In a much anticipated opinion, an often divided Supreme Court unanimously affirmed a fractious and fragmented en banc Federal Circuit decision. In Alice Corporation Pty Ltd. v. CLS Bank International et al., the Supreme Court held that the claims of Alice Corp.’s patents for mitigating “settlement risk” were drawn to an abstract idea of “intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention” under section 101 of the Patent Act. In finding Alice Corp.’s patent invalid, the Supreme Court finally affirmed a Federal Circuit judgment during a term where Federal Circuit decisions had been unanimously reversed with great regularity (read more herehere and here), though ironically this “win” for the Federal Circuit could only be counted as a partial one, for the Federal Circuit could not muster a majority opinion in support of its judgment. (Read more herehere and here). The Supreme Court’s decision was consistent with its reasoning and decision in Bilski v. Kappos and, importantly, provided a little more insight into just how broadly it expects courts to apply the test it articulated in Mayo Collaborative Services v. Prometheus Laboratories

Specifically, Alice explained that, in essence, its two part framework in Mayo for determining whether a claim was patent ineligible was the analytical balance courts must employ to mark where patent ineligible claims for laws of nature, natural phenomena and abstract ideas end and “patent-eligible applications of those concepts” begin. Initially, a court must “determine whether the claims at issue are directed to one of those patent-ineligible concepts”—i.e., are the claims directed at a law of nature, natural phenomena or abstract idea? If they are, courts must search for the “inventive concept” in the claims by determining whether the claim elements, individually and “as an ordered combination,… transform the nature of the claim into a patent-eligible invention,” so that the patent “in practice amounts to more than a patent upon the [ineligible concept] itself.”

The Supreme Court found that the claims of the patents at issue in Alice were not different in kind from the claims in Bilski, which were found to describe no more that the concept of mitigating risk through financial hedging. Here the claims “involved a method of exchanging of financial obligations between two parties using a third party intermediary” to mitigate settlement risk, albeit through the use of a computer system of the third-party intermediary. In general, the claims maintained shadow credit and debit records, updated records daily with actual account balances from exchange institutions of the two parties, adjusted the shadow records for every transaction, ensured the shadow debit record value never was less than the shadow credit record and transmitted irrevocable account debit/credit instructions to the exchange institutions based on the daily transactions. The Court determined that these claims were like the claims for a method for hedging against financial risk present in Bilski: intermediated settlement is a “fundamental economic practice long prevalent in our system of commerce,” as were the concepts of hedging against financial risk. Consequently, the Supreme Court held that the intermediated settlement, as recited in the claims, was an abstract idea.

Since the claims were thus drawn to abstract ideas according to the Supreme Court, it turned to the second part of the Mayo framework: did the claim elements turn the abstract idea described in the claim into a patent eligible application of that idea? The method claims in question described implementation of the settlement process through the use of a general purpose or generic computer. We note that in its petition for certiorari Alice Corporation put computer implementation at the heart of its appeal when it framed the question for decision as whether “claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.” The stack of merits briefs filed in this case were stuffed with arguments whether computer implementations—whether conceived as executions of software programs or the mechanical operation of a computer hardware—should rescue the claims in question, or those like them, from patent ineligibility. The Supreme Court concluded that nothing unique or otherwise inventive was added to the intermediated settlement by the use of a computer or by any of the elements recited in the claims. The Court emphasized that patent eligibility should not “depend simply on the draftsman’s art,” but should, rather, transform the abstract idea into something new. In this manner, the Court was consistent with its rulings inBilskiMayo and Association for Molecular Pathology v. Myriad Genetics. Specifically, the Court stated:

These cases…demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea “while adding the words ‘apply it” is not enough for patent eligibility. …. Nor is limiting the use of an abstract idea “to a particular technological environment.” …. Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to “implemen[t]” an abstract idea “on . . . a computer,”  that addition cannot impart patent eligibility.

The Court held that it does not matter that a computer is a physical object stating:

There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, 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 make the determination of patent eligibility “depend simply on the draftsman’s art,”  thereby eviscerating the rule that “[l]aws of nature, natural phenomena, and abstract ideas are not patentable,”….

In short, the claim elements in question, whether considered individually or in ordered combination, did no “more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.”  The system claims fared no better: “the system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.”

The Supreme Court’s opinion in Alice, especially in the portions dealing with the second part of the Mayo framework and its analysis of the system claims, may well prove to be the most interesting to those who are challenging or defending software patents, a prospect not lost on the authors of the brief for Amici Microsoft, Adobe and H-P, who attempted to distance the “good” computer-implemented inventions that their clients claim—those involving “software-based” implementations—and the claims at issue that they characterized as merely “directed to an unpatentable business method combined with an equally abstract directive to perform that method using a computer.” Time will tell how the capacious language in Alice that does not make fine distinctions between types of computer related technologies will be used in challenges and defenses to software related patents with none-too-dissimilar claim structures. We see many ways to deal with Alice on this point, but we envision new decisions wrestling with this issue will be shortly in the offing. We also note that based on its reasoning in Alice and Bilski, however, it appears that the Supreme Court could have simply decided both cases on Section 103 obviousness grounds alone. Put simply, if the claims were primarily directed at a “fundamental economic practice long prevalent in our system of commerce” and merely added a general purpose computer or the use thereof, then the claims as a whole were obvious in view of the prior art. The opinion hinted at this by stating that the claimed system hardware does not offer “a meaningful limitation beyond generally linking ‘the use of the [method] to a particular technological environment,’ that is, implementation via computers.”

This begs the question of whether claims can be found to be directed to an abstract idea and, therefore, patent ineligible, if that abstract idea was not previously known or was not “long prevalent.” In light of the current Supreme Court jurisprudence, the public may not be well-equipped to resolve such an issue. This also might suggest that the Bilski line of cases have not truly added much to our understanding of patent eligibility and many open questions remain.