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Alice Corp. v. CLS Bank

Supreme Court of the United States
573 U.S. 208 (2014)
ELI5:

Rule of Law:

Merely implementing an abstract idea on a generic computer, without an additional inventive concept, is not sufficient to transform that abstract idea into patent-eligible subject matter under 35 U.S.C. §101.


Facts:

  • Alice Corporation held several patents for a method designed to mitigate 'settlement risk' in financial transactions.
  • The patented scheme involved using a computer system as a third-party intermediary to ensure that a financial exchange would be completed by both parties.
  • The intermediary computer created and maintained 'shadow' credit and debit records that mirrored the parties' real-world accounts at financial institutions.
  • The system would check these shadow records in real time to verify that parties had sufficient resources before allowing transactions to proceed.
  • At the end of the day, the intermediary would instruct the financial institutions to execute only the permitted transactions.
  • The patents claimed the method itself, a computer system configured to perform the method, and computer-readable media containing the program code.
  • CLS Bank International operates a global network that facilitates currency transactions.

Procedural Posture:

  • CLS Bank International sued Alice Corporation in the U.S. District Court for the District of Columbia, seeking a declaratory judgment that Alice's patents were invalid.
  • Alice Corporation filed a counterclaim for patent infringement.
  • The District Court (trial court) granted summary judgment for CLS Bank, ruling that all claims were patent-ineligible because they were directed to an abstract idea.
  • Alice Corporation, as appellant, appealed to the U.S. Court of Appeals for the Federal Circuit, where a divided panel initially reversed the district court's decision.
  • The Federal Circuit then granted rehearing en banc, vacated the panel opinion, and ultimately affirmed the District Court's judgment, although with a heavily fractured set of opinions.
  • The U.S. Supreme Court granted certiorari to review the decision of the en banc Federal Circuit.

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Issue:

Are patent claims directed to a computer-implemented method for mitigating settlement risk using a third-party intermediary patent-ineligible under 35 U.S.C. §101 as an abstract idea?


Opinions:

Majority - Justice Thomas

Yes, the patent claims are ineligible because they are directed to an abstract idea. Merely requiring generic computer implementation fails to transform an abstract idea into a patent-eligible invention. The Court applied a two-step framework from Mayo v. Prometheus. First, the Court determined the claims were directed to the abstract idea of intermediated settlement, a fundamental and long-prevalent economic practice, akin to the concept of hedging found to be abstract in Bilski v. Kappos. Second, the Court examined whether the claims contained an 'inventive concept' sufficient to transform the abstract idea into something 'significantly more.' The Court found no such concept, as the claims merely instructed the use of a generic computer to perform routine functions like creating electronic records and adjusting balances, which are well-understood and conventional activities. The claims did not improve the functioning of the computer itself or any other technology, and thus amounted to no more than an instruction to apply an abstract idea using a computer.


Concurring - Justice Sotomayor

Yes, the claims are drawn to a patent-ineligible abstract idea. Justice Sotomayor wrote separately to reiterate her view, first expressed in Bilski, that any claim merely describing a method of doing business is not a patentable 'process' under §101. However, because she agrees that the claims at issue are drawn to an abstract idea under the Court's existing framework, she joined the majority opinion in full.



Analysis:

The Alice decision established a definitive two-step framework for determining patent eligibility for claims involving abstract ideas, significantly impacting software and business method patents. This framework has made it substantially more difficult to obtain and enforce patents on software that simply automates a known business practice using generic computer hardware and functions. Following Alice, courts have invalidated numerous patents for lacking an 'inventive concept' beyond the underlying abstract idea, shifting the focus of patentability for computer-implemented inventions toward improvements in computer functionality itself or specific technical solutions to technical problems.

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