Alice’s Patent Invalidated as “Abstract,” But Court Declines to Articulate Standard Applicable across Industries

by Dorsey & Whitney LLP

In deciding Alice Corp. v. CLS Bank International, the Supreme Court Thursday invalidated Alice’s patent to software for intermediated settlement of transactions – finding the patent claimed nothing more than a general computer implementation of a fundamental economic principle. 573 U.S. ___ (2014). The Court did not articulate a more general standard for assessing when a claim may be too abstract for patentability, promulgating uncertainty for patentees in digital industries such as big data, cloud computing, social media, and mobile applications.

In a unanimous decision, the Court affirmed the decision of the Federal Circuit, holding all of the Alice patent claims—which claimed a computer-implemented “third party intermediary” for financial transactions—as patent ineligible under 35 U.S.C. § 101.

The decision by the Court, which relies heavily on the earlier Bilski and Mayo decisions, endorsed a two-part analysis which calls for first determining whether a concept is an abstract idea, and if so, whether the claimed elements transform the nature of the claim into a patent-eligible application. Bilski v. Kappos, 561 US ___ , 130 S. Ct. 3218 (2010) and Mayo v. Prometheus, 566 U.S. ___ , 132 S.Ct. 1289 (2012). In Alice’s claims, the Court found that a “fundamental economic practice” (intermediated settlement) was an abstract idea, and merely adding a computer “cannot transform a patent-ineligible abstract idea into a patent-eligible invention.”

First, relying on the analysis of Bilski, which involved hedging against financial risk of price fluctuations, the Court found no distinction between the subject matter of the Bilski claims and the subject matter of the Alice claims, and reasoned that the intermediated settlement system and method of the Alice claims is a “fundamental economic practice,” as well as a “building block of the modern economy,” and therefore constitutes an abstract idea. Second, the Court found that the claims in the Alice patents merely required a generic computer implementation, and failed to transform the abstract idea into a patent-eligible invention. The Court provided little helpful guidance on how to perform this evaluation beyond stating that the claim must improve an existing technological process.

The opinion is perhaps most noteworthy for what it is missing. The Court failed to provide additional guidance on how to identify an abstract idea in contexts other than fundamental economic principles. For example, patentees are left to wonder how this will be applied in other significant industries developing intangible innovations today, e.g., big data analysis, security, cloud computing services, and social media and mobile applications. Innovations in these areas are bringing about significant changes in how people communicate, collaborate, and work. Because the Supreme Court did not offer tools for identifying patentable subject matter in these other intangible areas, patentees will have to adapt the underlying themes of Bilski and Alice in these spaces.

Justice Thomas drafted the unanimous opinion. Justice Sotomayor, joined by Justices Ginsberg and Breyer, drafted a brief concurring opinion voicing their opinion that no business methods are patentable - writing that a “claim that merely describes a method of doing business does not qualify as a process under § 101.”

Following Alice, patentees of computer-implemented inventions continue to be left without a clear standard by which to definitively judge their patent eligibility. With the explosion of intangible technologies, this will not likely be the last time the Court will rule on patent eligible subject matter. Until a clear standard is developed, patentees and practitioners in the process of drafting or filing new applications may consider taking steps to prevent their claims from being characterized as little more than abstract ideas. For example, describing and claiming a real-world technological impact of an intangible data analysis technique may be one way to increase the likelihood a claim is viewed as patent eligible.

Clint Connor, Stuart Hemphill, and John Kennedy provided valuable insights in the preparation of this eUpdate.


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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