On June 19, 2014, to conclude an unprecedented year for patent cases before the Supreme Court, the justices unanimously held in Alice Corporation v. CLS Bank International that a computer-implemented scheme to perform traditional third-party escrow services is not patent eligible under 35 U.S.C. § 101.1  This holding signals continued scrutiny of business method patents, which the Supreme Court most recently addressed in Bilski v. Kappos in 2010.2

In Alice, the Supreme Court applied the two-part framework for patent eligibility set forth in Mayo Collaborative Service v. Prometheus Laboratories, Inc.3  First, the Court determines whether the claims at issue are directed to a patent-ineligible concept, e.g., laws of nature, natural phenomena, and abstract ideas are not patentable.  If so, the Court then looks at the elements of the claims at issue individually and in combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application of the ineligible concept.

Applying the Mayo framework to Alice Corp.’s patents, the Court first held that the claims represented an “abstract idea” beyond the scope of § 101, because the concept of intermediated settlement is both a building block of the modern economy and a fundamental economic practice long prevalent in our system of commerce.  Moving to the second part of the analysis, the Supreme Court relied on earlier precedent that “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent eligible invention.”4  The Court found that the elements of Alice Corp.’s claims do no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement in a purely conventional way on a generic computer.  The Supreme Court noted that the method claims do not purport to improve the functioning of the computer itself nor do they effect an improvement in any other technology or technical field; instead, they merely require a generic computer to perform generic computer functions, which is not enough to transform an abstract idea into a patent-eligible invention.

Notably, the Supreme Court also held that the computer system and media claims fail for substantially the same reasons as the aforementioned method claims.  The Supreme Court again warned against interpreting § 101 in ways that make patent eligibility depend simply on the draftsman’s art.5  The Supreme Court noted that the system claims are no different in substance from the method claims—”[t]he method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.”  The specific hardware claimed by Alice Corp., e.g., data processing system, data storage unit, etc., is purely functional and generic and does not offer any meaningful limitations beyond implementing the abstract idea on an unspecified, generic computer.  Because the system and media claims add nothing of substance to the underlying abstract concept of intermediated settlement, the Supreme Court held that they too are ineligible under § 101.

Computer-based patent claims, particularly those directed to software applications and business methods, likely will face increased scrutiny as practitioners attempt to apply the framework articulated by the Supreme Court in Mayo and Alice Corp.

This decision marks the end of an extraordinary year for patent cases before the Supreme Court, which heard and decided six patent cases this term addressing several fundamental areas of patent law.  We will continue to monitor and provide updates on the impact of the Supreme Court’s growing footprint on patent law in the coming term.  If you have any questions or want to discuss how the Supreme Court’s latest decisions could impact your business, please contact one of the attorneys in our Intellectual Property Group.

Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. ___ (2014) (slip op. at 10, 15-16).

561 U.S. 593 (2010).  In Bilski, the Supreme Court held that claims directed to a method for hedging against the financial risk of price fluctuations were patent-ineligible abstract ideas because “[h]edging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.”  Id. at 611.

566 U.S. ___, 132 S. Ct. 1289, 182 L. Ed. 2d 321 (2012).

Alice, 573 U.S. ___ (slip op. at 13) (citing Mayo, 132 S. Ct. at 1294).

Mayo, 132 S.Ct. at 1294.