Supreme Court Invalidates Software Patents in Alice Corp. Case


The U.S. Supreme Court issued an important opinion today in Alice Corp. v. CLS Bank International regarding the patent eligibility of basic concepts covered in computer software patents. Writing for the unanimous Court, Justice Clarence Thomas used prior precedent to set out a clear, two-part test for patent eligibility under 35 U.S.C. §101 to invalidate the subject patents as “drawn to a patent-ineligible abstract idea” involving the use of an intermediary in financial transactions.

The patents at issue were directed to a computerized scheme for management of financial risk by use of a third-party intermediary, such as an escrow. The Supreme Court took review of the case to resolve a fractured Federal Circuit en banc decision in which several judges provided differing approaches for determining patent eligibility for computer software. The approach taken by the Court in its ruling suggests that, regardless of the type of claim, a generic computer or generic computer components performing conventional steps are not sufficient to transform an abstract idea into patentable subject matter.

Incorporating the two-step test espoused in its recent decision in Mayo v. Prometheus, the Court describes a first inquiry as to whether the patent claims at issue are directed to a patent-ineligible concept. If so, the Court requires a second inquiry as to whether the elements of the patent claims, either individually or as an ordered combination, “transform” the nature of the claims into a patent-eligible invention. The Court described this second step as a search for an inventive concept, “i.e., 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.”

Applying this test to the software patent at issue in Alice Corp., the Court first compared the claims to the risk hedging patent at issue in Bilski v. Kappos and held that the Alice Corp. patent claims were drawn to an abstract idea of intermediated settlement. In applying the second step, the Court held that the claims did not transform the abstract idea into a patent-eligible application because all of the claims, including the method, system, and computer program claims, merely added a generic computer or a handful of generic computer components to the abstract notion of use of an intermediary. As noted by Justice Thomas, “[m]erely requiring generic computer implementation fails to transform [an] abstract idea into a patent-eligible invention.”

This decision will certainly inform the federal courts and the Patent Office alike in deciding the patent eligibility of basic business methods that constitute “abstract concepts”; such concepts may not be patentable even if computer software or systems are employed to implement them.

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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