Connections To The Physical World Through Deeds, Contracts, And Real Property Fail To Render Claims Directed To An Investment Tool Patent Eligible Under 35 U.S.C. § 101

Last Month at the Federal Circuit - March 2012

Judges: Prost (author), Schall, Moore

[Appealed from C.D. Cal., Judge Guilford]

In Fort Properties, Inc. v. American Master Lease LLC, No. 09-1242 (Fed. Cir. Feb. 27, 2012), the Federal Circuit affirmed the district court's SJ of invalidity under 35 U.S.C. § 101 for claims relating to an investment tool.

American Master Lease LLC ("AML") owns U.S. Patent No. 6,292,788 ("the '788 patent"), which is directed to an investment tool enabling property owners to buy and sell properties without incurring tax liability. The '788 patent contains forty-one method claims, all reciting steps such as "aggregating real property to form a real estate portfolio," "encumbering the property . . . with a master agreement," and "creating a plurality of deedshares . . . subject to a provision in the master agreement for reaggregating the plurality of tenant-in-common deeds after a specified interval." Claims 1-31 of the '788 patent are directed to an investment tool having ties to deeds, contracts, and real property, but not requiring the use of a computer. Claims 32-41 of the '788 patent have the same ties to deeds, contracts, and real property as claims 1-31, but additionally require a computer to "generate a plurality of deedshares."

The district court, prior to the Supreme Court's decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010), considered the patentability of the forty-one claims of the '788 patent only under the "machine-or-transformation test." The district court invalidated all claims of the '788 patent for failing to meet the subject matter eligibility requirements of § 101 and granted SJ in favor of Fort Properties.

"Under Bilski, this abstract concept cannot be transformed into patentable subject matter merely because of connections to the physical world through deeds, contracts, and real property." Slip op. at 10.

On appeal, the Federal Circuit reconsidered the patentability of the '788 patent claims de novo. The Court first reviewed four "seminal Supreme Court precedents [that] provide guidance regarding when an invention qualifies as a patent-eligible process as opposed to an abstract idea: Bilski, 130 S. Ct. 3218; Diamond v. Diehr, 450 U.S. 175 (1981); Parker v. Flook, 437 U.S. 584 (1978); and Gottschalk v. Benson, 409 U.S. 63 (1972)." Slip op. at 7. The Court identified claims 1-31 of the '788 patent as "very similar" to those in Bilski involving "a method by which buyers and sellers of...