The Supreme Court’s decision in Alice Corp. Pty. Ltd. vs. CLS Bank Int’l, 134 S. Ct. 2347 (decided June 19, 2014) (“Alice”) is an important decision that will have an impact on software and computer-related inventions. In its unanimous decision, the Supreme Court held that “the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.” This article explores the background of the case and the Supreme Court’s decision.
Background
As a brief background, Alice Corporation is the assignee of the patents at issue (U.S. Pat. Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375), each of which is related to computer-implemented methods for managing “settlement risk” – the risk that only one party to an agreed-upon financial exchange will satisfy or perform its obligation – where a computer system is used as a third party intermediary to facilitate the exchange of financial obligations between two parties. In particular, the claims at issue were directed to a (1) computerized method for exchanging the financial obligations, (2) computer readable storage medium containing program code for performing the method, and (3) computer system to implement the code.
In May 2007, CLS Bank International and CLS Services Ltd. (collectively “CLS”) filed a declaratory judgment action in the U.S. District Court for the District of Columbia against Alice seeking a declaratory judgment of non-infringement, invalidity and/or unenforceability of the claims at issue. In March 2011, the court granted summary judgment in favor of CLS, holding that the patents at issue were invalid as being directed to patent-ineligible subject matter under 35 U.S.C. § 101. Alice appealed.
In July 2012, a panel of the Federal Circuit reversed the district court’s decision. In August 2012, CLS filed a petition for rehearing en banc, which was granted. In May 2013, the Federal Circuit issued its en banc decision affirming the district court’s decision. Alice then petitioned the Supreme Court for certiorari, which the Supreme Court granted in December 2013.
In January 2014, Alice filed its Opening Brief to the Supreme Court, arguing that the claims at issue were directed to patent-eligible subject matter. In support of its arguments, Alice highlighted the importance of the “role of the computer” in the claims at issue and submitted that:
Nowhere do the claims recite a mathematical formula, a ‘fundamental economic practice’ that can be ‘reduced to a mathematical formula’ . . . or any other form of fundamental truth that ‘exists in principle apart from any human action’ [which would result in patent ineligibility under 101]. . . . To the contrary, the claims recite a specific series of steps, a specific configuration of computer hardware, or a specific computer program product. . . . Because the claims do note even recite a fundamental truth, they cannot, a fortiori, ‘tie up’ all practical uses of any fundamental truth.
Alice’s claims require a substantial and meaningful role for the computer – beyond merely performing computations more quickly or accurately than a person could do with pencil and paper – in performing the recited steps. The computer is itself the intermediary. . . . The use of the computer . . . is central to the claimed methods. The invention as claimed will not function without a computer configured (i.e., programmed) to carry out the claim steps. Moreover, a computer and other hardware specifically structured and configured to perform the recited functions are essential to the claimed systems.
In March 2014, Alice filed its Reply Brief, and noted that Alice’s “computer-implemented” claims are typical of software inventions, and that this case will define the law of software patentability going forward” (quoting Federal Circuit Judge Kimberly Moore’s separate opinion, dissenting in part – “[L]et’s be clear: if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents including all . . . software patents.”).
Framework of the Supreme Court’s Decision
Under 35 U.S.C. § 101, claims directed to laws of nature, natural phenomena, and abstract ideas are not patent eligible based on a policy of avoiding pre-emption of the “basic tools of scientific and technological work.” As explained by the Supreme Court, “‘monopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it,’ thereby thwarting the primary object of the patent laws.” However, in order to avoid rigid application of this rule to the point where it “swallow[s] all of patent law,” the Supreme Court recognizes that “an invention is not rendered ineligible for patent simply because it involves an abstract concept.” Thus, the Supreme Court has held that it “must distinguish between patents that claim the ‘building block[s]’ of human ingenuity and those that integrate the building blocks with something more . . . thereby ‘transform[ing]’ them into a patent-eligible invention.” (emphasis added).
