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Method for Tax-Deferred Real Estate Investments Not Patentable, Notwithstanding Computer Limitations

On de novo review, the U.S. Court of Appeals for the Federal Circuit upheld a district court’s grant of summary judgment invalidating method claims for tax-deferred real estate investments as unpatentable “abstract ideas” (under § 101). Fort Properties, Inc. v. American Master Lease LLC, Case No. 09-1242 (Fed. Cir., Feb. 27, 2012) (Prost, J.).

The patent at issue is directed to a method for real estate investments designed to take advantage of a federal law that allows tax deferrals for certain real estate transactions. Claim 1 comprised three steps: aggregating title to a number of real properties into a real estate portfolio; encumbering the property in the portfolio with a master agreement; and dividing the property interests in the portfolio into tenant-in-common shares, called “deedshares,” that are subject to reaggregation under the master agreement. The 41 claims in the patent fell into two categories: claims that were similar to claim 1, and like claim 1 did not recite computer implementation, and claims that were similar to claim 1, but additionally required a computer to “generate a plurality of deedshares.” All the claims were held to be unpatentable.

The Federal Circuit likened the claims in the first category to those in the Supreme Court’s Bilski decision (IP Update, Vol. 13, No. 7), where a method by which buyers and sellers of commodities could hedge against the risk of price changes was held to be an abstract idea. The patent holder, American Master Lease (AML), argued that its real estate investment method claims were not just abstract ideas, but required a series of steps to take place in the real world, involving real property, deeds and contracts. Rejecting this argument, the Federal Circuit explained that the Supreme Court previously rejected claims with ties to the physical world in Bilski (commodities and money) and Flook (catalytic chemical conversion of hydrocarbons). Further, citing to its own precedent in In re Comiskey (IP Update, Vol. 12, No. 1) and In re Schrader (1994), the Federal Circuit reaffirmed that the test is “whether the claim as a whole recite[d] sufficient physical activity to constitute patentable subject matter” and not whether there are some physical ties such as entering bids in a record or using a contract.

The Federal Circuit also held that the addition of a computer limitation was “insignificant post-solution activity,” which the Bilski decision reaffirmed is not enough to render an otherwise abstract idea patentable. Applying its own precedents in Cybersource (IP Update, Vol. 14, No. 9), Ultramercial (IP Update, Vol. 14, No. 10) and Dealertrack (IP Update, Vol. 15, No. 2), the Federal Circuit emphasized that in order for a computer limitation to confer subject-matter eligibility, the use of the machine “must impose meaningful limits on the claim’s scope” and must “play a significant part in permitting the claimed method to be performed.” Significantly, during claim construction, AML had agreed that “using a computer” merely meant “operating an electronic device that features a central processing unit.” The Federal Circuit held that such a broad and general limitation does not “impose meaningful limits on the claim’s scope.” The Federal Circuit contrasted the claims of the AML patent against the permissible claims in Ultramercial, which recited “an extensive computer interface” and involved “advances in computer technology,” requiring “intricate and complex computer programming” and “specific application to the Internet and cybermarket environment.”

© 2020 McDermott Will & EmeryNational Law Review, Volume II, Number 116

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