I have this idea to use a computer as an escrow agent, can I patent it? – Not this week: Alice v. CLS Bank

by Harness, Dickey & Pierce, PLC

Your Quick Take Away

  • Did the Alice Corp patent survive? – No (few expected that it would)
  • Are software patents dead? – No
  • Can patent attorneys keep relying on “…performed by a computer” to overcome a §101 rejection? – No
  • Does this mean that business method inventions that use a computer are no longer patent eligible? – No, but the patent claim will need to carefully focus on how the specially programmed computer does its job in an inventive way (see below).
  • If patent attorneys write system and computer media claims do they avoid the Alice outcome? – No, the system and computer media claims were also invalidated for having added nothing of substance over the method claims.

Alice Corp v. CLS Bank

In Alice Corp. v. CLS Bank, the Supreme Court unanimously held that Alice’s method, system and computer media claims were not patent eligible under 35 U.S.C. §101. This outcome was not unexpected; but it was by no means an easy case. One-year prior, the en banc Federal Circuit Court of Appeals had struggled with the claims in this case and could not reach consensus on what legal test should be applied. They left the case on the Supreme Court’s doorstep with a note, “please guide us.”

Here the Supreme Court sticks close to the script it wrote in the Mayo v. Prometheus, a case decided in 2012 involving the patent eligibility of a certain medical diagnostic process. Mayo erects a two step framework for assessing §101: (1) determine whether the claims are directed to a patent-ineligible concept (law of nature, natural phenomena or abstract idea); (2) assess the claims to determine if they recite an inventive concept that transforms the patent-ineligible concept into a patent-eligible invention.

Using the Mayo framework the Court first assesses Alice’s claims as drawn to an abstract idea: the “concept of intermediate settlement” that uses a third party or escrow agent to mitigate settlement risk. These are erudite words but the concept is grade school simple, if Freddie doesn’t trust Jonny to hand over his prize baseball, and Jonny doesn’t trust Freddie to hand over the cash in payment, simply ask Teacher to stand in as intermediary to receive both and make the swap.

For patent attorneys trying to extract some essence from this first step of the Mayo framework, pay careful attention to what the claimed invention was trying to do. In the Court’s words it was “a scheme for mitigating ‘settlement risk’.” By comparison, in Bilski v Kappos, the invention was use of hedging to minimize commodity-trading risk. In both cases the lifeblood flowing through the claimed invention was data representing risk.  You have to admit, mitigating risk sounds like an abstract idea, doesn’t it?

In applying the second step of the Mayo framework, the Court characterizes the use of a third-party intermediary as a “building block of human ingenuity.” These building blocks, the Court says, are ineligible for patent protection. Here, the use of an escrow agent is something we ingenious humans just instinctively know to do. In order to be eligible for patent protection, the Court says, the assembly of such building blocks must “integrate” into “something more.”

Assessing whether there was “something more,” the Court parses the claim in an interesting way that may rile the patent law purists who recoil at the thought of using novelty and obviousness concepts to assess patent eligibility. But so be it, the Court has spoken. First it looks at each element separately to determine if the recited computer function was other than conventional. In Alice’s case each computer step was deemed conventional. Then the Court looks at the claims as a whole to see if the “ordered combination” of computer steps were more than conventional. The Court concludes that Alice’s computer-implemented steps were nothing beyond what an generic, general purpose computer would do.

For patent attorneys trying to extract essence from this second step, it is revealing that the Court characterized the Alice claims as merely requiring a “generic computer implementation,” which was not sufficient to convert the escrow agent concept into a patent eligible invention. The Court’s analysis was quite logical. In Mayo the Court had held that reciting an abstract idea and adding the words “apply it” was not enough. In Bilski, the Court had held that limiting an abstract idea to a particular technological environment was not enough. Certainly it follows that “apply it with a computer” is not enough.

So what does it take to satisfy §101 under the Alice Court’s analysis? The Court seems to be looking for some additional feature in the claim that provides “practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself.” In case you haven’t already figured out, this means patent attorneys should quit trying to find those special magic words that when put into a claim will render it statutory under §101. There are no magic words.

How should patent applicants prosecute patents before the USPTO in the face of this Alice decision? The Court provides us with a hint. Supplying an example of what might satisfy §101, the Court offers essentially what the Solicitor General had expressed during oral argument. In the words of the Court:

“Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field.”

Applicants now before the USPTO may want to take the above quote to heart and try to find some way to work these suggested improvements into their claims.

As for the fate of business method patents, Justices Sotomayor, Ginsburg and Breyer seemingly have had quite enough of that. Writing in the concurring opinion, Justice Sotomayor says, “I adhere to the view that any claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.” The difficulty with that view is that one must begin using labels, and it may prove exceedingly difficult to agree on a definition of “business method” that fits outside the broad categories of §101, while leaving medical procedures and other such popular methods patent eligible.


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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