June 19, 2014

Supreme Court Decides Alice Corp. v. CLS Bank International

On June 19, 2014, the U.S. Supreme Court decided Alice Corp. v. CLS Bank International, No. 13-298, ruling that patent claims covering methods and systems designed to intermediate the exchange of financial obligations using a computer system are invalid because the patented claims were drawn to a mere abstract idea.

Alice Corporation owns rights to several patents of a scheme for mitigating settlement risk, defined as the risk that only one party in an agreed-upon financial exchange will satisfy its obligations. Alice's patents include claims relating to a method, a computer system, and computer-readable media. The patent claims are designed to use a computer system as a third-party intermediary to facilitate the exchange of agreed-upon financial obligations. CLS Bank filed suit against Alice, arguing that the patent claims are invalid. The district court ruled in CLS Bank's favor, holding that the claims are ineligible for patent protection under 35 U.S.C. §101 because they are directed to an abstract idea. A panel of the Federal Circuit reversed, but the en banc Federal Circuit affirmed the district court's judgment, holding that the method claims were not eligible for patent protection and deciding (by an evenly-divided court) that the system claims were also not eligible for patent protection.

The Supreme Court affirmed the Federal Circuit's judgment. It started with the fundamental principle that "[l]aws of nature, natural phenomena, and abstract ideas" are ineligible for patent protection, although patents that transform abstract ideas into "something more" may be valid. The Court observed that the concept of intermediated settlement is a fundamental and longstanding economic practice, and as an abstract idea is not eligible for patent protection. The Court concluded that Alice's claims, which basically apply a generic computer implementation to the concept of intermediated settlement, do not supply the necessary "inventive concept" to transform the abstract idea into a patent-eligible invention. In other words, merely supplementing the abstract concept of intermediated settlement with generic computerized implementation does not make it patent-eligible. Additionally, the specified steps for computer implementation only recited the concepts of intermediated settlement as performed by a generic computer without purporting to improve the computer's functioning or any other technology. Even though "a computer is a tangible system" and "many computer-implemented claims are formally addressed to patent-eligible subject matter," adding a generic computer system to patent claims does not necessarily make them patent eligible. The fact that Alice's system claims are directed to hardware does not save them. Those claims are directed to "purely functional and generic" hardware, and therefore add nothing to the underlying abstract idea, so they too are patent ineligible.

Justice Thomas delivered the opinion of a unanimous court. Justice Sotomayor filed a concurring opinion, in which Justices Ginsburg and Breyer joined.

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