Alice v CLS Bank: An Australian Perspective

by FPA Patent Attorneys

Over the decades, the use of patents to protect “software” or “computer implemented” inventions has been the subject of much debate: both on the philosophical question of whether such inventions should be patentable, and on the legal question of whether they are. 

The Australian Federal Court is currently grappling with the legal question in the Research Affiliates LLC v Commissioner of Patents appeal (Research Affiliates) – see discussion here. The US Supreme Court recently dealt with this issue in Alice Corporation Pty Ltd v CLS Bank International (Alice), and handed down its decision on 19 June 2014. 

This article looks at the Alice decision, and whether the test adopted by the US Supreme Court could or should be applied in the Australian context.

Why is it important?

Both Research Affiliates and Alice seek to address the question of whether particular forms of computer implemented inventions are patentable subject matter. 

This issue is of significant importance as it relates to a threshold consideration: i.e. the question as framed is not “should an obvious software invention be patentable”, but rather “should any software inventions be patentable – irrespective of whether obvious or not”. Any decision, therefore, has the potential for very broad ramifications.

The recent reasoning of the US Supreme Court in Alice is of interest in Australia as Australian Courts have historically had regard to US decisions when considering the patentability of computer implemented inventions.

The decision in Alice

In Alice, the US Supreme Court was asked to decide:

Whether claims to computer-implemented inventions-including claims to systems and machines, processes, and items of manufacture-are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

The US Supreme Court unanimously decided that the computer-implemented invention in question –  an invention for mitigating settlement risk – was an abstract idea and as such not patentable subject matter. 

The US Patent Office’s preliminary view regarding Alice (here) is as follows:

Notably, Alice Corp. neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods.

The test adopted in Alice

The US Supreme Court adopted the two tier test it previously set forth in Mayo Collaborative Services v Prometheus Laboratories, Inc. The test involves considering: 

(1) Are the claims directed to a patent-ineligible concept (relevantly, in this context, an abstract idea). 

(2) If so, do the elements of the claim define an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application.

In Alice, the Supreme Court found that the claims were directed to the abstract idea of intermediated settlement. The Court further held that the abstract idea was implemented by a wholly generic computer, and as such was not transformed into a patent-eligible invention.

The US Supreme Court did not think it necessary to define or clarify the “abstract idea” concept, and as a result the decision does not appear to provide the certainty or clarity hoped for. Those looking to argue against the patentability of computer implemented inventions will likely use Alice to support arguments that a given invention is merely an abstract idea being implemented using a wholly generic computer. Conversely, those looking to support the patentability of a given invention will argue that the invention does not amount to an abstract idea, and/or that the implementation improves a technological process and is not merely an abstract idea implemented by a wholly generic computer system.

The Alice test in Australia

Australia’s Full Federal Court is currently considering the issue of computer-implemented inventions in the Research Affiliates appeal, with a decision expected in the relatively near future.  

As discussed below, it is not at all clear that the reasoning and test adopted by the US Supreme Court in Alice could or should be applied under existing Australian law.

Searching for an underlying idea or principle under Australian law

The first limb of the test applied in Alice requires the identification of an idea or principle which underlies an invention as actually claimed. In order to identify the underlying idea the US Supreme Court seems to have disregarded certain explicitly claimed features:

… the function performed by the computer at each step—creating and maintaining “shadow” accounts, obtaining data, adjusting account balances, and issuing automated instructions—is “[p]urely ‘conventional. ’ ”

Having stripped these features from the claims, the US Supreme Court found 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.

In RPL Central Pty Ltd v Commissioner of Patents (RPL), the Commissioner of Patents advocated an analogous approach. By way of background, RPL also dealt with computer-implemented inventions, and Justice Middleton ultimately found the invention in question to be patentable subject matter. The Commissioner of Patents has applied for leave to appeal the decision, however that application has been stood over pending the judgement in the Research Affiliates appeal.

In RPL the Australian Commissioner of Patents argued that the invention was not patentable subject matter as once various claimed features had been disregarded (on the basis that they represented only elements of a conventional computer system) all that remained was “a method for performing business”. 

Justice Middleton’s decision in RPL was that such an approach is not supported by Australian law:

… I do not accept that this is the appropriate way to approach the question of manner of manufacture.  One should not subtract from the invention any aspect of computer implementation, and then determine whether what remains is the proper subject matter of letters patent.  This is not consistent with Australian authority, and fails to give effect to the plain words of the claims of the Patent, which clearly prescribe computer implementation or involvement as an essential feature of the invention.

