U.S. Supreme Court Affirms That Abstract Ideas Are Patent-Ineligible Alice Corp. Pty. Ltd. v. CLS Bank Int'l

by Wilson Sonsini Goodrich & Rosati
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In a unanimous decision, the U.S. Supreme Court affirmed the Federal Circuit's en banc decision that petitioner Alice Corporation's asserted patent claims are invalid for being directed to a patent-ineligible abstract idea. Applying a two-part framework, the Court held that the claims at issue are drawn to an abstract idea and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.

The Court's analysis focused on the "abstract ideas" exception to 35 U.S.C. § 101, which defines patent-eligible subject matter as "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof."

To determine if a claim at issue is an abstract idea and thus not subject to patent protection, the Court used the framework laid out in its 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc. The Court first determined whether the claim was potentially directed to an abstract idea. Then, it evaluated whether the elements of a disputed patent claim individually or in combination transformed the abstract idea into a patent-eligible application. Claim elements that simply involve conventional steps to implement an abstract idea on a generic computer—whether recited as method, system, or computer-readable medium claims—fail to transform abstract ideas into patent-eligible inventions.

Put differently, the Alice Court looked for an "inventive concept" that ensures that the patent "amounts to significantly more than a patent upon the ineligible concept itself." Upholding patents claiming abstract ideas "would effectively grant a monopoly over an abstract idea," and "monopolization of those tools through the grant of a patent might tend to impede innovation more than it would tend to promote it." However, "an invention is not rendered patent-ineligible simply because it involves an abstract idea." If an application has "something more" that involves "applications of such concepts to a new and useful end," it remains patent eligible.

As applied to the patent at issue in Alice, the Court first determined that the claims were directed to nothing more than the abstract idea of "intermediated settlement, i.e., the use of a third party to mitigate settlement risk." Citing evidence regarding historical and modern financial practices, the Court stated that, like the concept of risk hedging in Bilski v. Kappos, "the concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce."

The Court then determined that although the representative method claim at issue recited steps requiring use of a computer, the claim elements both individually and in combination merely required use of a generic computer to perform generic computer functions and were "purely conventional." Individually, the computer functions are "well-understood, routine, conventional activities previously known to the industry." And "as an ordered combination, the computer components . . . add nothing . . . that is not already present when the steps are considered separately." The Court then hinted that "improv[ing] the functioning of the computer itself" or "effect[ing] an improvement in any other technology or technical field" would be enough to make claims patent eligible.

Finally, the Court stated that the computer system and computer-readable medium claims also failed for substantially the same reasons. Although the claims recite "specific hardware," the hardware required—"a data processing system with a communications controller and data storage unit, for example—is purely functional and generic." In other words, patent claims cannot be saved merely by drafting them as system or computer-readable medium claims.

In a concurring opinion that cited former Justice John Paul Stevens' concurrence in Bilski, Justices Sonia Sotomayor, Ruth Bader Ginsburg, and Stephen Breyer indicated that they would go further and find all business methods patent ineligible: "[A]ny claim that merely describes a method of doing business does not qualify as a process under § 101."

The Supreme Court's decision affirms that patent claims merely requiring application of an abstract idea on generic computers are patent ineligible. In the near future, this may encourage increased use of covered business method review at the U.S. Patent and Trademark Office and motions for summary judgment for lack of patentable subject matter in district court, particularly for computer-implemented and business method patents. Only time will tell, however, if the Court's decision provides the specific guidance that lower courts and practitioners have long desired.

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