The Supreme Court held that patent claims that are directed towards abstract ideas will not be patentable under 35 U.S.C. § 101 unless the claim elements, considered both individually and in combination, contain an inventive concept sufficient to transform the nature of the claim into patent-eligible subject matter.  In order to do so, the claim must include additional features to demonstrate that the claim seeks more than a monopoly on the underlying abstract idea.

In the district court, the alleged infringers sought a declaratory judgment that the patent claims at issue were invalid, unenforceable, or not infringed. The patentee counterclaimed alleging infringement. The district court held that the asserted claims were invalid as unpatentable abstract ideas under 35 U.S.C. § 101. Sitting en banc, the Federal Circuit affirmed.

The Supreme Court granted certiorari to consider whether these claims were patent eligible under § 101, or whether they were instead drawn towards a patent- ineligible abstract idea. The Court affirmed the Federal Circuit. As the Court held, the patents were drawn towards abstract ideas and did not contain additional features sufficient to demonstrate that the claims were patentable under § 101.

“The claims at issue relate to a computerized scheme  for mitigating “settlement risk”—i.e., the risk that only  one party to an agreed-upon financial exchange  will satisfy its obligation.” The claims facilitate the  necessary exchange of information through a computer  system that acts as an intermediary. The court parsed  the asserted claims into three categories: “(1) the  forgoing method for exchanging obligations (the  method claims), (2) a computer system configured to  carry out the method for exchanging obligations (the  system claims), and (3) a computer-readable medium  containing program code for performing the method of exchanging obligations (the media claims).”  All of the claims required use of a computer: the system and media claims expressly recited a computer, and the parties stipulated that the method claims also required computer implementation.

The Court applied the two-part test set forth in Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S.    (2012) to determine whether or not the asserted claims were patentable under § 101. Under Mayo, courts “must first determine whether the claims at issue are directed to a patent-ineligible concept.” If the claims are so directed, the court must then “examine the elements of the claim to determine whether it contains an ‘inventive concept’ sufficient to ‘transform’ the claimed abstract idea into a patent-eligible application.” The second prong of the Mayo test may  be satisfied where a claim includes “‘additional features’ to ensure ‘that the claim is more than a drafting effort designed to monopolize the abstract idea.”

Under this framework, the Court examined its precedent finding that the patentee in Diamond v. Diehr, 450 U. S. 175, 187 (1981) was able to meet this standard even though its patent used a “well-known mathematical equation.” The patentee in Diehr used the equation as part of a larger system that accurately measured the amount of time necessary to cure molded rubber. In Diehr, the Court explained that “[t] hese additional steps… transformed the process into an inventive application of the formula.”

Under the first prong of the test, the Court analogized to Bilski v. Kappos, 561 U. S. 593 (2010) and held that the claims at issue were directed towards an abstract idea. The Court held that on their face the claims were directed towards, “the use of a third party to mitigate settlement risk.”

The Court analyzed each category of the asserted claims under the second prong of the Mayo test in  turn. They first found that the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk, is, like the risk hedging in Bilski, “ ‘a fundamental economic practice long prevalent in our system of commerce.’” Regarding the method claims, the Court held that they merely instructed the user to “implement the abstract idea of intermediated settlement on a generic computer.” The Court analyzed each claim element separately finding that the functions performed by the computer were “purely conventional” and that “each step does no more than require a generic computer to perform generic computer functions.” Stating an abstract idea while adding the words ‘apply it with a computer’ simply combines those two steps, with the same deficient result.