The Supreme Court unanimously decided yesterday that computer implemented business methods are not patent eligible subject matter.  See Alice Corporation Pty. Ltd. v. CLS Bank International et al.  The case centered on a group of patents owned by Alice Corporation that cover a method for reducing the risk that the parties to a financial transaction will not pay their obligations.

CLS Bank, who operates a global network that facilitates currency transactions, filed suit against Alice Corporation, arguing that the patents are invalid, unenforceable, and not infringed.  The District Court ruled against Alice Corporation, holding that the claims were ineligible for patent protection under 35 USC §101 because they were nothing more than abstract ideas.  (For the layman – §101 is the basic patent statute defining the categories of patent eligible subject matter, as well as providing an implicit exception against the patentability of abstract ideas.)  A three judge Federal Circuit panel reversed the decision in favor of Alice Corporation, but upon rehearing by a ten-member panel, the decision was again reversed, striking down the patents.  It should be noted that this full panel decision had been criticized because it was highly fractured, comprising seven opinions, none of which commanded a majority.  In contrast, the Supreme Court has now spoken with one voice stating that “the claims are drawn to a patent-ineligible abstract idea.”

In issuing its opinion, the court relied heavily on three of its earlier decisions:  Association for Molecular Pathology v. Myriad Genetics (well known for its holding that DNA is an unpatentable product of nature), Mayo Collaborative Services v. Prometheus Laboratories (holding that a method of measuring drug metabolites to determine the appropriate dosage of a drug is nothing more than an unpatentable law of nature), and Bilski v. Kappos (an earlier business method case holding that a method for hedging against the financial risk of price fluctuations is a patent ineligible abstract idea).

In deciding Alice Products, the Court used the following two-part framework:  (1) whether the patent claims are directed to a patent-ineligible concept and (2) whether the claim elements transform it into a patent-eligible application of that concept.  As for the first part of the framework, the Court stated that “[t]he claims at issue are directed to a patent-ineligible concept:  the abstract idea of [an] intermediated [financial] settlement.”  As for the second part of the framework, the Court determined that including a generic computer system configured to implement the concept does not render it a patent eligible invention.

Even though the decision was relatively short and to the point, Justices Sotomayor, Ginsburg, and Breyer joined in a separate, single-paragraph, concurring opinion that  tersely stated that “any claim that merely describes a method of doing business does not qualify as a [patent eligible] process under § 101.”  I was almost disappointed that they did not conclude their statement with “end of story – period!”

So, what are the implications of this decision?  What does it mean for business method patents, software, and even the biotech industry?  If Justices Sotomayor, Ginsburg, and Breyer had their way, business method patents would essentially be dead and software patents would be very hard to come by.  However, there is a ray of hope.  If the claim elements truly transform the idea of the underlying invention into something more, in other words, into a concrete and specific application of the idea, then the claim will likely meet the §101 patent eligibility threshold.  The Court gives further guidance on this point in their discussion of the 1981 case, Diamond v. Diehr.  In Diehr, which was directed to a computer-implemented process for curing rubber, the Court noted that “[t]he claim employed a ‘well-known’ mathematical equation [i.e. an abstract idea], but it used that equation in a process designed to solve a technological problem in ‘conventional industry practice’.”  The Court further explained that the claim elements in Diehr “transformed the process into an inventive application of the [equation]” and that “the claims  . . . were patent eligible because they improved an existing technological process.”  Clearly, the Court has left open the door that appropriately claimed business methods are still patentable.

As for biotech inventions – particularly for diagnostic methods and research tools – it is also my view that the Court left room for patent eligible claims.  If a biotech invention relates to more than just a law of nature or product of nature, such that it is truly a concrete and useful application of that law or product, the well-seasoned patent practitioner should be able to draft patent claims that will withstand scrutiny.  My advice – take a closer look at Diehr.