Fort Properties, Inc. v. American Master Lease LLC

United States Court of Appeals
for the Federal Circuit
__________________________
FORT PROPERTIES, INC.,
Plaintiff-Appellee,
v.
AMERICAN MASTER LEASE LLC,
Defendant-Appellant.
__________________________
2009-1242
__________________________
Appeal from the United States District Court for the
Central District of California in case no. 07-CV-365,
Judge Andrew J. Guilford.
__________________________
Decided: February 27, 2012
__________________________
ARIANNA FRANKL, Cole, Schotz, Meisel, Forman &
Leonard, P.A., of New York, New York, argued for plain-
tiff-appellee.
D ONALD M. FALK , Mayer Brown, LLP, of Palo Alto,
California, argued for defendant-appellant. With him on
the brief were RITA K. LOMIO ; and NEIL M. SOLTMAN , of
Los Angeles, California. Of counsel was ANTHONY G.
G RAHAM, LLP, Graham & Martin, LLP, of Costa Mesa,
California.

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FORT PROPERTIES v. AMERICAN MASTER 2
__________________________
Before PROST, SCHALL, and MOORE, Circuit Judges.
PROST, Circuit Judge.
Defendant-Appellant American Master Lease LLC
(“AML”) appeals from the decision of the United States
District Court for the Central District of California to
grant summary judgment in favor of Plaintiff-Appellee
Fort Properties, Inc. (“Fort Properties”). In issuing this
ruling, the district court invalidated all claims in U.S.
Patent No. 6,292,788 (“’788 patent”) for failing to meet the
subject matter eligibility requirements of 35 U.S.C. § 101.
We affirm.
I. BACKGROUND
The ’788 patent discloses an investment tool designed
to enable property owners to buy and sell properties
without incurring tax liability. Proceeds generated from
real estate sales are ordinarily taxed, with some excep-
tions. One such exception is contained in 26 U.S.C.
§ 1031, which allows an owner of investment property to
exchange one property for another of like kind without
incurring tax liability if the following conditions are met:
(1) the value of the purchased property is greater than or
equal to the value of the sold property; (2) the debt bur-
dening the purchased property is greater than or equal to
the debt burdening the sold property; (3) the purchased
property is identified within 45 days of the sold property’s
date of sale, and the entire acquisition is completed
within 180 days; and (4) the real estate owner does not
exercise control over the proceeds from the sold property
before acquiring the purchased property. See 26 U.S.C.
§ 1031.

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FORT PROPERTIES v. AMERICAN MASTER 3
The investment tool disclosed in the ’788 patent is de-
signed to invoke the benefits of § 1031. In particular, the
claims require the aggregation of a number of properties
into a “real estate portfolio.” The property interests in
this portfolio are then divided into shares and sold to
investors much in the same way that a company sells
stock. These divided property interests are called “deed-
shares.”1 Each deedshare can be encumbered by its own
mortgage debt, which provides flexibility to real estate
investors attempting to structure their debts in a way
that complies with § 1031.
The ’788 patent also allows for a “master tenant” to
oversee and manage the deedshares. Among other things,
the master tenant performs administrative tasks such as
paying insurance, property taxes, and rents. ’788 patent
col.7 ll.44-51. Moreover, the real estate portfolio can be
governed by a “master agreement,” which permits the
deedshares to “reaggregate” after a predetermined time
interval. This arrangement provides flexibility to deed-
share owners wishing to sell their properties. Finally, the
investment instrument disclosed in the ’788 patent util-
izes a “qualified intermediary” (essentially a straw man)
to facilitate sales and purchases of deedshares for prop-
erty owners in a manner consistent with 26 U.S.C. § 1031.
See ’788 patent col.10 ll.1-62.
All claims in the ’788 patent are method claims.
Claim 1 discloses:
1 As an illustration, a real estate portfolio worth
$100 million can be divided into one thousand deedshares
worth $100,000 each. Each of these deedshares repre-
sents a 0.1% ownership interest in the real estate portfo-
lio. See ’788 patent col.6 ll.46-56.

