Supreme Court Observations: Alice Corp. v. CLS Bank

LangdonSmith,DanielF-48047-87-bwrGuest Commentary

by Evan H. Langdon and Daniel F. Smith, Adduci, Mastriani & Schaumberg, LLP*

The Supreme Court’s ruling in Alice Corp. v. CLS Bank is notable for what it does not say. Though the Court struck down a software invention directed to mitigating settlement risk through a computer intermediary as patent ineligible, the Court did not rule that software patents or patents that implement software on a computer are per se ineligible. The Court was careful to leave open the door for patent protection of software inventions. In a 9-0 ruling, the Supreme Court affirmed the en banc U.S. Court of Appeals for the Federal Circuit ruling that Alice Corp.’s patent was invalid as directed to ineligible subject matter under 35 U.S.C. § 101. In so doing, the Court reiterated its ruling in Bilski v. Kappos that it is the invention itself that must be patent eligible and whether a claim is directed to software or is tied to a computer does not alter the analysis.

CLS Bank initiated the case by filing for declaratory judgment that the asserted patent was invalid, unenforceable, and not infringed; Alice Corp. counterclaimed for infringement. The parties cross-moved for summary judgment on whether the asserted claims are eligible for patent protection. After the Supreme Court issued Bilski, the District Court granted CLS Bank’s motion finding the claims ineligible for patent protection because they were directed to an abstract idea. On appeal, the Federal Circuit panel reversed the District Court, finding it was not “manifestly evident” that the claims were directed to an abstract idea. A divided en banc Federal Circuit upheld the District Court’s conclusion with a five judge plurality concluding that the claims draw on an abstract idea and the use of a computer added nothing of substance to that idea.

Reliance on Mayo and Gottschalk

In analyzing the claims at issue, the Court relied heavily on its established precedent under 35 U.S.C. § 101 and concluded that Alice Corp.’s claims did not cover patentable subject matter. The Court emphasized the long-standing principle that laws of nature, natural phenomena, and abstract ideas are not patentable because upholding such a patent would effectively grant a monopoly and pre-empt the claimed approach in all fields.

The Court affirmed, however, that an invention is not necessarily patent ineligible simply because it involves an abstract concept. Citing Gottschalk v. Benson, the Court reiterated that applying abstract concepts “to a new and useful end” remain eligible for patenting. The Court stressed that the crux of patentability under Section 101 is determining whether the invention uses an abstract idea to do something more, transforming its use into a patent eligible invention.

The Court used the two-step framework set forth in Mayo Collaborative Services v. Prometheus Labs, 566 U.S. ____ (2012), to determine whether the claims at issue were patent eligible. Under Mayo, the first step requires determining whether the asserted claims are directed to a patent ineligible concept. If so, step two analyzes the claims to determine whether additional elements “transform the nature of the claim [as a whole]” into a patent eligible invention, i.e. searching for an inventive concept. In doing so, the Court did not make a distinction between ineligible software patents and eligible software patents. Rather, the Court focused the inquiry on abstract ideas versus concrete inventions.

Applying Mayo to Alice Corp.’s Patents

Under step one of the Mayo framework, the Court analogized Alice Corp.’s claims to the asserted claims in Bilski finding that, like the risk-hedging claims in Bilski, the concept of intermediate settlement is a “fundamental economic practice long prevalent in our system of commerce.” Because there is no fundamental difference between the concept of risk hedging in Bilski and the concept of intermediated settlement, the Court determined they were both within the realm of “abstract ideas” and concluded that the claimed concept of intermediate settlement is another of those fundamental practices and the use of third-party intermediaries is yet another “building block of the modern economy.”

After determining the asserted claims were directed to an abstract idea, the Court turned to the second step in Mayo’s framework and considered whether the additional elements rendered the invention patent eligible. The Court determined Alice Corp.’s claim elements were insufficient because they simply required that a generic computer implement the abstract idea. Relying on Benson, the Court noted that merely implementing the abstract idea on a computer does not supply the necessary additional substance when the process could be “carried out in existing computers long in use.” Additionally, the Court reinforced that limiting the claimed use of the abstract idea to a particular technical environment does not make that use patentable.

The Court contrasted Alice Corp.’s claims with the claims at issue in Diamond v. Diehr, which upheld the patentability of a computer implemented rubber curing process using a “well known” mathematical equation. In Diehr, the invention used the mathematical equation while solving a technological problem in the industry. The claims were patentable because they improved an existing process, not because they were implemented in a computer. The Court’s application of Diehr underscores the importance of its ruling: it is the claimed invention itself that drives the inquiry and it is irrelevant whether it is a software patent, business method patent, or implemented by a computer.

Implications for Future Patent Applicants

Although the Supreme Court did not lay down a blanket rule that all patents directed to abstract ideas are not patentable subject matter under Section 101, the justices stressed that merely implementing an abstract idea with a computer is not sufficient. If the invention is directed to an abstract idea or other patent-ineligible concept, the invention itself must make an advance in some process or technology to be patent eligible. Patent applicants should carefully craft their claims to provide sufficient detail to show the necessary inventive concept that transforms an ineligible abstract idea into a patentable invention.

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