On June 19, the Supreme Court issued a decision in Alice Corporation. Pty. Ltd. v. CLS Bank International. et al., a high-profile patent case involving the scope of patent eligibility under 35 U.S.C. § 101. In a unanimous decision, the Court affirmed the U.S. Court of Appeals for the Federal Circuit and held that all of the patent claims at issue—system, method, and computer-readable media—are ineligible subject matter under § 101. In doing so, the Court made clear that the two-step framework set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., is applicable to software inventions, and used this framework to analyze the claims at issue. However, the Court failed to provide much guidance on two key aspects of recent §101 jurisprudence: how to determine whether an idea is an “abstract idea” and what is required to describe and claim a non-generic computer for patent eligibility.
CLS Bank International and CLS Services Ltd. (collectively CLS Bank) originally filed a declaratory judgment action against Alice Corporation (Alice) seeking non-infringement, invalidity, and unenforceability of four Alice patents directed to computer-implemented methods, computerized systems, and computer-readable media for exchanging payment obligations between parties by using a trusted third party to settle the obligations and eliminate settlement risk. The district court granted summary judgment of invalidity under § 101 as to the method, system, and media claims of the Alice patents. Alice appealed, and a divided panel of the Federal Circuit reversed the district court and found that the claims in the Alice patents were not directed to an “abstract idea” and were thus patent-eligible subject matter. CLS Bank filed a petition for rehearing en banc that was subsequently granted. However, while the Federal Circuit ultimately reversed its earlier decision and held the Alice patents to be directed to patent-ineligible subject matter, the decision, consisting of seven separate opinions without any clear majority, failed to provide a concrete test for determining patent-eligible subject matter and failed to resolve several issues raised after the Supreme Court’s earlier § 101 decision in In Re Bilski. Alice petitioned for certiorari, and the Supreme Court granted the petition in December 2013.
In this decision, the Court affirmed the Federal Circuit and held that the Alice patents were invalid. In an opinion authored by Justice Clarence Thomas, the Court provided a brief summary of the history of the judicial exception to patentability and reiterated that under § 101 laws of nature, natural phenomena, and abstract ideas are unpatentable. Citing Bilski, the Court again focused on concerns of pre-emption as the rationale for this exception to patentability. In the application of the §101 exception, the Court identified the concern previously expressed in Mayo: the need to “distinguish between patents that claim the ‘buildin[g] block[s]’ of human ingenuity and those that integrate the building blocks into something more,” thus transforming them into a patent-eligible invention.
The Court further stated that its recent decision in Mayo provides a “framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” In this two-step framework, the first step is to determine whether “the claims at issue are directed to one of those patent-ineligible concepts” of laws of nature, natural phenomena, and abstract ideas. If the first step is met, the second step of the Mayo framework requires a search for an “inventive concept,” described by the Court as “an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” With regard to this second step of the Mayo framework, the Court stated that both the individual claim elements and the combination of elements should be considered to determine whether the elements not directed to the ineligible concept “transform the nature of the claim” into a patent-eligible application of the concept.
The Court then applied the two-step Mayo framework to the claims of the Alice patents. Under the first step of the Mayo test, the Court held that claims of the Alice patents were directed to an abstract idea of “intermediated settlement.” The Court compared this idea to the other abstract ideas at issue in Gottschalk v. Benson (an algorithm for converting binary coded decimals into pure binary), Parker v. Flook (a mathematical formula for updating an alarm limit in a catalytic conversion process” and Bilski (a process for hedging risks in commodity price fluctuations). In particular, the Court stated that “[l]ike the risk hedging in Bilski, the concept of intermediated settlement is ‘a fundamental economic practice long prevalent in our system of commerce.’” Relying on Bilski as an example, the Court rejected Alice’s argument that an “abstract idea” is confined to “preexisting, fundamental truth[s]” that “exis[t] in principle apart from any human action.” Aside from this rejection of Alice’s proposed definition, however, the Court explicitly declined to further define the boundaries of the “abstract idea” category.
The Court next applied the second step of the Mayo framework: whether the Alice claims include an “inventive concept” sufficient to transform the claimed “abstract idea” into a patent-eligible application. Under this step, the Court concluded that the recitation of a “generic computer implementation” does not transform an abstract idea into a patent-eligible invention. The Court held that the introduction of a computer is analogous to the “conventional steps” of doctor instruction and determination of metabolite levels at issue in Mayo. Relying again on Benson and Flook, the Court stated that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” In contrast, the Court distinguished Diamond v. Diehr (a computer-implemented mathematical algorithm used in curing synthetic rubber) as being patent-eligible because the invention “improved an existing technological process” and did not simply add implementation on a computer. The Court provided two guideposts to reach this conclusion: claiming an abstract idea “while adding the words ‘apply it’ is not enough for patent eligibility,” and limiting the application of an abstract idea “to a particular technological environment” does not render the subject matter patent eligible. According to the Court, claiming the application of a generic computer to an abstract idea “simply combines those two steps, with the same deficient result.” Thus, because the claims of the Alice patents simply recite the abstract idea of “intermediated settlement” as performed by a generic computer, the Court found the claims to be ineligible subject matter under § 101.
The media claims and system claims also failed under the Court’s application of the Mayo framework (Alice previously conceded that the media claims rise or fall with the method claims). The language recited in the system claims and characterized by Alice as “specific hardware” included a “data processing system” with a “communications controller” and a “data storage unit.” However, the Court found that all of these elements are “purely functional and generic” and are included on “[n]early every computer.” Consequently, the Court held that the system claims of the Alice patents merely recite generic computer components that implement the same abstract idea recited in the method claims. Again relying on Mayo, the Court reiterated that patent eligibility should not depend “simply on the draftsman’s art.”
Although the Court ruled that the Mayo test should be used as a framework for determining patent eligibility of all types of claims, the Court left open issues that may be resolved by the U.S. Patent and Trademark Office (USPTO) and the Federal Circuit. For instance, Justice Thomas’ opinion addresses the patentability of the “fundamental economic practices” of Alice and Bilski, but the opinion does not foreclose the patentability of all “abstract ideas” and fails to mention the term “software.” Additionally, the Court has thus far only provided rulings on specific abstract ideas without providing useful guidance on what constitutes an abstract idea or how to make the determination. Finally, the Court did not provide guidance on how to describe or claim a “non-generic” computer that avoids the ineligible aspects of the computer recited in the claims of the Alice patents. The Federal Circuit will likely have several opportunities to provide clarity on these issues, albeit in light of a significant change—Judge Rader, who dissented-in-part in the en banc CLS Bank decision at the Federal Circuit, is retiring from the bench at the end of June.
On June 25, the USPTO released a memorandum entitled “Preliminary Examination instructions in view of the Supreme Court Decision in Alice Corporation Pty. Ltd. v. CLS Bank International, et al.” The updated instructions direct the Examiners to use the two-step Mayo framework for all types of inventions and categories of claims. Although the memorandum makes clear that no “special requirements for eligibility of software or business methods” are imposed, the use of the Mayo framework may result in an increase in §101 rejections of software and computer-implemented inventions. Moreover, Examiners will likely cease reliance on the “machine-or-transformation” test that, in many cases, continued to provide patent applicants with a basis to overcome post-Bilski §101 rejections. The Examination Instructions are available at: http://www.uspto.gov/patents/announce/alice_pec_25jun2014.pdf