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FORT PROPERTIES v. AMERICAN MASTER 4
1. A method of creating a real estate investment
instrument adapted for performing tax-deferred
exchanges comprising:
aggregating real property to form a real estate
portfolio;
encumbering the property in the real estate port-
folio with a master agreement; and
creating a plurality of deedshares by dividing title
in the real estate portfolio into a plurality of ten-
ant-in-common deeds of at least one predeter-
mined denomination, each of the plurality of
deedshares subject to a provision in the master
agreement for reaggregating the plurality of ten-
ant-in-common deeds after a specified interval.
Two of the other independent claims, claims 22 and
32, are nearly identical to claim 1—though claim 32
contains an additional limitation requiring a computer to
“generate a plurality of deedshares.” The only other
independent claim in the ’788 patent, claim 11, discloses a
method of transferring ownership of deedshares in a
manner consistent with 26 U.S.C. § 1031. Nearly all of
the dependent claims in the ’788 patent either outline
contractual provisions to include in the master agreement
or provide for duties that the master tenant can perform
(e.g., the payment of rent, property taxes, and insurance,
etc.).
The district court invalidated each of the forty-one
claims in the ’788 patent for failing to claim patent-
eligible subject matter under 35 U.S.C. § 101. In doing so,
the court applied the machine-or-transformation test.
Regarding the machine prong, the court found that the

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FORT PROPERTIES v. AMERICAN MASTER 5
claims of the ’788 patent were not “tied to a particular
machine or apparatus,” reaching this conclusion by rely-
ing on AML’s prior representation during prosecution that
the recited methods “need not be performed by a com-
puter.” Fort Props., Inc. v. Am. Master Lease, LLC, 609 F.
Supp. 2d 1052, 1055-56 (C.D. Cal. 2009) (internal quota-
tion marks omitted). Regarding the transformation
prong, the court found that “none of the claims of the ’788
Patent ‘transform[ed] any article to a different state or
thing,’” reasoning that the claimed deedshares, which
AML argued provided the transformation, “represent[ed]
only legal ownership interests in property. . . . not physi-
cal objects.” Id. at 1056. In light of its decision to invali-
date the claims of the ’788 patent, the district court
granted summary judgment in favor of Fort Properties.
Id.
Notably, the district court, following our precedent in
In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), relied solely on
the machine-or-transformation test in its § 101 analysis.
After the district court issued its decision, the Supreme
Court clarified that the machine-or-transformation test,
although not the exclusive test for patentability, is “a
useful and important clue.” Bilski v. Kappos, 130 S.Ct.
3218, 3227 (2010). Despite this intervening precedent, we
affirm the district court’s judgment invalidating the
claims under § 101 for the reasons stated below. We have
jurisdiction under 28 U.S.C. § 1295(a)(1).
II. D ISCUSSION
We review the district court’s grant of summary
judgment de novo. Tokai Corp. v. Easton Enters., Inc.,
632 F.3d 1358, 1366 (Fed. Cir. 2011). “Issues of patent-
eligible subject matter are questions of law and are re-
viewed without deference.” Cybersource Corp. v. Retail

