Supreme Court Invalidates Business Method Patents: What you need to know about Alice Corp. v. CLS Bank International

by Faegre Baker Daniels

On June 19, 2014, a unanimous U.S. Supreme Court decided Alice Corp. v. CLS Bank International, No. 13-298, again striking down patent claims which it found to be directed to an abstract idea.

The patent claims at issue required using a computer system as a third-party intermediary to facilitate the exchange of financial obligations between two parties to mitigate settlement risk. The patents included method, computer system and computer-readable media claims.

The Supreme Court analyzed the patent eligibility of the claims under 35 U.S.C. § 101 using the framework it developed in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S.Ct. 1289 (2012). The framework consists of two steps: (1) does the claim recite one of the three judicial exceptions to patent-eligibility (laws of nature, natural phenomenon, or abstract idea), and (2) if so, does the claim recite sufficient additional elements to transform the claim into a patent-eligible application of the concept, rather than the concept itself.

In this case, the Court found that the claims recited an abstract idea because, like the idea of risk hedging in Bilski v. Kappos, 561 U.S. 593 (2010), the claims were directed to a fundamental economic practice. For the second step of the Mayo analysis, the Court found that a generic computer implementation failed to convert the abstract idea into a patent-eligible invention. Notably, the Court applied the same analysis to the method, computer system and computer readable media claims. Even though "a computer is a tangible system" and "many computer-implemented claims are formally addressed to patent-eligible subject matter," the Court held that "purely functional and generic" hardware adds nothing to the underlying abstract idea.

Takeaways following Alice Corp. v. CLS Bank

Alice Corp. appears to have answered at least one question following Bilski – namely, whether a general computer implementation of an abstract idea is patent eligible. In Bilski, the Court held that an algorithm for risk hedging was not patent eligible, but the Court did not address whether a claim requiring a computer implementation of that algorithm would make it patent eligible. Thus, Alice Corp. appears to have closed a potential loophole around Bilski by blocking generic computer implementations of abstract concepts.

The Court further indicated that pure mathematical formulas and "organized human activity," such as fundamental economic and finance practices, are clearly patent-ineligible abstract ideas that will trigger the second step of the Mayo analysis.

However, the question following Alice Corp. is what additional claim elements will be "enough" to transform an abstract idea into a patent-eligible invention in the second step of the Mayo framework. While being careful not to impose a bright line rule, the Court did provide several hints as to what types of claim elements may qualify:

  1. Improvements to the functioning of the computer itself
  2. Improvements to another technology or technical field
  3. Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment

Accordingly, the Court appears to be drawing a greater distinction between certain types of software patents and non-technical "business method" patents. Particularly, software patents, when they include technical limitations that provide a solution to a technical problem, will continue to be more likely to satisfy the requirements of patent eligibility. But as seen in Bilski and now in Alice Corp., "business methods," even when implemented on a computer, will continue to face an extremely difficult road towards patent eligibility.

Thus, an important yet subtle outcome of Alice Corp. is that much software is still worthy of patent protection. Further, patent practitioners can have some hope that the shift towards a focus on the "technological" and "technical solutions" of computer implemented inventions will provide greater clarity moving forward.

Guidelines from the USPTO

On June 25, 2014, the USPTO issued Preliminary Examination Instructions that provide guidelines for examiners for assessing patent eligibility in view of Alice Corp.

First, the USPTO indicates that the same two-part Mayo analysis will be used for each of the three judicial exceptions to patent eligibility, not just laws of nature. Before Alice Corp., USPTO guidance applied a different analysis to claims with abstract ideas than to claims with laws of nature. Second, the USPTO indicates that the same two-part Mayo analysis will be used for all categories of claims (e.g., product and process claims), whereas prior guidance applied a different analysis to product claims than to process claims. Accordingly, practitioners should expect more uniformity in how examiners analyze patent eligibility regardless of the claim category or applicable judicial exception.

The guidelines also identify four categories of abstract ideas as referenced in Alice Corp. that will trigger the second step of the Mayo framework:

  1. Fundamental economic practices
  2. A certain method of organizing human activities
  3. An idea of itself
  4. Mathematical relationships/formulas

Finally, the guidelines identify the types of claim elements mentioned in Alice Corp. (set forth above) that may qualify as "something more" to transform an abstract concept into patent eligible subject matter in the second step of the Mayo framework.

These preliminary guidelines are in effect as of June 25, 2014. However, the USPTO is seeking public feedback on these guidelines until July 31, 2014. Instructions for submitting feedback are found here.


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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