On June 19, 2014, the Supreme Court issued its decision in Alice Corporation Pty. Ltd. v. CLS Bank International, clarifying what it means to be patentable subject matter. With one stroke of the pen, the Supreme Court effectively invalidated thousands of patents that claim a known business method implemented by a computer. The effect of this ruling is already having a significant impact on online businesses. In the retail industry in particular, the affected patents can be found everywhere—from software running an online purchasing platform, to tracking inventory and shipping, to enabling detailed virtual product viewings, to online shopping cart functionality. Moreover, the retail industry is a target for Patent Assertion Entities (PAEs), also known as “Patent Trolls,” which own many of the patents Alice may have invalidated. In the few months since the Supreme Court’s Alice decision, courts have been invalidating patents and the number of patent cases filed compared to this time last year have decreased.

Alice Takes Aim at “Abstract Ideas”

In Alice, the Supreme Court held that a patent claiming a previously known method implemented by a computer, without more, is merely an “abstract idea” not entitled to patent protection under 35 U.S.C. § 101.

Alice Corp., a PAE, sued CLS Bank, which developed and utilized a computer system Alice Corp. claimed infringed its patents claiming a method of investment trading utilizing an intermediary to mitigate risk. The Supreme Court held that “the claims at issue amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer,” noting that, “[u]nder our precedents, that is not enough to transform an abstract idea into a patent-eligible invention.” The Supreme Court added that “[s]imply appending conventional steps, specified at a high level of generality, to a method already ‘well known in the art’ is not enough to supply the ‘inventive concept’ needed to make this transformation.”

The Impact of Alice

Less than a week after the Supreme Court’s decision, the USPTO issued patent examination guidelines instructing patent examiners how to evaluate computer-implemented method patents in light of Alice.

Less than a month after the Alice decision, the U.S. Court of Appeals for the Federal Circuit (CAFC)—the federal court that hears appeals of all patent cases—began invalidating patents in light of Alice. On July 11, 2014, the CAFC affirmed a California federal court’s decision to invalidate digital camera patents asserted by a subsidiary of Acacia (the most litigious PAE in 2013) against several retailers, noting that “[a] process that employs mathematical algorithms to manipulate existing information to generate additional information is not patent eligible.” On August 26, 2014, the CAFC affirmed a Michigan federal court’s decision invalidating patents claiming computer management of bingo games, noting a “straight-forward application of the Supreme Court’s recent holding in Alice” mandated invalidating the patents. One week later, the CAFC affirmed a Delaware federal court’s decision to invalidate patents claiming “methods and machine-readable media encoded to perform steps for guaranteeing a party’s performance of its online transaction,” noting “[t]hat a computer receives and sends the information over a network—with no further specification—is not even arguably inventive.”

In a striking example of Alice’s impact, Lumen View Technology (a heavily litigious PAE), voluntarily dismissed an appeal on September 12, 2014 from a judgment invalidating its patent claiming a “system and method for facilitating bilateral and multilateral decision making,” noting that Alice “has provided greater clarity on patentability.” Additionally, reports indicate that the number of new patent cases filed in September 2014 dropped 40% from September last year.

Audit After Alice

The retail industry utilizes and often owns computer-implemented method patents. While audits of owned and licensed intellectual property portfolios should be a routine part of any retail business, now is a good time to conduct such an audit. Any patents being licensed by retail businesses, especially online business method patents, should be reviewed to determine whether continuing to license such technology remains a worthwhile investment in light of Alice. Moreover, any computer-implemented method patents that are currently or are being considered as part of a lawsuit or settlement should be re-evaluated in light of Alice.