Supreme Court Invalidates Software Patents Directed to Implementing Abstract Ideas

by Davis Wright Tremaine LLP

Yesterday, the U.S. Supreme Court announced its highly anticipated opinion in Alice Corp. Pty. Ltd. v. CLS Services, Inc., No. 13-298.

In Alice Corp., the Court upheld an en banc decision of the United States Court of Appeals for the Federal Circuit invalidating patent claims drawn to a computerized scheme for mitigating risk in financial transactions. The Court held that the claims at issue were not patent eligible under Section 101 of the Patent Act because they were drawn to the “abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”

The Court’s ruling is significant in that it clarified not only the two-step process for determining patent eligibility under Section 101, but confirmed that that standard applies to all fields of endeavor. 

Justice Thomas wrote for a unanimous Court.  

The claims at issue in Alice Corp. related to a “computerized scheme for mitigating ‘settlement risk’—i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation.” In particular, the claims were “designed to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary.” The claims were drawn to a method of exchanging such obligations, as well as to systems and computer-readable media for performing the claimed methods. The Court made clear that “[a]ll of the claims are implemented using a computer.”

On summary judgment, the district court had held that the claims at issue were patent ineligible under 35 U.S.C. § 101 because they merely recited the abstract idea of “employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” On appeal to the Federal Circuit, a divided panel reversed the district court, holding that it was not “manifestly evident” that the claims were drawn to an abstract idea. Thereafter, the Federal Circuit granted en banc rehearing and this time affirmed the district court in a per curiam opinion, which was accompanied by a fragmented set of concurrences and dissents. In the lead opinion, a five-judge plurality held that none of the claims were patent eligible under Section 101, relying heavily on Supreme Court precedent suggesting that the claims were drawn to an abstract idea and were not sufficiently “inventive” despite the required intermediation of a computer.

The Supreme Court granted the patentee’s petition for writ of certiorari. 

The Decision
The Court began with the fundamental principle of patent law that “[l]aws of nature, natural phenomena, and abstract ideas are not patentable.” It then recapitulated the framework, set forth in the recent biotechnology case, Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___ (2012), “for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts.” In Mayo, the Court established a two-step process for determining compliance with Section 101: first, the Court determines whether the claims at issue are directed to one of the patent-ineligible concepts—laws of nature, natural phenomena, or abstract ideas. If the answer to the first question is “yes,” the Court then determines whether the claims contain an “inventive concept”—“i.e., an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.’”

The Court held that the framework recited in Mayo is applicable to all manner of inventions, not just the biotechnology inventions that were at issue in Mayo. Turning to the claims at issue in Alice Corp., the Court readily found that the claims were drawn to an abstract idea. The Court reasoned that, “[o]n their face, the claims before [it] are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk,” and that “the concept of intermediated settlement is “‘a fundamental economic practice long prevalent in our system of commerce.’” The Court drew heavy analogy to its decision in Bilski v. Kappos, 561 U. S. 593 (2010), in which it had held that a method of hedging risk against price fluctuations was a patent-ineligible abstract idea. The Court explained that it “need not labor to delimit the precise contours of the ‘abstract ideas’ category” because “[i]t is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.”

Finding that the claims at issue were drawn to an abstract idea, the Court then turned to the second prong of the analysis: the determination of whether the claims nevertheless included a sufficiently “inventive concept” to render themselves patent-eligible. The Court concluded that they did not, reasoning that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” The Court reasoned that “[s]tating an abstract idea ‘while adding the words ‘apply it’’ is not enough for patent eligibility.” Nor, according to the Court, “is limiting the use of an abstract idea ‘to a particular technological environment.’”

In so holding, the Court rejected the patentee’s argument that “the claims are patent eligible because these steps ‘require a substantial and meaningful role for the computer.’” As the Court explained, the claims at issue “simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” According to the Court, the patentee’s method claims did not purport to improve the functioning of the computer itself, nor did they effect an improvement in any other technology or technical field.

After determining that the method claims were not patent eligible, the Court turned to the system and computer-readable medium claims, finding those, too, patent ineligible. The Court reasoned that “the system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.”

In one respect, the Alice Corp. decision is a simple extension of the Supreme Court’s recent precedents in Bilski and Mayo, along with a number of the Court’s earlier decisions on the question of patent eligibility. Alice Corp. arguably takes the Court’s prior precedents a step further, however, by confirming that the framework set forth in Mayo applies to other fields of endeavor as well as to claims other than method claims. Alice Corp. makes clear that computer intermediation is not enough to render an abstract idea 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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