Today, the Supreme Court unanimously raised the bar for the patentability of software claims and computer-implemented methods in Alice Corp. v. CLS Bank Int’l, 573 US ___ (2014). In this case, it was stipulated that the claimed method required the use of a computer to create electronic records, track multiple transactions, and issue simultaneous instructions. In a patent directed to intermediated settlement, the claims required the computer itself to be the intermediary.

With a broad brush, the Supreme Court concluded that the claims embody an unpatentable “abstract idea” that is simply “employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.” Id. In reaching its conclusion, the Supreme Court affirmed the en banc Federal Circuit decision, which applied 
recent Supreme Court precedent to find these claims invalid. See Bilski, 561 US 593; Mayo 566 US ___.

In particular, Justice Thomas’s opinion for the Court employed the two-step analysis adopted in Mayo by first characterizing the nature of the invention broadly as “abstract” and then looking to see if the “elements” of the claims individually or “as an ordered combination” would “transform” the abstract idea into patent-eligible subject matter. After finding that all of the claim elements “do no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer,” and that “each step does no more than require a generic computer to perform generic computer functions,” the Opinion then concluded that the system and media claims fail for “substantially the same reason.” Id.

While it is too early to draw expansive conclusions about how a given Supreme Court decision on patents will be implemented, this one raises concern regarding the patentability of many software inventions given that software-based innovations are an extraordinarily important part of the modern US economy. The pendulum of patent eligibility for software inventions has swung in the twenty years since the Federal Circuit decided In re Alappat, 33 F.3d 1526 (Fed. Cir. 1994) (en banc), and it continues to swing as the lower courts struggle to practically apply Supreme Court precedents to truly exceptional software inventions. For now, the best advice is to continue to file applications in this space with extra diligence paid to describing the hardware platforms on which such software inventions are implemented, particularly highlighting the coupling and interrelation of software elements with specific hardware elements. Although the Alice Corp. Court admonished that Section 101 determinations should not be dependent in “the draftsman’s art”, carefully drafting computer inventions will continue to be extremely important.

In the litigation context, this decision opens the door to broad patents being challenged in both the district courts and in US Patent & Trademark Office proceedings, such as Covered Business Method Reviews and Post-Grant Reviews. USPTO trials may be among the first to inform how the Alice Corp. decision will be implemented as these challenges reach the Federal Circuit, so we recommend watching closely for the published opinions from these trials.