On June 19, 2014, the U.S. Supreme Court unanimously held in Alice Corp. Pty. Ltd. v. CLS Bank International et al., No. 13-298, that claims for a computer-implemented technique of mitigating "settlement risk" in financial transactions were ineligible for patenting under 35 U.S.C. § 101. Applying the framework articulated in Mayo Collaborative Services. v. Prometheus Laboratories., Inc., 132 S. Ct. 1289 (2012), the Court determined that the claims at issue were directed to an abstract idea, and did not involve an "inventive concept" that amounts to significantly more than the abstract idea itself. The Court's opinion was written by Justice Thomas, with a concurring opinion by Justice Sotomayor, joined by Justices Ginsburg and Breyer.

CLS Bank International and CLS Services Ltd. (collectively, "CLS Bank") filed a declaratory judgment suit in 2007 in the U.S. District Court for the District of Columbia, alleging that several patents assigned to Alice Corporation Pty. Ltd. ("Alice") are invalid, unenforceable, and not infringed. As characterized by the Supreme Court, the patent claims at issue relate to a computerized technique for mitigating "settlement risk," which is the risk that only one party to a financial transaction will satisfy its obligation. Slip op. at 2. The claims included methods for exchanging obligations, computer systems configured to perform settlement risk mitigation, and computer-readable media containing program code for implementing obligation exchange. The parties stipulated that the method claims require a computer, so it was undisputed that all of the claims at issue involve the use of a computer.

The parties filed cross-motions for summary judgment on the issue of whether the asserted claims are eligible for patenting under 35 U.S.C. § 101. The district court granted CLS Bank's motion, finding that all of the asserted claims are patent-ineligible because they are directed to the abstract idea of "employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk." Id. at 3-4 (quoted source omitted). On appeal, a divided Federal Circuit panel reversed, holding that it was not "manifestly evident" that the claims are directed to an abstract idea. Id. at 4. The Federal Circuit reheard the case en banc, issuing a splintered decision that vacated the panel decision and affirmed the district court's judgment of invalidity under 35 U.S.C. § 101. Of the ten judges on the en banc panel, seven found Alice's method and computer-readable media claims ineligible, and five also found the system claims ineligible.

The Supreme Court's opinion began by noting the well-settled exceptions to patent-eligibility under 35 U.S.C. § 101, including laws of nature, natural phenomena, and abstract ideas. Id. at 5. According to the Court, the concern underlying these judicially created exceptions is "pre-emption." Id. In other words, patents that cover laws of nature, natural phenomena, or abstract ideas may preempt fields of innovation, thereby impeding rather than furthering the Constitutional mandate to "promote the Progress of Science and useful Arts." Id. at 6 (quoting U.S. Const., art. I, § 8, cl. 8). Nevertheless, the Court cautioned against applying these exceptions to patent-eligibility too broadly, because at some level, all inventions "embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas." Id. Citing its decision in Mayo, the Court explained that applying the exceptions to patent-eligibility involves distinguishing between inventions that claim "building blocks" of human ingenuity and inventions that "integrate the building blocks into something more." Id. (quoted source and brackets omitted).

To perform this type of differentiation, the Court invoked a two-step analytical framework based on Mayo. Under this framework, courts first assess whether an invention is directed to one of the judicial exceptions to patent-eligibility. Second, if the invention does fall within an exception, courts consider whether the invention involves an "inventive concept," which is an element or combination of elements "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself." Id. at 7 (quoted source and brackets omitted).

Applying the Mayo framework to Alice's patents, the Court concluded that the claims were directed to an abstract idea. According to the Court, the claims involve a method of exchanging financial obligations between parties using a third-party intermediary, and thus are "drawn to the concept of intermediated settlement." Id. at 9. The Court compared the claims to those addressed in Bilski v. Kappos, 561 U.S. 593 (2010), finding that both types of claims involved "a fundamental economic practice long prevalent in our system of commerce," which form a "building block of the modern economy." Id. The Court also rejected Alice's argument that the inventions could not be considered abstract ideas because they did not involve "preexisting, fundamental truths." As the Court noted, the claims in Bilski did not involve "preexisting, fundamental truths" and were still held patent-ineligible. Id. at 10. Although the Court found that Alice's patent claims were directed to abstract ideas, the Court found it unnecessary to "delimit the precise contours of the ‘abstract ideas' category in this case." Id.

Under the second step in the Mayo framework, the Court found that the claims at issue did not involve an "inventive concept" sufficient to transform the claimed abstract idea into a patent-eligible application of the idea. Id. at 10-11. According to the Court, implementing an abstract idea on a computer, without more, is insufficient to satisfy the inventive concept requirement. The Court noted that in Gottschalk v. Benson, 409 U.S. 63 (1972), for example, implementing an algorithm using a "general-purpose digital computer" was insufficient to produce a patent-eligible invention. Id. at 11-12. Similarly, in Parker v. Flook, 437 U.S. 584 (1978), implementing a mathematical formula with a conventional computer was insufficient to confer patent-eligibility. Id. at 12. By contrast, the Court noted, in Diamond v. Diehr, 450 U.S. 175 (1981), a computer-implemented method for curing rubber was found patent-eligible because it involved a process "designed to solve a technological problem" and "improved an existing technological process," but not because it was implemented using a computer. Id. at 12-13. The Court concluded that "[t]hese cases demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention." Id. at 13. Applying this principle, the Court found that Alice's patent claims did not involve an "inventive concept." According to the Court, the claims do not "do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer." Id. at 14. The Court thus found that all of Alice's claims—those directed to methods, systems, and computer-readable media—were not eligible for patenting under 35 U.S.C. § 101 and affirmed the en banc judgment of the Federal Circuit.

Finally, a one-paragraph concurrence by Justice Sotomayor, which Justices Ginsburg and Breyer joined, advocated the view that "any 'claim that merely describes a method of doing business does not qualify as a "process" under § 101.'" Slip op. at 1. The concurrence cited Justice Stevens' concurring opinion in Bilski, which advanced the same view, and Judge Dyk's concurring opinion in In re Bilski, 545 F.3d 943 (Fed. Cir. 2008), which found that patents for "organizing human activity" were not embraced by early patent decisions.

The Court's decision offers some clarification for practitioners in understanding how to assess the eligibility of inventions under 35 U.S.C. § 101 and leaves other issues unresolved. Practitioners should note the structure of the Court's analysis, which adheres to the two-step inquiry articulated in Mayo. While Mayo involved the "natural law" exception to patent-eligibility in the context of a process for medical treatment, here the Court applied the same framework to the "abstract idea" exception in the context of a computer-implemented method for managing financial risk. While the Court's opinion provides guidance on the analytical framework for the judicial exceptions to patent-eligibility, it expressly refrained from providing a test for determining whether an invention is directed to an "abstract idea." Thus, practitioners can expect future litigation to address whether inventions are directed to abstract ideas in the first place, and thus require an assessment of whether they involve an "inventive concept" according to the second step in the Mayo framework.