On June 19, 2014, the US Supreme Court rendered a decision in Alice Corp. Ltd. v. CLS Bank. Int’l, a case that asked when and in what circumstances a patent claim might be too abstract to be entitled to patent protection. The Court held that merely requiring a generic computer implementation fails to transform an abstract idea into a patent-eligible invention.

In this Emerging Trends feature, Kaye Scholer Intellectual Property lawyers Robert Unikel and David Soofian discuss the important issues involved in this case, which a number of industry—software certainly among them—have been following very closely.

Q. Why is this case significant?

Soofian: The Supreme Court’s decision has the potential to have far reaching impact in the software industry.  In Alice the Supreme Court articulated a test for whether software is or is not patentable. That test will likely effect software patent litigation for the foreseeable future, although it will remain to be seen how district courts and the Federal Circuit apply this case in the first instance.

Q. Can you briefly summarize what brought these parties to the US Supreme Court?

Unikel: Alice Corporation was the assignee of patents disclosing a scheme for mitigating “settlement risk,” by using software that computerized the process of guaranteeing the funds. CLS Bank and others, who operated a global network facilitating currency transactions, sued Alice Corp, arguing that the patent claims were invalid, unenforceable or not infringed. Relying on the well-known Bilski case, the District Court held that all of the claims were ineligible for patent protection under 35 USC 101 because they were directed to an abstract idea. A fractured en banc Federal Circuit affirmed. The Supreme Court unanimously affirmed as well, holding that “the claims at issue are 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.”

What is this concept of “abstraction,” and how has it been dealt with in the past?

Soofian: About 40 years ago, the Supreme Court set forth certain exceptions to the broad categories of patent eligibility. They were “phenomena of nature,” “mental processes,” and “abstract intellectual concepts,” all of which are considered simply the “basic tools of scientific and technological work.” Of course, the question then became, when should a patent be viewed as falling within one of these exceptions? With regards to software in particular, the question has been when can an abstract idea that would be unpatentable in real life, become patentable if done on a computer. 

What are the principal takeaways from this decision?

Unikel: The four biggest “takeaways” from the CLS decision are, for me, the following:

(1)    Specifying that an idea or method is performed wholly or partially by a computer does not, by itself, make the idea or method patentable.  The Court makes clear that because a computer’s essential capabilities are well-understood, and because the computer is the basic tool of the modern world, merely using that tool, and its acknowledged capabilities, to execute an idea or method digitally, faster, more accurately, more dispassionately, etc. does not convert the idea or method into something inventive.

(2)    The history and prevalence of an idea or method is relevant to determining whether the idea or method is “abstract”.  The Court’s citation to an 1896 publication discussing the use of a “clearing house” for reducing settlement risk demonstrates the potential importance of an idea’s or a method’s history in assessing “abstractness.”  The Court’s analysis seems to leave open the possibility that a genuinely new idea or method – one that has no historical antecedent and one that does not represent a law of nature or natural phenomena – could be eligible for patenting.

(3)    Drafting a claim to suggest complexity, or complex execution by a computer, does not render an idea or method patentable.  The Court indicates that if specified computer-executed actions/functions, however numerous or specifically described, ultimately are “well-understood, routine, conventional activit[ies] previously known to the industry”, then those specific actions/functions essentially are irrelevant to patentability.  In short, using a computer “to perform generic computer functions” will not result in patent-eligibility no matter how artfully the claims are drafted to include or require specific computer programming.

(4)    “System” claims and “computer-readable medium” claims are subject to the same patentability analysis that is applicable to “method” claims.  Merely calling out ubiquitous or generic computer components (e.g., “communications controller”, “data processing system”, “data storage unit) does not exempt a patent claim for abstract idea evaluation.

Were you surprised by the decision?

Soofian: Yes, in a pleasant way. One of the more interesting balancing acts that attorneys were expecting to see was how the Supreme Court was going to be able to respect the words of the claims and also avoid letting clever patent drafters work circumvent the spirit of these exceptions. The Supreme Court was very clear that lower courts should not allow clever draftsmanship to trump the idea that one should not be able to monopolize an abstract idea.

How might the technology industry react to the court's ruling?

Unikel: Many technology companies will be happy that the Supreme Court didn’t simply issue a short decision disapproving of the Federal Circuit’s result and send it back to the Federal Circuit for more analysis, which would have left the industry to wrestle with the state of the law for years to come.  The Supreme Court provided a real analysis and affirmed the ineligibility of the claims at issue. This should give software companies, and those threatened with infringing software patents, some real guidance as to what is and is not patent eligible.

Beyond that, what is the potential significant of the decision?

Soofian: The real question going forward is whether any software cannot be boiled down to an abstract idea, which would render it at least susceptible to an eligibility challenge under the Alice case. The Supreme Court did not discuss this threshold at length, but they refused to set the standard high, as Alice suggested.