Alice Corp. v. CLS Bank International: Challenges In Identifying Patentable Subject Matter

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On June 19, 2014, the Supreme Court issued its opinion in Alice Corporation v. CLS Bank International.1 The Court held that a group of patents related to mitigating settlement risk were not drawn to patent eligible subject matter under 35 U.S.C. § 101 (“Section 101”) because the claims were directed toward a patent-ineligible abstract idea. In so ruling, the Court affirmed the holding of a deeply divided Federal Circuit (sitting en banc). Notably, the Court applied the two-step test promulgated in Mayo Collaborative Services v. Prometheus Laboratories, Inc.2 to determine whether the claims were directed to an abstract idea. In applying the Mayo test, the Court reasoned that recitation of a general-purpose computer does not add an “inventive concept” to the claims sufficient to transform the claimed abstract idea into a patentable invention.

 BACKGROUND

Section 101 states that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor.” This broad provision for eligibility is limited by the judicially-created exception that “[l]aws of nature, natural phenomena, and abstract ideas are not patentable.”3 However, the Supreme Court has previously cautioned that “too broad an interpretation of this exclusionary principle could eviscerate patent law. For all inventions at some level embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.”4 Interpreting the scope of Section 101 and the judicially-created exception has proven difficult for district courts. In fact, a minority judges on the Federal Circuit have advocated that district courts defer the Section 101 analysis until “absolutely necessary” to evaluate subject matter eligibility.5

 PROCEDURAL HISTORY

In May 2007, CLS Bank International and CLS Services Ltd. (together, “CLS Bank”) filed suit against Alice Corporation (“Alice Corp.”) seeking a declaratory judgment of non-infringement and invalidity of United States Patent Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375.6 Relying on the Supreme Court’s decision in Bilski v. Kappos,7 Both parties moved for summary judgment on whether the claims were eligible for patent protection relying on the Supreme Court’s decision in Bilski v. Kappos.8 The district court held that all claims were patent ineligible because they were directed to the abstract idea of “employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”9

The decision by the Federal Circuit revealed a deep divide amongst the judges. Initially, a three-judge panel reversed the district court, holding that it was not “manifestly evident” that [Alice Corp.’s] claims were directed to an abstract idea.10 Subsequently, the Federal Circuit granted rehearing en banc, vacated the panel opinion, and affirmed the district court in a one paragraph per curiam opinion.11 However, the ten judge panel issued five separate opinions, with none garnering support from more than a plurality. Ultimately, seven judges agreed that the method claims were invalid, but only five would have found the system claims invalid.12

THE SUPREME COURT’S DECISION

In a unanimous opinion, the Supreme Court affirmed the en banc Federal Circuit and held that all of the claims were not patent eligible. The Court reached this conclusion by applying the two-step analysis first promulgated in Mayo: (1) determine whether the claims at issue are directed towards an abstract idea, law of nature, or natural phenomenon,13 and (2) if so, determine whether the claim “contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.”14

The mere selection of the Mayo test is a critical component of the Alice Corp. decision. Mayo dealt with the issue of whether a patent claim was ineligible under Section 101 as directed towards a law of nature, not as an abstract idea.15 Indeed, the applicability of the Mayo test was one of the en banc questions directly addressed by the Federal Circuit.16 The Supreme Court simply adopted the Mayo test and stated that the Mayo framework governed the analysis for evaluating the scope of the judicially-created exceptions.17

In evaluating the first prong of the Mayo test, the Supreme Court focused on the similarity between the subject matter of the patents-in-suit and the patents at issue in Bilski.18 In Bilski—the Court’s most recent decision regarding the abstract idea exception—the Court invalidated a patent because it covered the abstract concept of hedging to avoid risk.19 The Court reasoned that the similarity between the subject matter in the two cases led to the conclusion that Alice Corp.’s patents—like the patents in Bilski—were directed to an abstract idea.20 In particular, the Court held that, in both cases, the patents covered abstract ideas because they claimed “a fundamental economic practice long prevalent in our system of commerce.”21 Three Justices would have held that the patents are invalid on this basis alone. Justice Sotomayor, joined by Justice Ginsburg and Justice Breyer, filed a short concurring opinion asserting that any “claim that merely describes a method of doing business does not qualify as a ‘process’ under § 101.”22

Because the Court found that the patents were directed to an abstract idea, the Court proceeded to the second Mayo step.23 As a threshold issue, the Court addressed whether the fact that the claims must be implemented on a general-purpose computer affects the Section 101 analysis.24 Simply put, the Court said no. Specifically, the Court stated that if the presence of a general purpose computer in a claim “were the end of the § 101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.”25 The Court reasoned that “[s]uch a result would make the determination of patent eligibility depend simply on the draftsman's art, thereby eviscerating the rule that laws of nature, natural phenomena, and abstract ideas are not patentable.”26

