In Alice, Supreme Court Narrows Patent Eligibility of Computer-Implemented Inventions

by Goodwin

On Thursday, the U.S. Supreme Court issued its long-awaited decision on the patent-eligibility of computer-implemented inventions under Section 101 of the Patent Act. In Alice Corporation Pty v. CLS Bank International, the Court unanimously held that a patent claiming a particular way of settling financial transactions using a computer was not patentable as a method, a computer system or a computer-readable medium. The Court opened the door for patent examiners, the Patent Trial and Appeal Board, and the federal courts to invalidate more patents for failure to implement an abstract idea in a patentable way. The Court suggested that when a computer plays a more substantial role in a patent claim, rather than a completely generic role, the claim may be patentable. But the Court offered little guidance on what would be a substantial enough role for the computer.

Alice Presented a Broad Question About Patent-Eligibility of “Computer-Implemented Inventions”

Alice claims a computerized scheme for mitigating “settlement risk” by ensuring that both parties to a transaction will perform their obligations. The patents-in-suit claim that invention in three ways:

  • as a method – carrying out specified steps using a computer;
  • as a machine – a computer system configured to carry out the method; and
  • as a medium – a computer disk containing program code to carry out the method.

CLS Bank brought a declaratory-judgment action to invalidate the patents, including under Section 101 of the Patent Act. Under Section 101, “abstract ideas” are not patent-eligible. The district court held the patents invalid, and Alice appealed to the Federal Circuit.

In a splintered en banc decision, the Federal Circuit held that none of these claims was patent-eligible under Section 101 of the Patent Act. The Federal Circuit split 5-5 on the system claims, thus affirming the district court’s decision that those claims were not patent-eligible. Seven judges agreed that the method and medium claims were not patent-eligible, but they could not agree on a majority opinion.

The Supreme Court granted Alice’s petition for certiorari to decide whether “claims to computer-implemented inventions” are patent-eligible under Section 101. The case drew considerable attention, because the scope of the question presented would allow the Court to reach very broad decision about software patents as a class.

Supreme Court Reached a Narrow, Unanimous Decision:
Adding a Computer Does Not Make an Abstract Idea Patent-Eligible

The Supreme Court unanimously affirmed the Federal Circuit in a decision by Justice Thomas. This was the sixth of six patent cases the Supreme Court decided this Term, each being unanimous. Alice was the only case affirming the Federal Circuit’s judgment.

The Court distilled its previous cases on patent-eligibility into a two-part test: First, is the claim directed to a concept that is not patentable – an abstract idea, a law of nature or a natural phenomenon? Second, is there “significantly more” to the claim besides the non-patentable concept – enough to make the claim patentable?

First, the Court held that claims like Alice’s are directed to ineligible subject matter – abstract ideas – even though they are not based on “fundamental truths” like a law of nature or a mathematical formula. A “fundamental economic practice” can be an abstract idea for patent-law purposes, and the Court found that was the case with Alice’s claims. The use of an intermediary to settle transactions is “a building block of the modern economy” and has been “long prevalent in our system of commerce.” The Court therefore had little trouble deeming it an “‘abstract idea’ beyond the scope of § 101.”

Second, the Court held that using a “generic” computer to implement that abstract idea was not a sufficiently “inventive concept” to make the idea patentable. The Court emphasized that computers are ubiquitous in today’s economy. Thus, “wholly generic computer implementation” is not enough to make an abstract idea patentable, any more than implementation of a mathematical formula “in a particular technological environment” can make the formula patentable.

Alice contended that it did more than use a “generic” computer, but the Court disagreed. Every task that the patent claim called for the computer to perform was a “generic computer function” such as electronic recordkeeping, obtaining data and issuing automated instructions.

The Court gave a few indications of what types of computer implementation might make an abstract idea patentable:

  • Claiming a method that improves the functioning of the computer itself – the best way among several competing ways of computer-implementation.
  • Claiming a way of using the abstract idea to improve some other technology or technical field. For example, years ago in Diamond v. Diehr the Court held that a patentee could claim the use of a computer programmed with the Arrhenius equation to significantly improve the process of molding rubber.

Machine and Medium Claims Fall, Too

Alice had also attempted to claim a “system,” or a “machine” in the language of Section 101, and a “medium.” The claimed system was just a computer programmed to perform the method, and the medium was just a computer disk or the equivalent encoded with software to perform the method. Although two judges of the Federal Circuit had voted to invalidate the method claims but uphold the medium claims, the Supreme Court saw no distinction and held all the claims invalid.

The Court found the system claims generic as well: the only hardware recited in the system claims was hardware that appears in virtually every computer. Such a recitation cannot make an abstract idea patentable, the Court held.

Implications for Future Patents and Patentability Challenges

Although the Court’s relatively terse opinion left much to be decided in future cases, its decision contains several important points for practitioners:

  • Purely generic use of a computer will not make a non-patentable idea patentable. That is true even if the patent makes an effort to recite particular aspects of the computer, such as the “data processing system” or “data storage unit” that were in Alice’s system claim, or particular computer functions, such as the electronic recordkeeping in Alice’s method claim. Those were common to all computers. If the computer plays a purely generic role in the claim, it likely will make no difference to patentability.
  • Any basic and established business insight can be an “abstract idea.” The Court has considered two such ideas so far – essentially, patents claiming methods of hedging and escrow. Neither of those methods relies on a mathematical formula or a scientific law, but the Court found them both “abstract” in the relevant sense. In a way, the “abstract idea” principle treats non-computer-enabled methods as prior art that can invalidate computer-enabled methods.
  • Practitioners drafting computer-enabled method claims must make an effort to identify the contribution made by the computer, if the method itself resembles an abstract idea. That could take the form of describing a particularly efficient way of using the computer, as the Court suggested. But increased precision also risks giving potential infringers a route to design around the claim.
  • Issued patents may be vulnerable to administrative review based on the Court’s decision. The new Covered Business Method review procedure within the Patent and Trademark Office allows a relatively low-cost way of challenging a patent, and one of the grounds that can be raised there is patent-ineligibility. If a challenger can satisfy the standing requirement for CBM review (which requires a threat of litigation), it may well be able to invoke the Alice decision in support of a challenge to a software patent that relies on a computer, computer hardware, or computer-readable media to transform an abstract idea into a patentable one.

Goodwin Procter filed an amicus brief in this case on behalf of a group of software companies.

IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this informational piece (including any attachments) is not intended or written to be used, and may not be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.


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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