In terms of broad reaching – and potentially unintended – consequences, a test arbitrarily permitting claimed features to be disregarded in search of an underlying idea or principle does seem concerning. This was recognised by the US Supreme Court in Alice:

At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law. .... At some level, “all inventions . . . embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas.” … Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept.

Despite acknowledging the dangers, the US Supreme Court gave little real guidance on how to determine when an abstract concept would render an invention patent ineligible, and when it would not:

In any event, we need not labor to delimit the precise contours of the “abstract ideas” category in this case. … [The concept of intermediated settlement is] squarely within the realm of “abstract ideas” as we have used that term.  

An “inventive concept” in the context of patentable subject matter

Under both US and Australian law, subject matter eligibility and inventive merit (e.g.  novelty and inventiveness/non-obviousness) are set forth as different validity requirements. The US Supreme Court’s consideration of a sufficient “inventive concept” in the second limb of the test applied, however, appears to blur the lines between these requirements. 

The Australian position in this regard was also considered – and dismissed as being inappropriate – in RPL:

For similar reasons, I do not consider it relevant that the invention in question does not involve steps which are “foreign to the normal use of computers”, as asserted by the Commissioner.  Such a requirement is not imposed by any of the binding authorities that were the subject of argument in this case, and I consider that to impose such a requirement strays dangerously close to the error identified in the primary judge’s reasoning by the Full Court in CCOM (1994) 51 FCR 260 at 291:

The immediate significance of this is that in the 1990 Act, manner of manufacture, novelty, inventiveness and utility are stated as distinct requirements of a patentable invention. Thus, whilst a claim for the ball point pen now would fail for anticipation and obviousness, it would still be a claim for a manner of manufacture. Yet in the present case there are passages in the reasons of the primary judge (at 593) which suggest he was influenced in the determination of the issue as to “manner of manufacture” by asking whether what was claimed involved anything new and unconventional in computer use.

Use of a “generic computer” in the context of patentable subject matter

This extract from CCOM is also of relevance (in the Australian context) to the weight the US Supreme Court placed on the use of a “generic computer” to implement the invention of Alice

More generally, Australian law seems well settled that using a known machine or system to perform an invention does not prevent an invention from being found to be patentable subject matter. In National Research Development Corporation v Commissioner of Patents (NRDC), Australia’s High Court held that:

There may indeed be a discovery without invention - either because the discovery is of some piece of abstract information without any suggestion of a practical application of it to a useful end, or because its application lies outside the realm of "manufacture". But where a person finds out that a useful result may be produced by doing something which has not been done by that procedure before, his claim for a patent is not validly answered by telling him that although there was ingenuity in his discovery that the materials used in the process would produce the useful result no ingenuity was involved in showing how the discovery, once it had been made, might be applied. 

This statement of the law in Australia, albeit made in relation to an invention in the field of agriculture, seems to be in tension with the approach by the US Supreme Court of discarding implementation on a generic computer on the basis that computers are now ubiquitous. The Australian High Court also stated in NRDC that:

Unless invention is found in some new method of using the material or some new adaptation of it so as to serve the new purpose, no valid patent can be granted … 

The clear (and arguably well accepted) corollary to this statement is that where an invention is found in a new method of using a material or a new adaptation (e.g. of a “generic computer”) a valid patent can be granted – provided, of course, other requirements of patentability such as novelty and inventive step are satisfied. 


As discussed, the approach adopted by the US Supreme Court in Alice is not without its difficulties. 

These difficulties aside, the test applied in Alice does not seem to fit easily with Australian law as it currently stands. Stepping back from the specifics discussed above, Australia’s fundamental precept with respect to assessing patentable subject matter is arguably the test set forth by the High Court in NRDC – whether an invention creates an artificial state of affairs in a field of economic endeavour. 

On its face the NRDC test does not involve – or permit – paring back a claim to a bare underlying idea. Nor does the test depend on whether an artificial state of affairs is created by a new machine or a known machine. 

Accordingly, unless the High Court is asked to revisit the patentable subject matter question (which may well end up being the trajectory of the Research Affiliates case), or the Full Federal Court identifies a clear basis for distinguishing computer-implemented inventions or a subset of such inventions from those in other fields (including agriculture), it is not at all clear that the test applied in Alice should be supported in Australia.


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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