Court Invalidates 'Abstract' American Master Lease Patent

While many questioned if the Federal Circuit Court of Appeals was turning soft on subject matter jurisdiction when it ruled in July that genes can be patented, you can rest easy knowing that they still take the Bilski machine-or-transformation test seriously.

Last week, the Federal Circuit invalidated a patent in Fort Properties v. American Master Lease after determining that the investment tool that was the subject of the patent didn't satisfy the machine-or-transformation test.

American Master Lease patented an investment tool that enables property owners to buy and sell properties without incurring tax liability by invoking an investment property exemption. The investment tool aggregated properties into a real estate portfolio, which was then divided into property interests called deedshares. All claims in the patent were method claims.

A California district court invalidated American Master Lease's patent based on the machine-or-transformation test. The court found that the patent did not satisfy the machine prong, noting that the claims were not tied to a particular machine or apparatus because the method didn't need to be performed by a computer.

Similarly, the district court found that none of the patents' claims "transformed any article to a different state or thing." The court reasoned that the deedshare, supposedly the product of a transformation, represented legal ownership interests and not physical objects, so they were not actually transformed for patent protection purposes.

The Federal Circuit Court of Appeals upheld the district court's ruling, noting that, under Bilski, an abstract concept like the American Master Lease investment tool, "cannot be transformed into patentable subject matter merely because of connections to the physical world through deed, contracts, and real property."

The lesson in this case for intellectual property clients? If you want to patent a method similar to American Master Lease's investment tool, make sure that it requires a computer or machine for execution.

Related Resources:

• Fort Properties v. American Master Lease (FindLaw's CaseLaw)
• Lesson of Bilski is Avoid Abstraction in Patent Cases (FindLaw)
• 35 USC § 101 (FindLaw)