The Supreme Court has ruled in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. ___, No. 13-298 (2014), that claims directed to a computer-implemented scheme for mitigating settlement risk are unpatentable under 35 U.S.C. § 101. In so ruling, the Court unanimously affirmed the Federal Circuit’s judgment in the case.

In the Alice case, the patents at issue disclosed computerized schemes to manage settlement risk, which is the risk that only one party to an agreed-upon financial exchange will satisfy its obligations. As characterized by Justice Thomas, who wrote for the unanimous Court, the claims at issue were of three types: (1) a method for exchanging obligations (the method claims), (2) a computer system configured to carry out that method (the system claims), and (3) a computer-readable medium containing program code for performing that method (the media claims).

The district court held that the claims are patent ineligible because they are directed to an abstract idea. A divided panel of the Federal Circuit reversed. On en banc review, however, a majority of the Federal Circuit affirmed the district court’s judgment that the method and media claims are patent ineligible, and an equally divided court affirmed the district court’s judgment that the system claims are patent ineligible.The Supreme Court’s opinion affirming the Federal Circuit sets forth a two-step framework for patent eligibility. First, a court must determine whether the claim at issue is directed to a law of nature, a natural phenomenon, or an abstract idea. If so, the court must consider the elements of the claim, both individually and as an ordered combination, to determine whether additional elements in the claim transform the nature of the claim into a patent-eligible application. This second step, the Court said, is “a search for an ‘inventive concept.’”

Applying this framework to the claims at issue, the Court first concluded that the claims are directed to the patent-ineligible abstract idea of mitigating settlement risk through the use of a third party. Although the Court declined “to delimit the precise contours of the ‘abstract idea’ category,” it noted that the concept underlying the claims at issue is “squarely within the realm of ‘abstract ideas.’” Next, the Court examined whether the claim elements sufficiently transform the claims into a patent-eligible application. Consistent with its case precedent, the Court held that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” Nor is it sufficient for a claim to limit “the use of an abstract idea ‘to a particular technological environment.’” Because the claims at issue do no “more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer,” the Court held that they are patent ineligible under § 101.

The Court explained that, while a computer is a tangible system and many computer-implemented claims cover patent-eligible subject matter, that cannot be the end of the § 101 inquiry because, if it were, “an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept.” Such a result would inappropriately make the determination of patent eligibility turn on the draftsman’s art, said the Court. The Alice decision may offer some guidance to claim drafters, as the Court noted what the method claims at issue do not cover. They do not “purport to improve the functioning of the computer itself.   . . . Nor do they effect an improvement in any other technology or technical field.”

Click here to read the opinion.