Caseflicks

Supreme Court of the United States • 2014

Alice Corp. v. CLS Bank Int'l

134 S. Ct. 2347 | 189 L. Ed. 2d 296 | 82 U.S.L.W. 4508 | 24 Fla. L. Weekly Fed. S 870 | 2014 U.S. LEXIS 4303

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Takeaway

In short, this case established that an abstract business practice does not become patent eligible merely because it is performed on generic computer hardware.

Background

Alice Corporation owned patents covering a computerized method for reducing “settlement risk” in financial exchanges—the risk that one party will perform while the other does not. The claimed system used a third-party intermediary to create and update “shadow” records reflecting the parties’ account balances, approve only transactions backed by sufficient resources, and issue end-of-day instructions to the parties’ financial institutions. The patents included method claims, computer-system claims, and computer-readable-media claims.

CLS Bank, which operates a network for currency transactions, sought a declaratory judgment that the claims were invalid, unenforceable, or not infringed. After Bilski v. Kappos, the parties cross-moved for summary judgment on patent eligibility under 35 U.S.C. § 101. The District Court held all asserted claims ineligible because they claimed the abstract idea of using a neutral intermediary to facilitate exchanges and reduce risk.

A Federal Circuit panel initially reversed, but the en banc court vacated that decision and affirmed in a per curiam opinion. A majority agreed that the method and media claims were ineligible; the system claims were affirmed by an equally divided court. The Supreme Court granted review and affirmed.

Issues

Issue #1

Whether the asserted claims are directed to a patent-ineligible abstract idea under 35 U.S.C. § 101.

Holding

Yes. The claims are directed to the abstract idea of intermediated settlement.

Reasoning

Section 101 permits patents on processes, machines, manufactures, and compositions of matter, but it contains an implicit exception for laws of nature, natural phenomena, and abstract ideas. The exception protects the basic tools of scientific and technological work from monopolization, because patenting those building blocks may inhibit rather than promote innovation.

The Court applied the two-step framework articulated in Mayo Collaborative Services v. Prometheus Laboratories. First, a court asks whether the claim is directed to an ineligible concept. If it is, the court then examines the remaining claim elements, individually and as an ordered combination, to determine whether they transform the claim into a patent-eligible application.

Alice’s claims concerned the use of a third-party intermediary to reduce the risk that only one side of a financial exchange will perform. That concept—intermediated settlement—is a fundamental economic practice, comparable to the risk-hedging method held abstract in Bilski v. Kappos. Like hedging, it is a method of organizing human activity and a longstanding building block of commerce.

The Court rejected Alice’s argument that an abstract idea must be a preexisting truth independent of human action or a mathematical formula. Bilski established that a fundamental commercial practice can be abstract even though it is not a natural law or mathematical truth. The Court found no meaningful distinction between risk hedging in Bilski and intermediated settlement here.

Issue #2

Whether the method claims contain an inventive concept that transforms intermediated settlement into a patent-eligible application.

Holding

No. Requiring implementation on a generic computer does not supply the necessary inventive concept.

Reasoning

At Mayo’s second step, a claim directed to an abstract idea must include additional features that make it significantly more than a drafting effort to monopolize the idea itself. Merely stating the idea and adding an instruction to apply it is insufficient; nor can conventional steps, described at a high level of generality, provide the required inventive concept.

The Court’s earlier cases showed why generic computer implementation does not change the result. Benson and Flook rejected claims that applied abstract algorithms through conventional computer functions. By contrast, Diehr sustained a computer-assisted rubber-curing process because the claimed combination improved a technological process; its eligibility did not rest on the mere presence of a computer.

Alice’s representative method claim required creating shadow records, obtaining account data, adjusting balances as transactions occurred, and issuing instructions to financial institutions. Those functions amount to ordinary electronic recordkeeping, data retrieval, calculation, account adjustment, and automated communication—well-understood, routine, and conventional uses of a computer.

Considering the elements together did not add anything beyond their conventional individual functions. The claim did not improve the operation of a computer or another technological field. It simply instructed a generic computer to carry out intermediated settlement, which was not enough to make the abstract idea patent eligible.

Issue #3

Whether recasting the same concept as a computer system or computer-readable medium makes the claims patent eligible.

Holding

No. The system and media claims add no meaningful limitation beyond generic computer implementation.

Reasoning

Alice conceded that its computer-readable-media claims rose or fell with its method claims. Because those claims merely stored program code for performing the same ineligible method, they did not add an inventive concept.

The system claims recited generic components, including a data-processing system, communications controller, and data-storage unit. Those components were described functionally and were capable only of the ordinary storage, calculation, and transmission activities that virtually any computer can perform.

The system claims were substantively no different from the method claims: one set described the abstract idea implemented on a generic computer, while the other described generic computer parts configured to implement that same idea. Treating the latter as eligible would make § 101 turn on claim-drafting style, contrary to the Court’s precedents.

Concurrences

Justice Sotomayor

Reasoning

Justice Sotomayor, joined by Justices Ginsburg and Breyer, agreed that Alice’s method claims were directed to an abstract idea and joined the Court’s opinion. She also reiterated the broader position she had endorsed in Bilski: a claim that merely describes a method of doing business does not qualify as a patentable “process” under § 101.

That view would exclude business-method claims at an earlier stage than the majority’s abstract-idea analysis. But because the claims here were abstract under the Court’s existing framework in any event, the concurrence agreed with the judgment.