted claims do not attempt to solve a challenge particular to the Internet.

In dissent, Judge Linn, arguing that the majority engaged a reductionist exercise of ignoring the limitations of the claims in question, would have found the claims in two of the patents patent-eligible, but finding that the analysis with respect to the remaining two patents “consistent with past decisions finding ineligibility” reluctantly concurred because he was bound by precedent to reach that conclusion.

Judge Linn explained that the three non-statutory exceptions to patentability are intended to foreclose only those claims that preempt and thereby preclude or inhibit human ingenuity with regard to basic building blocks of scientific or technological activity.  He said they are intended to be read narrowly.  He observed that the contours of the abstract idea exception are not easily defined, and for that reason, the abstract idea exception is “almost impossible to apply consistently and coherently.”

Of the Alice test, Judge Linn said:

The problem with this test, however, is that it is indeterminate and often leads to arbitrary results.  Moreover, if applied in a legal vacuum divorced from its genesis and treated differently from the other two exceptions, it can strike down claims covering meritorious inventions not because they attempt to appropriate a basic building block of scientific or technological work, but simply because they seemingly fail the Supreme Court’s test.

In particular, Judge Linn took exception to Step 1 of the Alice Test:

Step one cannot be a hunt for the abstract idea underlying the claim, because underlying virtually every claim is an abstract idea.  And if the task under step one is to assess whether the claim is directed to no more than an abstract idea, what is left for determination under step two?  Where do you draw the line between properly determining what the claim is directed to and improperly engaging in an overly reductionist exercise to find the abstract idea that underlies virtually every claim?

Going further, Judge Linn said individual claim limitations cannot be ignored.  By virtue of their inclusion in the claims, every limitation warrants some consideration as to the role it plays in reciting the invention.  He said that it is also important to read the claims “in light of the specification.”  Ultimately, the fundamental question in “abstract idea” cases is whether the claim is directed to such a basic building block of scientific or technological activity as to foreclose or inhibit future innovation or whether the claim instead is directed to a tangible application that serves a new and useful end.

Judge Linn concluded that claims directed not merely to basic building blocks of scientific or technological activity but instead to innovative solutions to real problems that result from human activity and are not capable of performance solely in the human mind should be fully eligible for patent protection and not lightly discarded.

Judge’s Linn’s dissent correctly reveals that Alice’s Step 1, or at least the way that it is applied, does not correctly reveal whether a claim is directed to unpatentable subject matter.  Rather, “it is indeterminate and often leads to arbitrary results.”  He points out that claims to meritorious inventions are struck down “not because they attempt to appropriate a basic building block of scientific or technological work, but simply because they seemingly fail the Supreme Court’s test.”

Judge Linn is not the first to make these points, but his articulate and well reasoned dissent is like a shout — Alice isn’t wearing any clothes.  The question remains: will the rest of us stand around and gasp, or actually do something about it?