U.S. Supreme Court Clarifies Patent Eligibility Standards

by Stoel Rives LLP
Contact

In a recent decision, Alice Corp. v. CLS Bank Int’l, the U.S. Supreme Court clarified the test for determining whether a patent falls within one of the exceptions to patent eligibility under Section 101 of the Patent Act. The decision has implications for patent eligibility of every type of patent, but provides the most specific guidance on the patent eligibility of software and business methods.

At Issue in Alice Corp.

The patents at issue relate to a computer-implemented scheme for mitigating settlement risk in financial transactions. The district court found that the claims were directed to an abstract idea and therefore were patent-ineligible. In attempting to formulate a test for patent eligibility under Section 101, the Federal Circuit wrote a fractured decision with five different opinions, none of which garnered the support of the majority of the court.

Supreme Court Applies Two-Step Test for Patent Eligibility

The U.S. Supreme Court clarified the standard it had set out in Bilski v. Kappos and Mayo v. Prometheus by announcing a two-step test. In the first step, the Court asked whether the claims were directed to a patent-ineligible concept (e.g., a law of nature, a natural phenomenon, or an abstract idea). In the second step, the Court asked whether there was enough else in the claims to transform them into patent-eligible claims.

The Court analyzed the first step without providing any general guidelines on how it should be applied. Indeed, the Court refused to delimit the precise contours of the abstract ideas category. The Court determined that intermediated settlement, like hedging in Bilski, was “a fundamental economic practice long prevalent in our system of commerce” and “a building block of the modern economy.” Alice Corp., slip op. at 9. Thus, intermediated settlement was an abstract idea. Until this step is clarified, there will be leeway for most patents to distinguish away from the “fundamental practice” and “building block” language. But uncertainty over what is patent-eligible will remain while the contours of the abstract ideas category are defined.

For the second step, the Court held that the elements of each claim must be considered both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim. The Court cited Mayo for the principle that a claim must do more than simply recite an abstract idea while adding the words “apply it.” The Court ruled that including a general-purpose computer in a claim is no more than saying “apply it with a computer” and will not make an otherwise ineligible claim eligible. In contrast, the Court cited Diamond v. Diehr as supporting the proposition that “a process designed to solve a technological problem in ‘conventional industry practice’” is patentable. Slip op. at 12.

Turning to the method claims, the Court found that the elements of the claims, as an ordered combination, added nothing that was not present when the steps were considered separately. The Court ruled that the 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. Rather, the Court found that the claims amounted to no more than instructions to apply the abstract idea of intermediated settlement using an unspecified, generic computer. Finally, the Court ruled that patent eligibility should not depend on the draftsman’s art and invalidated the system and computer-readable medium claims. The Court held that the addition of generic computer components did not impart patent eligibility to the system claims.

Conclusion

Although some commentators are suggesting that Alice Corp. represents a major shift in Section 101 jurisprudence, the practical effects for most applicants are likely to be less profound. The Supreme Court cautioned that, at some level, all inventions involve laws of nature, natural phenomena, and abstract ideas, and the exclusionary principle should not be interpreted too broadly lest it swallow all of patent law. Thus, it does not appear that the Supreme Court intended to invalidate most or all software patents.

The Supreme Court appears to be mainly concerned about patents that attempt to claim “the building blocks of ingenuity” and “the basic tools of scientific and technological work.” Slip op. at 6. Applications that do not arouse these concerns and that are not wholly directed to basic concepts or formulas in a particular field may be able to survive step one of the test. Applicants who can persuasively identify a technological problem in conventional industry practice that is solved by the claims will likely be able to survive the second step of the test. There will be uncertainty while the two steps are further defined by the lower courts, but most software patents will survive unless the lower courts adopt a drastic interpretation of the decision.

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.

© Stoel Rives LLP | Attorney Advertising

Written by:

Stoel Rives LLP
Contact
more
less

Stoel Rives LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.