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FORT PROPERTIES v. AMERICAN MASTER 6
Decisions, Inc., 654 F.3d 1366, 1369 (Fed. Cir. 2011).
The statute sets forth the categories of patent-eligible
subject matter, stating that “[w]hoever invents or discov-
ers any new and useful process, machine, manufacture, or
composition of matter, or any new and useful improve-
ment thereof, may obtain a patent therefor, subject to the
conditions and requirements of this title.” 35 U.S.C.
§ 101. “Section 101 thus specifies four independent
categories of inventions or discoveries that are eligible for
protection: processes, machines, manufactures, and
compositions of matter.” Bilski, 130 S.Ct. at 3225. “In
choosing such expansive terms . . . Congress plainly
contemplated that the patent laws would be given wide
scope.” Diamond v. Chakrabarty, 447 U.S. 303, 308
(1980). Supreme Court precedent, however, has “pro-
vide[d] three specific exceptions to § 101’s broad patent-
eligibility principles: ‘laws of nature, physical phenomena,
and abstract ideas.’” Bilski, 130 S.Ct. at 3225 (quoting
Chakrabarty, 447 U.S. at 309). “The concepts covered by
these exceptions are ‘part of the storehouse of knowledge
of all men . . . free to all men and reserved exclusively to
none.’” Bilski, 130 S.Ct. at 3225 (quoting Funk Bros. Seed
Co. v. Kalo Inoculant Co., 333 U.S. 127, 130 (1948)).
At issue in the present case is whether the real estate
investment tool disclosed in the ’788 patent falls under
the “process” category of § 101. Section 100(b) of the
Patent Act defines “process” to mean “process, art, or
method, and includes a new use of a known process,
machine, manufacture, composition of matter, or mate-
rial.” AML argues that its invention constitutes a patent-
eligible process. Fort Properties, on the other hand,
contends that the invention is an unpatentable abstract
idea.

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FORT PROPERTIES v. AMERICAN MASTER 7
Four seminal Supreme Court precedents 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). First, in Ben-
son, the Court found that an algorithm capable of convert-
ing binary-coded decimal numerals into pure binary code
was an unpatentable abstract idea. 409 U.S. at 64-67, 71-
72. In reaching this conclusion, the Court explained that
allowing such an invention to qualify as patent-eligible
subject matter “would wholly pre-empt [a] mathematical
formula and in practical effect would be a patent on the
algorithm itself.” Id. at 72.
In Flook, another algorithm-based invention was at
issue, with this particular algorithm being designed to
enable the monitoring of conditions during a catalytic
conversion process in the petrochemical and oil-refining
industries. 437 U.S. at 585-86. “The Court conceded that
the invention at issue, unlike the algorithm in Benson,
had been limited so that it could still be freely used out-
side the petrochemical and oil-refining industries.”
Bilski, 130 S.Ct. at 3230 (citing Flook, 437 U.S. at 589-
90). Despite this limitation, the Court still characterized
the invention as unpatentable under § 101, stating that
“[t]he notion that post-solution activity, no matter how
conventional or obvious in itself, can transform an unpat-
entable principle into a patentable process exalts form
over substance.” Flook, 437 U.S. at 590. As the Court
later explained, “Flook stands for the proposition that the
prohibition against patenting abstract ideas ‘cannot be
circumvented by attempting to limit the use of the for-
mula to a particular technological environment’ or adding
‘insignificant postsolution activity.’” Bilski, 130 S.Ct. at
3230 (quoting Diehr, 450 U.S. at 191-92).

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FORT PROPERTIES v. AMERICAN MASTER 8
Third, in Diehr, the Court explained that while an ab-
stract idea could not be patented, “an application of a law
of nature or mathematical formula to a known structure
or process may well be deserving of patent protection.”
450 U.S. at 187. The invention at issue in Diehr was a
method for “molding raw, uncured synthetic rubber into
cured precision products” using a mathematical formula
and a computer. Id. at 177. This invention qualified as
patentable subject matter under § 101 because it was not
“an attempt to patent a mathematical formula, but rather
[was] an industrial process for the molding of rubber
products.” Id. at 192-93.
Finally, in its recent Bilski decision, the Supreme
Court relied on Benson, Flook, and Diehr to find an inven-
tion very similar to the one at issue in our case unpat-
entable under § 101. See Bilski, 130 S.Ct. 3229-31. The
invention in Bilski involved a method by which buyers
and sellers of commodities could protect, or hedge, against
risk of price changes. Id. at 3223. Claim 1 of the inven-
tion required the following steps:
Initiating a series of transactions between a commod-
ity provider and consumers whereby the consumers
purchase the commodity at a certain rate;
Identifying market participants for the commodity
having a counter-risk position to the consumers; and
Initiating a series of transactions between the com-
modity provider and the market participants at a sec-
ond rate in a manner that permits the market
participant transactions to balance the risk position
of the consumer transactions.

