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U.S. Supreme Court Raises the Bar on Patent Eligibility of Computer-Implemented Methods

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Intellectual Property Bulletin

On June 19, 2014, the Supreme Court of the United States issued its ruling in Alice Corp. v. CLS Bank International (PDF). This decision had been much anticipated as it dealt with the patent eligibility of computer-implemented methods. The Court held that the claims in issue were directed to patent ineligible subject matter because they were for an abstract idea.

Alice Corp. ("Alice") owned a number of patents directed to methods for mitigating "settlement risk" (i.e. the risk that only one party to a financial transaction will be able to satisfy its obligation), utilising a computer as a third-party intermediary. CLS Bank International ("CLS Bank") operated a global network incorporating such methods to facilitate currency transactions. CLS Bank brought suit against Alice, seeking a declaration that Alice's patents were invalid; Alice countersued for infringement.

In broad terms, the claims in issue covered: (1) a method of exchanging obligations (the method claims); (2) a computer system configured to carry out the above method (the system claims); and (3) a computer-readable medium containing program code for performing the method (the computer media claims). All these claims are implemented using a computer.

This case has been followed with much interest, and a number of interested parties filed amicus briefs, including prominent technology companies on both sides of the issue. On one side, there were technology companies (often on the receiving end of patent infringement lawsuits from "patent trolls") who did not want patents covering methods of this sort to be too liberally granted. On the other side, there were companies with substantial patent portfolios who did not want the validity of their patents to be brought into question and have the potential value of such portfolios significantly pared down.

The Court, following earlier precedent,[1] held that there is two-step approach for assessing whether a claim is directed to patent ineligible subject matter. First, the Court must determine if the claim in issue is directed to one of the implicit exceptions from patent eligible subject matter (i.e. laws of nature, natural phenomena, or abstract ideas). If so, the Court then asks if the claims elements, considered both individually and "as an ordered combination," transform the nature of the claim into a patent eligible application.

Applying this two-step approach, the Court decided firstly that the method claims were directed to the abstract idea of intermediated settlement, i.e. using a third party (in this instance, the computer) to mitigate settlement risk. Secondly, the method claims did no more than simply provide an instruction to implement the abstract idea of intermediated settlement on a generic computer; they did not, for example, improve the functionality of the computer or effect an improvement in any other technology or technical field. As such, the method claims fail to transform the abstract idea into a patent eligible invention.

With regard to the system claims and the computer media claims, the Court, taking a "substance over form" approach, held that they are in substance the same as the method claims, so they too must fail for the same reasons.

In summary, the Court ruled that the claims in issue were directed to patent ineligible subject matter. The patents were hence invalid.

The result itself was not a major surprise given that the courts below had also held that the subject claims were invalid (although even the majority decision in the appeals court had been splintered in its actual reasons). Nevertheless, this ruling could, at least potentially, have broad implications for U.S. patents covering computer-implemented methods. It remains to be seen what impact this ruling will have on the U.S. patent office's examination practice, and how courts will apply the ruling in other cases dealing with patent validity of computer-implemented methods. In any event, one should probably expect greater scrutiny of patents and patent applications in the U.S. for software or computer-implemented methods.

[1] Mayo Collaborative Services v. Prometheus Laboratories, Inc. 566 U.S. __ (2012)

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