Business Methods Program Determined Patent-Ineligible
Supreme Court decides Alice Corp. Pty. Ltd. v. CLS Bank International, invalidating Alice Corp.’s Patents
The Supreme Court resolved the highly anticipated seven-year dispute over business method patents held by Alice Corp., unanimously deciding Alice Corp. Pty. Ltd. V. CLS Bank International on Thursday. Justice Thomas writing for the Court held that the basic business methods claims at issue are drawn to the abstract idea of intermediated settlement, and that the presence of merely generic computer implementation as part of the method, fails to transform that abstract idea into a patent-eligible invention.
Petitioner Alice Corporation was the assignee of several patents that disclose a system for mitigating “settlement risk,” which is the risk that only one party to an agreed-upon financial exchange will satisfy its obligation. Specifically, the patent claims are designed to enable the exchange of financial obligations between to parties by using a computer system as a third-party intermediary. Respondents CLS Bank, filed suit against petitioner, arguing that the patent claims at issue are invalid, unenforceable or not infringed.
The Court determined the claims at issue are directed to a patent-ineligible concept—the abstract idea of intermediary settlement—under 35 U.S.C. §101. According to the decision, while the patents in suit claim that (1) the foregoing method for exchanging financial obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims), are all implemented using a computer, the mere existence of a computer does not substantially improve upon the abstract idea, to make it patentable.
Justice Thomas explained the Court has long held that §101 of the Patent Act, which provides patent protection for whoever invents or discovers any new and useful process, or any new and useful improvement thereof, contains an important implicit exception “that laws of nature, natural phenomena and abstract ideas are not patentable.” Alice Corp. at 4, citing Molecular Pathology v. Myriad Genetics, Inc., (2013).
Justice Thomas wrote, in applying the §101 exception, so it does not swallow all of patent law, the court must distinguish between patents that claim “the building blocks of human ingenuity and those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention.” Id. at 6, citing Mayo Collaborative Services v. Prometheus Laboratories, Inc.,. To do so, the Court used the framework set forth in Mayo for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.
Using this framework, the Court first determined whether the claims at issue are directed to a patent-ineligible concept—an abstract idea. Guided by recent precedent in Bilski v. Kappos (2010) , the Court determined like the risk in hedging against financial risk of price fluctuations in Bilski, the concept of intermediated settlement in Alice Corp. “ ‘is a fundamental economic practice long prevalent in our system of commerce,” and the use of a third-party intermediary is a building block of the modern economy, thus finding intermediated settlement, like hedging, an “abstract idea” beyond §101’s scope. Alice Corp. at 7.
Because the claims at issue are directed to the abstract idea of intermediated settlement the Court turned to the second step in Mayo’s framework, and considered the elements of each claim both individually and as a combination to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Alice Corp. at 7.
The Court determined that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention, because it amounts to “nothing significantly more” than an instruction to apply the abstract idea. Justice Thomas wrote, “an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer is not “enough” to transform the idea into a patent-eligible invention.” Alice Corp. at 11. The Court also determined that because the petitioner’s system and media claims “add nothing of substance to the underlying abstract idea,” they are also patent ineligible under §101. Alice Corp. at 12.
The ruling did not erase patent eligibility for all software, however. The Court wrote “there is no dispute that many computer implemented claims are formally addressed to patent-eligible subject matter.” Alice Corp. at 10. The Court did not expand on what is required for software programs to be patent-eligible. That being said, without further guidance by the Court, it will be interesting to see the impact this decision has on cases brought by patent trolls that put together broad but weak patents for the main purpose of suing deep pocket patent holders for infringement.
While the decision is not necessarily surprising to patent experts as it falls in line with recent precedent, the Court in a rare move affirmed the U.S. Federal Circuit, a specialized court in Washington that hears patent disputes. According to the National Law Journal, in all five previous patent cases this term, the justices overturned rulings by the Federal Circuit.