Supreme Court Rules Abstract Ideas Implemented on Computer Not Patent-Eligible

by White & Case LLP

On June 19, 2014, the U.S. Supreme Court unanimously ruled in the case of Alice Corporation v. CLS Bank International that patent claims for managing risk in financial transactions disclosed an abstract idea and were thus not eligible for patent protection under 35 U.S.C. § 101.[1] The Court ruled that implementing such ideas on a computer made them no less abstract for the purpose of patent eligibility.[2]

The patent claims at issue related to a computerized scheme for mitigating "settlement risk" - the risk a party to an agreed upon financial exchange would not satisfy its obligations.[3] The claims disclosed a method for exchanging financial obligations and a computer system configured to carry out the disclosed method.[4]

The Court reiterated its two-part test set forth in Mayo Collaborative Services v. Prometheus Laboratories, Ind.[5] First, courts must "identif[y] the abstract idea represented in the claim."[6] Second, if the claim discloses an abstract idea, courts must determine whether the elements of each claim – "both individually and as an ordered combination" – are "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible abstract idea] itself."[7]

The Court found that the claims at issue disclosed the abstract concept of using a third party to mitigate settlement risk.[8] This abstract idea is generally present in the offline conduct of financial exchange businesses. Having identified the abstract idea represented in the patent claim, the Court then found that the claims "merely require generic computer implementation [and] fail to transform that abstract idea into a patent-eligible invention."[9]

Shortly after the Alice Corp. decision, on June 30, 2014, the Court ordered the United States Court of Appeals for the Federal Circuit to revisit its decision in WildTangent, Inc. v. Ultramercial, LLC, in which the Federal Circuit rejected the argument that a patent was invalid for claiming nothing more than the abstract idea of using online or computerized advertising to generate money.[10] The Federal Circuit in that case concluded that the claimed invention involved an "extensive computer interface" and was thus patent-eligible.[11]

The U.S. Patent and Trademark Office ("PTO") has already issued new instructions concerning the principles set forth in Alice Corp.[12] The new instructions make clear that going forward, the PTO will be applying the framework prescribed in Mayo and applied in Alice Corp. to all types of inventions, whereas prior PTO guidance applied a different analysis to claims disclosing abstract ideas.[13]

To assist examiners in applying the first step of the Mayo analysis (identifying an abstract idea), the PTO provided examples of abstract ideas including: "fundamental economic practices; certain methods of organizing human activities; an idea of itself; and mathematical relationships/formulas."[14]

To assist examiners in applying the second step of the Mayo analysis (ensuring that the claim amounts to "significantly more" than the abstract idea itself), the PTO provided the following examples of patent limitations that are not enough to qualify as "significantly more": "adding the words 'apply it' (or equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer; [or] requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry."[15]

Although it remains to be seen how the Federal Circuit and the District Courts will apply the Alice Corp. decision, litigants should re-evaluate any pending actions involving inventions that could be characterized as long-standing commercial practices or methods that are implemented by generic or commonplace technology. Similarly, those clients seeking to simply digitize an offline business practice should consider whether what they have done or plan to do would still qualify for patent protection under the holding of Alice Corp.

[1] - Alice Corp. Pty. Ltd. v. CLS Bank Int’l, No. 13-298 (U.S. June 19, 2014).
[2] - Id. (slip op. at 1).
[3] - Id. (slip op. at 2).
[4] - Id. (slip op. at 3).
[5] - Id. (slip op. at 4) (citing Mayo Collaborative Servs. v. Prometheus Labs., Inc., 566 U.S. __ (2012)).
[6] - Id.
[7] - Id.; Mayo (slip op. at 7).
[8] - Alice Corp. (slip op. at 9).
[9] - Id. (slip op. at 10).
[10] - WildTangent, Inc. v. Ultramercial, LLC, No. 13-255, 2014 WL 2921707, at *1 (June 30, 2014).
[11] - See Ultramercial, Inc. v. Hulu, LLC, 722 F.3d 1335, 1352-53 (Fed. Cir. 2013).
[12] - U.S. Patent and Trademark Office, Memorandum to Patent Examining Corps re: "Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Ply. Ltd. v. CLS Bank International, et al.".
[13] - Id.
[14] - U.S. Patent and Trademark Office, Memorandum to Patent Examining Corps re: "Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Ply. Ltd. v. CLS Bank International, et al.".
[15] - Id.

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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