On June 19, 2014, a unanimous United States Supreme Court held that merely requiring a generic computer to implement an abstract idea fails to transform the abstract idea into a patent-eligible invention, and affirmed the Federal Circuit’s judgment finding claims directed to mitigating settlement risk invalid under 35 U.S.C. § 101. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, No. 13-298 (June 19, 2014).

Background

Alice’s four patents at issue claimed computerized systems, methods and media designed to mitigate settlement risk, by utilizing a trusted third party to settle financial obligations between two parties conducting a transaction. CLS Bank initially brought suit against Alice in the U.S. District Court for the District of Columbia seeking inter alia a declaratory judgment that the patents were invalid. On March 9, 2011, following the Supreme Court’s decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010), the district court granted CLS Bank’s motion for summary judgment and found the asserted claims to be patent-ineligible subject matter under Section 101. In doing so, the district court noted that “nominal recitation of a general-purpose computer in a method claim does not tie the claim to a particular machine or apparatus or save the claim from being found unpatentable under § 101.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221, 237 (D.D.C. 2011).

On appeal, a three-judge Federal Circuit panel reversed the district court’s decision, and held that computer-implemented inventions are patent-eligible under Section 101 unless “the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application.” CLS Bank Int’l v. Alice Corp. Pty. Ltd., 685 F.3d 1341, 1352 (Fed. Cir. 2012).

The Federal Circuit subsequently vacated the panel decision and granted CLS Bank’s petition for a rehearing en banc. On May 10, 2013, a sharply divided en banc Federal Circuit issued a per curiam opinion affirming the district court’s finding of patent ineligibility. CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013). A majority of the en banc Federal Circuit affirmed the district court’s holding that the method and medium claims were ineligible, while only an equally divided court affirmed the district court’s holding that the system claims were ineligible. Further, while multiple opinions joined by various combinations of the Judges were published, no portion of any opinion garnered a majority, and thus none carried the weight of precedent.

On December 6, 2013, the Supreme Court granted Alice’s petition for a writ of certiorari to consider whether claims to computer-implemented inventions, including claims to systems and machines, processes, and items of manufacture, were directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101.

The Court’s Opinion

The Court’s opinion, written by Justice Thomas, held the claims at issue to have been drawn to a patent-ineligible abstract idea. In making this determination, the Court relied upon the framework for determining patent-eligible subject matter set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___ (2012), in which the Court first determines whether the challenged claims are directed to patent-ineligible laws of nature, natural phenomena, or abstract ideas, and if so, then determines “[w]hat else is there in the claims before [the Court]” that may render them patent-eligible.

Applying the first step of this framework, the Court held that the claims at issue are drawn to the abstract idea of “intermediated settlement,” which the Court described as “a fundamental economic practice long prevalent in our system of commerce.” In doing so, the Court indicated that abstract ideas were not confined solely to “preexisting, fundamental truth[s]” that “exis[t] in principle apart from any human action.” The Court specifically noted that the claimed subject matter deemed patent-ineligible in Bilski, which involved the economic concept of “risk hedging,” would not fall within such a narrow definition. The Court declined to describe “the precise contours of the ‘abstract ideas’ category” or pronounce any general rule for determining when an abstract idea was being claimed. Instead, it took a precedent-oriented approach, stating that, “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.”

Following this determination, the Court turned to the second step in the Mayo framework, and held that the inclusion of “generic computer implementation” in the challenged method claims fails to transform the abstract idea of “intermediated settlement” into a patent-eligible invention, and therefore those claims are unpatentable under Section 101. Importantly, the Court held that simply including an instruction to “‘implemen[t]’ an abstract idea ‘on . . . a computer”’ does not confer eligibility to an otherwise patent-ineligible abstract idea. With respect to the challenged method claims, the Court found that the claimed computer functions, such as the creation and maintenance of “shadow accounts,” were “[p]urely conventional” and required nothing more than “a generic computer to perform generic computer functions.”

The Court similarly held that the challenged system and computer-readable media claims are unpatentable under Section 101. The Court first noted that, as Petitioner Alice Corp. conceded, the computer-readable media claims “rise or fall” with the method claims, and thus because the method claims are unpatentable, so too are the media claims. With respect to the system claims, the Court noted that the specific hardware recited in the claims was “purely functional and generic,” and therefore the system claims are no different in substance from the method claims.

Justice Sotomayor filed a brief concurring opinion, joined by Justice Ginsburg and Justice Breyer, in which she agreed with the Court’s ruling, but also set forth her view that business methods in general do not qualify as a patent-eligible “process[es]” under 35 U.S.C. § 101.

Today’s decision is wholly in line with the Court’s other recent Section 101 jurisprudence. With the growing number of software patents and related litigation, the determination of what is or is not patent eligible will likely remain a contested issue, with the line between what is and is not eligible being developed by precedent over time, and (at least for now) not flowing from any “bright-line” appellate pronouncement.