Yesterday, the Supreme Court decided Alice Corporation v. CLS Bank International and unanimously held that Alice’s patent claims were not patent eligible under 35 U.S.C. § 101 because they merely called for generic computerization of the abstract idea.
In 2007, CLS Bank sued Alice in the District Court for the District of Columbia seeking a declaratory judgment that Alice’s patents were invalid, unenforceable, and not infringed. Alice counterclaimed for infringement. Alice’s patents describe and claim a computerized trading platform where two trading parties use a third party to settle payments to reduce the risk that the counterparty will not perform. The patent included three types of claims: system claims, method claims, and “computer-readable media” claims.
Following Bilski v. Kappos, 130 S. Ct. 3218 (2010), the district court held that Alice’s method claims were invalid because they were directed to the abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations and minimize risk. The district court also found Alice’s system and computer-readable media claims patent-ineligible because the claimed subject matter preempted the use of the abstract concept on any computer.
In 2012, a divided Federal Circuit panel reversed the district court’s ruling that it was “manifestly evident” that Alice’s claims are directed to an abstract idea. But, on rehearing en banc the Federal Circuit affirmed the judgment of the district court in a one-paragraph per curiam opinion. The ten Federal Circuit judges hearing the case issued seven different opinions, with no opinion supported by a majority. Seven of the ten agreed that Alice’s method claims and computer-readable media claims were not patent-eligible, but they did so for conflicting reasons. The en banc court also affirmed the district court’s judgment on Alice’s system claims by an equally divided vote.
The Federal Circuit’s fractured decision left the law in disarray, and the Supreme Court granted certiorari. The Supreme Court heard oral argument in March of this year and today unanimously affirmed the judgment that all three sets of claims were not patent-eligible.
The Supreme Court’s decision extended the two-part analysis that it adopted in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), in determining whether another judicially created exception to patent-eligibility (the law-of-nature exception) applied. First, the Court analyzed whether the claims focused on an abstract method. Second, the Court considered whether the claim elements, considered individually and as an ordered combination, transformed the claim into patent-eligible subject matter. The Court concluded that all three kinds of claims were directed to an abstract method and that ordinary computerization of that method did not turn it into patent-eligible subject matter.
In the first step, the Court analogized the method claims to the risk-hedging method it had deemed patent-ineligible in Bilski. In Bilski, the Court had considered risk hedging “a fundamental economic practice long prevalent in our system of commerce.” The Court concluded that hedging counter-party risk by using intermediaries was similarly fundamental and long prevalent. The Court did not, however, provide more generalized guidance about what constitutes an “abstract idea.” In the second step, the Court concluded that merely implementing the abstract method with generic computer technology was insufficient to transform it into a patent-eligible invention.
The Court next turned to the system and media claims and concluded that they added nothing of substance to the underlying abstract idea. The Court ruled that Alice’s system claims recited generic computer components configured to implement the same abstract idea. Because the system and media claims merely tied the method to a particular “technological environment,” they were also patent-ineligible.
As in Mayo, today’s decision recognizes that at some level, “all inventions ... embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.” But there must be an “inventive concept”—an element or combination of elements “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”
The Court’s opinion on those issues is unanimous. Three Justices, led by Justice Sotomayor, issued a short concurring opinion reiterating their view, rejected in Bilski, that all claims that merely describe a business method are patent-ineligible under 35 U.S.C. § 101.