June 19, 2014Client Alert

Supreme Court Invalidates Patent Claims Directed to Computer-Implemented Mitigation of Settlement Risk

On June 19, 2014, the United States Supreme Court rendered an opinion relating to the patent eligibility of computer-implemented inventions under 35 U.S.C. § 101. In Alice Corp. v. CLS Bank International. The Court held that all claims of a patent owned by Alice Corp., including method, system, and computer-readable medium claims, are drawn to an abstract idea and, therefore, are not patent-eligible. The opinion is one in a recent series of cases addressing patent eligibility.


The claims at issue relate to computerized methods and systems for mitigating financial settlement risks between parties using a third-party intermediary. The Court held that the claims were drawn to the abstract idea of intermediated settlement and that implementing the abstract idea on a generic computer failed to transform the abstract idea into patent-eligible subject matter.


In the opinion, the Court recognized the need to distinguish between patents that claim the “building blocks” of human ingenuity and those that integrate the building blocks into something more, which transforms the invention into patent-eligible subject matter. The Court relied heavily on Mayo Collaborative Services v. Prometheus Laboratories, 566 U.S. __ (2012), in analyzing the method claims at issue. As set forth in Mayo, the first step of a § 101 analysis includes determining whether the claims at issue are directed to a patent-ineligible concept, such as a law of nature, a natural phenomenon, or an abstract idea. With respect to Alice Corp.’s claims, the Court held that the claims were drawn to the concept of intermediated settlement, which it considered to be a “building block of the modern economy.” Therefore, like the risk-hedging claims considered in Bilski v. Kappos, 561 U.S. 593 (2010), the Court concluded that the current claims at issue were directed to an “abstract idea.” The Court noted that it was using the similarity between the Bilski claims and the Alice Corp.’s claims to hold that the claims were drawn to an abstract idea. The Court declined to provide a precise definition for “abstract ideas.”


Moving to the second step of the Mayo framework, the Court considered whether the elements of the claims contain an “inventive concept” sufficient to “transform” the claimed abstract idea into patent-eligible subject matter. The Court concluded that the “mere recitation of a generic computer cannot transform a patent-ineligible abstract into a patent-eligible invention.” Accordingly, the court held that the functions performed by a computer recited in the claims (e.g., obtaining data, adjusting account balance, and issuing automated instructions) were “purely conventional” computer functions. Furthermore, the Court concluded that the generic computer components recited in Alice Corp.’s system claims were not enough to transform the underlying abstract idea into patent-eligible subject matter. The fact that a computer “necessarily exist[s] in the physical, rather than purely conceptual realm” was deemed irrelevant by the Court. Using the physical realm as the key criteria would make the determination of patent-eligibility “depend simply on the [patent] draftsman’s [ability to write claims in a particular manner]” and would eviscerate § 101. Further, the Court noted that “abstract ideas” are not limited to just “pre-existing, fundamental truths that exist in principle apart from any human action,” as argued by Alice Corp.


Unlike the claims at issue in Bilski that included only method claims, the Alice Corp. claims included system claims and computer-readable medium claims. The Court, however, held that system and computer-readable medium claims were no different in substance from the method claims. Therefore, the Court held that these claims were also ineligible for patent protection.


In a concurring opinion, Justices Sotomayor, Ginsburg, and Breyer reiterated their view from Bilski that any “claim that merely describes a method of doing business does not qualify as a ‘process’ under § 101.”


The Alice Corp. decision will likely do little to ease the unpredictability facing innovators, particularly those in the software and computer fields. Without a clear definition of what is an “abstract idea,” applicants may not know for certain whether a particular innovation is protectable or a particular patent is invalid until an arbiter rules on the issue. Using patents to protect business and financial-related technologies, such as the settlement risk mitigation system created by Alice Corp., will certainly be more difficult.

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