The Supreme Court recently issued its much anticipated decision in Alice Corp. v. CLS Bank, unanimously affirming the Federal Circuit's en banc decision finding the method, system, and computer readable medium claims at issue patent ineligible under the judicially created abstract idea exception. The case reaffirms the analysis for patentability pursuant to the exceptions to the broad eligibility requirements set forth in 35 U.S.C. § 101, and also reaffirms that the mere recitation of computer related elements in a patent claim is insufficient to transform a claim encompassing an abstract idea into patentable subject matter. The Supreme Court, however, did not provide a broad pronouncement on the patentability of software patents. Instead, the Supreme Court merely determined the claims at issue failed to present patentable subject matter based on its prior precedents. Thus, the present decision does not provide further clarity regarding the metes and bounds of the abstract idea exception, which will now need to be developed through further litigation related to software patents and actions by the USPTO.

The invalidated patent at issue in Alice Corp. included method, system, and computer readable medium claims related generally to managing settlement risk through a third party intermediary. The parties stipulated that all three sets of claims required computer implementation, despite the lack of any specific computer related elements in the method claims. Thus, the Petitioner conceded in the Federal Circuit that all three claim sets would rise or fall together.

The Supreme Court, in invalidating the patent, reiterated the test set forth in Mayo v. Prometheus for evaluating patent claims pursuant to the judicially created exceptions to patent eligibility. That test provides a two-part analysis to determine: (1) whether the claims are directed to a patent ineligible concept, i.e., directed to laws of nature, natural phenomena, or abstract ideas; and (2) if so, whether the claims provide an "inventive concept" sufficient to transform the claims into patent eligible subject matter. Utilizing this test, the Supreme Court held the claims, which it characterized as a computer implemented scheme for mitigating settlement risk by using a third party intermediary, were drawn to an abstract idea and that the claim elements merely required generic computer implementation. As such, the Supreme Court determined the claims failed to transform the abstract idea into a patentable invention.

The Supreme Court, in the first step of the analysis, relied on its precedent in determining that the claims at issue related to an abstract idea. The Court analogized the claims to the claims in Bilski v. Kappos directed to a method of risk hedging, which were deemed invalid. The Court characterized the claims as directed to a "fundamental economic practice" and "a building block of modern economy." The Court declined to restrict the abstract idea exception to a narrower definition requiring a pre-existing fundamental truth that exists apart from any human action, such as an algorithm. The Court also failed to delineate any other boundaries limiting the definition of an abstract idea, and instead merely held the claims at issue were clearly within the realm of the term as defined under its established case law.

The Supreme Court then determined the claims failed the second part of the test as lacking an inventive concept beyond the abstract idea. The Court found that the method claims merely detailed implementation of the abstract idea on a generic computer utilizing well-understood, routine, conventional computer functions. The Court further stated the method claims fail to improve the functioning of the computer or effect an improvement in any other technical field. The Court further found the computer related elements recited in the system claims (e.g., data processing system, communications controller, and data storage unit) were completely functional and generic. The system claims were deemed to encompass the same substance as the method claims and were viewed as differing solely based on drafting techniques.

The Supreme Court's decision focused on the facts at issue in view of the established precedent. Thus, the decision failed to provide any broad pronouncement on the patentability of software related inventions, or on what constitutes an abstract idea. Although the Supreme Court has clearly set forth that the mere recitation of computer related elements will not save a claim that is otherwise deemed to recite an abstract idea, the standard for evaluating claims under section 101 was not altered. The limits on what constitutes an abstract idea and what additional limitations are necessary to transform such a claim into patentable subject matter under the current standards, however, are not entirely clear at this time. Thus, the patentability of software patents will certainly be an ongoing issue in litigation, as well as an issue the United States Patent and Trademark Office may further address in view of the Alice Corp. decision.