The Supreme Court in Alice described its two-part “framework,” set forth in Mayo Collaborative Servs. V. Prometheus Labs, Inc., 132 S. Ct. 1289 (March 20, 2012), for making such a distinction as follows:
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Determine whether the claim(s) at issue are directed to a patent-ineligible concept, and if so
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Examine the elements of the claim(s) at issue, individually and as an ordered combination, to determine whether the claim contains additional features or an inventive concept sufficient to transform the nature of the claim into a patent-eligible application.
With respect to prong no. 1 of the framework, the Supreme Court held that the claims at issue in Alice “are directed to an abstract idea.” The Court noted that the claims are “drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk [which] is ‘a fundamental economic practice long prevalent in our system of commerce’ [and] a building block of the modern economy.” Therefore, the Supreme Court held that “intermediated settlement . . . is an ‘abstract idea’ beyond the scope of § 101” and subsequently analyzed the claims under prong no. 2.
With respect to prong no. 2 of the framework, the Supreme Court held that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent – eligible invention” – a direct rebuke to the arguments made by Alice in its briefing.
Regarding the method claims at issue, the Supreme Court held that these claims do no more than “simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” When viewed individually, the method claim steps included computer functions (e.g., use of a computer to obtain data, adjust account balances, and issue automated instructions) that were found to be “‘well-understood, routine, conventional activit[ies]’ previously known in the industry. In short,” the Supreme Court was of the view that “each step does no more than require a generic computer to perform generic computer functions.” When evaluated “‘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. [The method claims] simply recite the concept [or abstract idea] of intermediated settlement as performed by a generic computer. . . . [T]hat is not ‘enough’ to transform an abstract idea into a patent-eligible invention.”
As a glimmer of what may have made the method claims patent eligible, the Supreme Court noted that “[t]he method claims do not, for example, purport to improve the functioning of the computer itself. . . . Nor do they effect an improvement in any other technology field.” (emphasis added).
Regarding the computer program product and system claims, the Supreme Court addressed Alice’s arguments that the claims are patent eligible because they recite “‘specific hardware’ configured to perform ‘specific computerized functions.’” The Court held that “what petitioner characterizes as specific hardware–a ‘data processing system’ with a ‘communications controller’ and ‘data storage unit,’ for example . . . –is purely functional and generic. Nearly every computer will include a ‘communications controller’ and ‘data storage unit’ capable of performing the basic . . . functions required by the method claims. As a result, none of the hardware recited by the system claims ‘offers a meaningful limitation beyond generally linking the use of the [method] to a particular technological environment, that is, implementation via computers.’” Similarly to the method claims, these claims were found to “add nothing of substance to the underlying abstract idea” merely reciting “generic computer components” configured to implement the abstract idea. Thus, according to the Court, the computer program product and system claims were patent ineligible under § 101.
As an apparent warning to patent attorneys, the Supreme Court noted that it “has long ‘warn[ed] . . . against’ interpreting § 101 ‘in ways that make patent eligibility depend simply on the draftsman’s art.’” That is, the mere addition of generic computer component language to an otherwise patent ineligible claim will not overcome a Section 101 rejection or invalidity defense.
Practical Implications
In view of the Supreme Court’s decision, will Judge Moore’s prediction that “the death of hundreds of thousands of patents including all . . . software patents” come true? Retired Federal Circuit Judge Paul Michel seems to think so, reportedly stating that the decision is “very problematic” and “will create total chaos” as it “create[d] a standard that is too vague, too subjective, too unpredictable and impossible to administer in a coherent consistent way in the patent office or in the district courts or even in the Federal Circuit.”
So, where do we go from here?
With respect to prong no. 1 of the two-part framework, an “abstract idea” remains undefined. Many were hoping that the Supreme Court would define what an “abstract idea” is, or at least provide some particular guidance. All we know from the Supreme Court’s decision is that a patent claim that is deemed to cover a long prevalent, fundamental economic practice is considered as being directed to an abstract idea. How this is exactly determined, and whether other such practices will qualify as an abstract idea are questions that were left unanswered by the Supreme Court.
