In Alice Corporation Proprietary Ltd. v. CLS Bank International, ___ U.S. ___, 2014 WL 2765283 (Jun 19, 2014), the Supreme Court held using a computer as an intermediary to reduce settlement risk when two parties exchange financial obligations is an un-patentable abstract idea.  The Supreme Court rejected method, system and media type patent claims because they are not eligible for patent protection under 35 U.S.C. § 101.

In Bilski v. Kappos, 561 U.S. 593, 130 S.Ct. 3218 (2010), the Supreme Court previously held that a computer implementation of a risk hedging business method was not patentable.  Following Bilski, the Federal Circuit Court of Appeals held the patents at issue in Alice ineligible for patent protection, but the Federal Circuit judges wrote six separate opinions trying to articulate the appropriate test. Five of the ten Federal Circuit Judges would have found the system claims patent eligible because they used a computer “specifically programmed to solve a complex problem.” 

In Alice, the Supreme Court applied the framework adopted in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U.S. ____, 132 S.Ct. 1289 (2012).  Patents that claim “laws of nature, natural phenomena, and abstract ideas” are not patent eligible under § 101.  Patents that claim application of those concepts are patent eligible.  In a two-step process, the court must first “determine whether the claims at issue are directed to one of those patent-ineligible concepts” and second, “consider the elements of each claim both individually and ‘as an ordered combination’ to determine whether the additional elements ‘transform the nature of the claim’ into a patent-eligible application.”  This second step seeks an “inventive concept”, which can be “an element or combination of elements that is ‘sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.’” Alice, 2014 WL 2765283 at *6 (quoting Mayo). 

First Step --  The Claims are Directed to Abstract Ideas.

[W]e need not labor to delimit the precise contours of the “abstract ideas” category in this case.  It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.  Both are squarely within the realm of “abstract ideas” as we have used that term.

Alice, 2014 WL 2765283 at *8.

Second Step – Using the Computer Did Not “Transform the Nature of the Claim”

The method claims using a generic computer to implement the abstract idea did not “transform that abstract idea into a patent-eligible invention.”  The claims at issue do not “do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.”  At each step the functions performed by the computer were “purely conventional” – electronic recordkeeping, obtaining data, adjusting account balances, and issuing automated instructions.  Aliceat *11.

The system and media claims also describe hardware that is “purely functional and generic”.  Id at *12. “Because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under §101.” Id .

Business Methods in the Concurring Opinion

Three Justices (Sotomayor, Ginsburg and Breyer) joined in a one paragraph concurring opinion expressing the view that any “claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.” Alice at *13 (Sotomayor J., concurring), quoting Bilski, 561 U.S. at 614 (2010) (Stevens J., concurring).

While a majority of the Justices did not bar business method patents outright, the Alice decision sends a clear message that computer implementation alone (without a resulting  improvement in the functioning of the computer or some other technology) will not provide the required inventive concept.