Thus, to determine whether the claims were nevertheless patentable, the Court analyzed whether the particular “implementation” in the claims required more than mere application of the abstract idea on a general-purpose computer.27 The Court held that nothing about the implementation added any inventive concept to the abstract idea. The Court reviewed each claim element and noted that, for each step, the function performed by the computer is “[p]urely conventional.”28 Further, “as an ordered combination,” the computer components of [Alice Corp.’s] method “ad[d] nothing ... that is not already present when the steps are considered separately.”29 Accordingly, the Court concluded that “viewed as a whole, [Alice Corp.’s] method claims simply recite the concept of intermediated settlement as performed by a generic computer.”30 Finally, the Court held that the system and computer-readable media claims “fail for substantially the same reasons,” noting that the structural components recited in these claims would be present in “[n]early every computer.”31 Thus, the Court determined that all of the claims are invalid as a patent-ineligible abstract idea.

IMPLICATIONS OF THE ALICE CORPORATION DECISION

The Supreme Court’s holding in Alice Corp. brings clarity in some contexts, while leaving the waters murky in others. Going forward, it is clear that the two-step Mayo test will govern all patent eligibility questions under Section 101. However, the rub remains in the application. Although the Supreme Court has issued several opinions in the last decade finding patents not eligible under Section 101, the Court has provided less guidance as to what is eligible.32 After Alice Corp., business method patents reciting only a general-purpose computer may be patent-ineligible abstract ideas. However, the contours of the “inventive concept” sufficient to transform such ideas into patent eligible inventions remains unclear. Practitioners should consider avoiding the drafting of claims requiring only conventional computer components, and should further consider challenging the patentability of such claims in litigation or before the Patent and Trademark Office.

1134 S. Ct. 2347 (2014).
2132 S. Ct. 1289 (2012).
3Alice Corp., 134 S. Ct. at 2354 (citations omitted).
4132 S. Ct. at 1293
5See, e.g., DealerTrack, Inc. v. Huber, 674 F.3d 1315, 1335 (Fed. Cir. 2012) (Plager, J., dissenting) (“I believe that this court should exercise its inherent power to control the processes of litigation, and insist that litigants, and trial courts, initially address patent invalidity issues in infringement suits in terms of the defense provided in the statute: ‘conditions of patentability,’ specifically §§102 and 103, and in addition §§112 and 251, and not foray into the jurisprudential morass of §101 unless absolutely necessary.” (internal citations omitted)).
6CLS Bank Int’l v. Alice Corp., 768 F. Supp. 2d 221, 2228 (D.D.C. 2011).
7130 S.Ct. 3218 (2010).
8CLS Bank Int’l, 768 F. Supp. 2d at 230.
9768 F. Supp. 2d at 252.
10CLS Bank Int’l v. Alice Corp., 685 F.3d 1341, 1356 (Fed. Cir. 2012).
11CLS Bank Int’l v. Alice Corp., 717 F.3d 1269, 1273 (Fed. Cir. 2013) (en banc).
12See id. at 1274 (Lourie, J., concurring); id. at 1312–1313 (Rader, C.J., concurring in part and dissenting in part).

13Mayo, 132 S. Ct. at 1296–1297.
14Id. at 1294, 1298. (internal quotations marks omitted)
15Id. at 1294.
16CLS Bank Int’l v. Alice Corp., App No. 2011-1301 (Fed. Cir. 2012) (en banc order) (“The appeal presents two issues . . . The first issue presented was ‘what test should the court adopt to determine whether a computer-implemented invention is a patent ineligible ‘abstract idea’”).
17Alice Corp., 134 S. Ct. at 2355.
18Id. at 2355-57.
19Bilski, 130 S. Ct. at 3231.
20Alice Corp., 134 S. Ct. at 2356.
21Id.
22Id. at 2360-61 (Sotomayor, J. concurring) (citing Bilski, 561 U.S. 593, 614 (Stevens, J., concurring in judgment)).
23Id. at 2357.
24Id. at 2357-59.
25Alice Corp., 134 S. Ct. at 2359.
26Id.
27Id. at 2359-60.
28Id. at 2359 (citations omitted).
29Id. at 2359.
30Alice Corp., 134 S. Ct. at 2360.
31Id.
32CLS Bank Int'l, 717 F.3d at 1314 (Moore, J., dissenting) (“It has been a very long time indeed since the Supreme Court has taken a case which contains patent eligible claims. This case presents the opportunity for the Supreme Court to distinguish between claims that are and are not directed to patentable subject matter.”).

Topics:  CLS Bank v Alice Corp, Mayo v. Prometheus, Patent Litigation, Patent-Eligible Subject Matter, Patents, SCOTUS

Published In: Civil Procedure Updates, Intellectual Property Updates, Science, Computers & Technology Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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