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FORT PROPERTIES v. AMERICAN MASTER 9
Id. at 3223-24. Claim 4 incorporated the steps listed in
Claim 1 into a mathematical formula. Id. at 3223. The
remaining claims at issue in Bilski explained how claims
1 and 4 could be applied in the energy market. Id. at
3224.
The Court concluded that the claims at issue in Bilski
did not satisfy the requirements of § 101. Id. at 3229-30.
Specifically, the Court reasoned that claims 1 and 4
merely explained the basic concept of hedging, which “is
an unpatentable abstract idea, just like the algorithms at
issue in Benson and Flook.” Id. at 3231. “Allowing peti-
tioners to patent risk hedging would pre-empt use of this
approach in all fields, and would effectively grant a mo-
nopoly over an abstract idea.” Id. at 3231. Regarding the
remaining claims, which were confined to the energy
market, the Court explained that “limiting an abstract
idea to one field of use or adding token postsolution
components [does] not make the concept patentable.” Id.
at 3231. Thus, these claims were also characterized as
abstract. Id. at 3231.
A. Claims 1-31 of the ’788 patent
For the reasons provided below, claims 1-31 of the
’788 patent do not satisfy the patent-eligibility require-
ments of § 101. As an initial matter, these claims, like
the invention in Bilski, disclose an investment tool not
requiring the use of a computer. Specifically, claims 1-10
and 22-31 involve the following conceptual steps: aggre-
gating real property into a real estate portfolio, dividing
the interests in the portfolio into a number of deedshares,
and subjecting those shares to a master agreement.
Claims 11-21 then describe how property can be bought
and sold under this arrangement in a manner that per-
mits a tax-deferred exchange.

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FORT PROPERTIES v. AMERICAN MASTER 10
AML argues that claims 1-31 constitute a patentable
process and not an abstract idea because they require a
series of steps to take place in the real world that involve
real property, deeds, and contracts. More specifically,
AML contends that the deeds remove the invention from
the realm of the abstract because they are physical legal
documents signifying real property ownership that must
be publicly recorded. Fort Properties disagrees, arguing
that the claimed method of aggregating property, making
it subject to an agreement, and then issuing ownership
interests to multiple parties consists entirely of mental
processes and abstract intellectual concepts. Fort Proper-
ties counters that under Bilski, 130 S.Ct. at 3218, the
invention’s intertwinement with deeds, contracts, and
real property does not transform the abstract method into
a patentable process.
We agree with Fort Properties. Indeed, the claims in
Bilski were tied to the physical world through at least two
tangible means: commodities and money. Id. at 3223-24.
These ties, however, were insufficient to render the
abstract concept of hedging patentable. See id. at 3231.
We view the present case as similar to Bilski. Specifi-
cally, like the invention in Bilski, claims 1-31 of the ’788
patent disclose an investment tool, particularly a real
estate investment tool designed to enable tax-free ex-
changes of property. This is an abstract concept. 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. Our reasoning is further supported by the fact
that the claimed algorithm in Flook also had ties to the
physical world (i.e., the invention involved the “catalytic
chemical conversion of hydrocarbons”), yet the Supreme
Court still characterized that invention as unpatentable.
437 U.S. at 586, 594-95. For these reasons, we conclude

