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U.S. Supreme Court Affirms That Certain Computer-Implemented Abstract Ideas Are Ineligible For Patent Protection

(U.S. Supreme Court, Decision of 19 June 2014, No. 13-298, Alice Corp. Pty. Ltd. v. CLS Bank Int’l)

The U.S. Supreme Court held that (1) patent claims directed to the abstract idea of mitigating “settlement risk” were not patentable where they merely required generic computer implementation, and (2) the recitation of generic computer components in the claims does not transform an abstract idea into patentable subject matter.

Alice Corp. owns the patents-in-suit, which claim a computerized method for mitigating settlement risk in financial exchanges using an intermediary. The patents include claims directed to this method, a computer system to carry out the method, and a computer-readable medium with program code for performing the method. CLS Bank operates a network that facilitates currency transactions. In 2007, CLS Bank filed suit against Alice Corp. seeking a declaratory judgment that the patents-in-suit were invalid or not infringed. Alice Corp. counterclaimed alleging infringement.

The District Court, ruling on cross-motions for summary judgment, held that all claims were patent ineligible under 35 U.S.C. § 101 because they were directed to the abstract idea of using an intermediary to facilitate the simultaneous exchange of obligations to minimize risk. A divided Federal Circuit panel reversed. An en banc Federal Circuit then vacated the panel decision, and affirmed the District Court in a decision composed of seven different opinions.

On June 19, 2014, the Supreme Court unanimously affirmed and held all claims patent-ineligible under § 101. Applying the reasoning from its earlier opinion in Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012), the Court reiterated a two-step procedure for determining whether claims potentially encompassing abstract ideas are patentable subject matter. A determination is first made as to whether the claim is directed to an abstract idea. If so, the court must determine whether the claim contains an “inventive concept” sufficient to “transform the nature of the claim” into a patent-eligible application.

Analyzing the method claims at issue, the Court found they were drawn to the abstract idea of intermediated settlement, but concluded that they failed “to transform that abstract idea into a patent-eligible invention” because they merely required “generic computer implementation.” The Court added that “[s]tating an abstract idea while adding the words ‘apply it with a computer’” cannot impart patent eligibility. Correspondingly, the Court ruled that the method claims were not patent-eligible under § 101.

The Court also found that the system and media claims were ineligible for largely the same reasons, as they added nothing of substance to the underlying abstract idea. Notably, Alice Corp. urged that its system claims included “specific” computer hardware, but the Court found that such hardware did not offer a “meaningful limitation”; it was “purely functional and generic” and was included in “nearly every computer.”

Alice Corp. will have consequences in any field where the underlying invention implements a business process using general computer components, such as in finance. For patent applicants, it may not be enough to simply recite structural computer elements in the claims to avoid a rejection under § 101. Rather, the Court’s concern appears to be whether the claims go further to recite an inventive concept not previously known.