Supreme Court emphasizes limits on software claims' patent eligibility

Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 573 U.S. ___ (June 19, 2014) (THOMAS for the Court, all Justices joining, Sotomayor concurring) (CAFC: en banc) (D.D.C.: Collyer) (5 of 5 stars)

The Supreme Court affirms the Federal Circuit’s judgment that method and system claims for a computer-implemented technique for mitigating settlement risk claim only an abstract idea, and thus are not patent-eligible under § 101. The Court applied the two-part framework of Mayo. Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S. ___ (June 19, 2014).

Under Mayo’s first prong, Alice’s claims were drawn to an abstract idea. The claims addressed the idea of using a third party to mitigate the risk that one or both parties to a financial deal would fail to properly close. They described a third party maintaining “shadow” credit and debit records for each party, updating them as the parties carried out the various transactions of the deal, and finally instructing the parties’ banks to actually carry out the final deal if both parties had sufficiently performed. Like the hedging-related claims in Bilski, Alice’s “intermediated settlement” claims addressed a concept long practiced in commerce.

The Supreme Court rejected Alice’s argument that “intermediate settlement” was not an abstract idea because it was not a “preexisting, fundamental truth.” Slip op. at 9–10. The scope of “abstract ideas” is not limited to such “truths,” but encompasses other “fundamental practices,” such as, in Bilski, “organizing human activity.” There was no meaningful distinction between the attempt to claim the concept of risk hedging in Bilski and Alice’s attempt to claim intermediated settlement.

Under Mayo’s second prong, neither Alice’s method claims nor its system nor Beauregard claims transformed this abstract idea into a patentable invention. Mere introduction of a generic computer into claims without more is insufficient to confer patent eligibility. Id. at 13. The fact that a computer is itself a physical device does not change this.

The parties had stipulated that Alice’s method claims required use of a computer. The Court held that the claims did no more than “simply instruct the practitioner to implement the abstract idea of intermediated settlement on a computer.” Id. at 14. The claimed methods simply instructed a generic computer to perform generic computing operations, whether viewed step by step or as a whole.

Alice’s system and Beauregard claims were patent-ineligible for the same reasons. Their recitation of hardware was functional and generic and imposed no meaningful limitation on the abstract idea being claimed.

Sotomayor (concurring, with Ginsburg and Breyer). In Justice Sotomayor’s view, business method claims are not patentable subject matter under § 101.