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FORT PROPERTIES v. AMERICAN MASTER 11
that claims 1-31 of the ’788 patent do not disclose patent-
eligible subject matter.
Our precedent is in accord. Specifically, in In re Co-
miskey, we found claims to a method of “mandatory
arbitration resolution” unpatentable under § 101 even
though those claims required the use of physical “unilat-
eral and contractual documents.” 554 F.3d 967, 981 (Fed.
Cir. 2009). Additionally, in In re Schrader, the applicants
sought to patent a method of bidding at an auction. 22
F.3d 290, 291 (Fed. Cir. 1994). The claim at issue “re-
quired” the “physical effect or result” of “entering of bids
in a ‘record,’ a step that [could have] be[en] accomplished
simply by writing the bids on a piece of paper or a chalk-
board.” Id. at 294. This court concluded that this physi-
cal effect was “insufficient to impart patentability” to the
claim, explaining that “[t]he dispositive issue [was]
whether the claim as a whole recite[d] sufficient physical
activity to constitute patentable subject matter.” Id. As
explained above, claims 1-31 of the ’788 patent recite an
abstract real estate investment tool. When viewing the
claimed invention as a whole, the physical activities
involving the deeds, contracts, and real property are
insufficient to render these claims patentable.
B. Claims 32-41 of the ’788 patent
Claims 32-41 of the ’788 patent have the same ties to
deeds, contracts, and real property as claims 1-31. For
the reasons explained in Section II.A, these physical
connections are insufficient to qualify claims 32-41 for
patent eligibility under § 101. Claims 32-41 contain an
additional limitation, however, requiring a computer to
“generate a plurality of deedshares.” We address this
limitation below.

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FORT PROPERTIES v. AMERICAN MASTER 12
This court has recently provided guidance on how
claim limitations involving computers apply in the § 101
analysis. In Cybersource, we explained that “the basic
character of a process claim drawn to an abstract idea is
not changed by claiming only its performance by com-
puters, or by claiming the process embodied in program
instructions on a computer readable medium.” 654 F.3d
at 1375. Instead, “to impart patent-eligibility to an
otherwise unpatentable process under the theory that the
process is linked to a machine, the use of the machine
‘must impose meaningful limits on the claim’s scope.’” Id.
(quoting In re Bilski, 545 F.3d at 961). As an example, in
Ultramercial, LLC v. Hulu, LLC the claimed invention
“require[d] intricate and complex computer programming”
and “specific application to the Internet and a cyber-
market environment.” 657 F.3d 1323, 1328 (Fed. Cir.
2011). The addition of the computer to the claims was not
merely insignificant post-solution activity; rather, the
invention itself involved “advances in computer technol-
ogy,” and it was thus sufficient to qualify the claims for
patent eligibility under § 101. Id. at 1329.
On the other hand, in Dealertrack, Inc. v. Huber, we
concluded that claims to a method of applying for credit
did not satisfy § 101 even though the claims contained a
limitation requiring the invention to be “computer aided.”
Nos. 2009-1566, -1588, 2012 WL 164439, at *14, *18 (Fed.
Cir. Jan. 20, 2012). In reaching this conclusion, we ex-
plained that “[t]he claims [were] silent as to how a com-
puter aids the method, the extent to which a computer
aids the method, or the significance of a computer to the
performance of the method.” Id. at *17. “Simply adding a
‘computer aided’ limitation to a claim covering an abstract
concept, without more, is insufficient to render the claim
patent eligible.” Id. Dealertrack distinguished itself from
Ultramercial on the grounds that its claims “recite[d] only

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FORT PROPERTIES v. AMERICAN MASTER 13
that the method [was] ‘computer aided’ without specifying
any level of involvement or detail,” while the Ultramercial
claims required “an extensive computer interface.” Id.
The computer limitation in claims 32-41 of the ’788
patent, like the computer limitation in Dealertrack, does
not “play a significant part in permitting the claimed
method to be performed.” See id. Specifically, claims 32-
41 only require the computer to “generate a plurality of
deedshares.” At the claim construction stage, AML
agreed that “using a computer” merely meant “operating
an electronic device that features a central processing
unit.” Such a broad and general limitation does not
“impose meaningful limits on the claim’s scope.” See
Cybersource, 654 F.3d at 1375. AML simply added a
computer limitation to claims covering an abstract con-
cept—that is, the computer limitation is simply insignifi-
cant post-solution activity. See id. at 1371. Without
more, claims 32-41 cannot qualify as patent-eligible. See
Dealertrack, 2012 WL 164439, at *17.
III. CONCLUSION
Because claims 1-41 of the ’788 patent attempt to cap-
ture unpatentable abstract subject matter, they are
invalid under 35 U.S.C. § 101. Therefore, we affirm the
district court’s grant of summary judgment in favor of
Fort Properties.
AFFIRMED

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