Lower courts are expected to provide more insight as to what is an “abstract issue.” For example, the District Court for the Southern District of New York held in Dietgoal Innovations, LLC v. Bravo Media, LLC, 13 Civ. 8391, 2014 U.S. Dist. LEXIS 92484 (S.D.N.Y. July 8, 2014) that a patent directed towards “computerized meal planning” is “nothing more than an abstract concept of selecting meals for the day, according to one’s particular dietary goals and food preferences. Meal planning is surely a ‘long prevalent’ practice . . . humans have assuredly engaged at least in rudimentary meal-planning ‘for millennia.’” Similarly, the Federal Circuit held in Planet Bingo, LLC v. VKGS LLC, 2014 U.S. App. LEXIS 16412 (Fed. Cir. Aug. 26, 2014) that patent claims directed to computerized methods and systems for “managing a game of bingo” were directed to an abstract idea.
With respect to prong no. 2, merely requiring generic computer implementation of an abstract idea will not provide the “something more” or “inventive concept” required to transform the abstract idea into a patent-eligible invention. However, claims that are directed to a technology that either “improve[s] the functioning of the computer itself” or “effect[s] an improvement in any other technology field,” for example, will provide that “something more.” How is this determined, and what actually qualifies as an improvement are other questions that were left unanswered.
However, in buySAFE, Inc. v. Google, Inc., 2014 U.S. App. LEXIS 16987 (Fed. Cir. Sept. 3, 2014), the Federal Circuit recently explained that the “inventive concept” must be “in the physical realm of things and acts—a ‘new and useful application’ of the ineligible matter in the physical realm—that ensures that the patent is on something ‘significantly more than’ the ineligible matter itself.” This explanation, unfortunately, may raise more questions.
A recent decision from the District of New Jersey, Data Distrib. Techs., LLC v. Brer Affiliates, Inc., 2014 U.S. Dist. LEXIS 115543 (D.N.J. Aug. 19, 2014) may be a bit more helpful. This court ruled that several of plaintiff’s arguments in favor of showing that an inventive concept exists in the asserted claims were meritless. For example, the court held that the “Plaintiff cannot rely on the [asserted patent’s] figures to establish subject matter eligibility.” This is because the asserted patent provided that the specific embodiments described and shown in the patent should be “considered illustrative of the invention only” and not limit the claimed invention. Thus, the court held that since the asserted patent “disclaims any limitation based on the specification or illustrations . . . the Court will look only to the [asserted patent’s] claims in conducting the subject matter eligibility inquiry.”
Interestingly, the use of the terms “fundamental,” “something more,” “improvements,” and “inventive concept,” for example, in the Supreme Court’s two-pronged test appears to suggest a morphing, at least in part, of the Section 101 patent eligibility analysis into a novelty and non-obviousness analysis under Sections 102 and 103. In other words, it appears that a determination needs to be made as to the existence of an inventive concept for a computer based claim, which is otherwise directed to an abstract idea, to satisfy the patent eligibility requirement. To what extent the inventive concept needs to be shown, i.e., what threshold showing of “inventiveness” is required, remains to be seen.
Needless to say, this is a currently evolving standard in the courts and in the U.S. Patent Office. The U.S. Patent Office has put together Preliminary Examination Instructions in view of the Supreme Court’s decision, and has also withdrawn notices of allowances from applications deemed to contain at least one claim directed to an abstract idea and generic computer implementation of the abstract idea for further prosecution.
At this point, it would be prudent for those who wish to seek patent protection directed to software or computer-based inventions to identify, flesh out, and clearly articulate the required improvement(s) and inventive concept(s) in the claims and in the supporting specification and figures prior to filing a patent application. These improvement(s) and inventive concept(s) must go beyond generic computer implementation of an abstract idea and/or the inclusion of generic computer components to carry out generic computer functions. Similarly, a patent holder asserting infringement based on a patent including computer-based claims should identify and make a preliminary determination as to the strength of the improvements/inventive concept(s) set forth in and defined by the claims as part of its pre-litigation due diligence.
