Alice Corp. v. CLS Bank Int'l
82 U.S.L.W. 4508, 189 L. Ed. 2d 296, 134 S. Ct. 2347 (2014)
Rule of Law:
A computer-implemented invention is not patent-eligible under 35 U.S.C. § 101 if it merely recites an abstract idea, such as a fundamental economic practice, and its computer implementation is generic and conventional, adding nothing inventive to the abstract idea itself or improving computer functionality.
Facts:
- Alice Corporation is the assignee of several patents that disclose schemes to manage financial risk, specifically the risk that only one party to a financial transaction will pay what it owes, known as 'settlement risk'.
- The patents describe a computerized method designed to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary.
- This intermediary system creates 'shadow' credit and debit records that mirror the balances in the parties' real-world accounts at 'exchange institutions' like banks.
- The intermediary updates these shadow records in real-time as transactions are entered, allowing only those transactions for which the parties' updated shadow records indicate sufficient resources to satisfy their mutual obligations.
- At the end of each day, the intermediary instructs the relevant financial institutions to carry out the 'permitted' transactions in accordance with the updated shadow records, thereby mitigating settlement risk.
- The patents in suit claim (1) the method for exchanging obligations, (2) a computer system configured to carry out the method, and (3) a computer-readable medium containing program code for performing the method.
- All claims are implemented using a computer, and the parties stipulated that the method claims also require a computer.
Procedural Posture:
- CLS Bank International and CLS Services Ltd. (CLS Bank) filed suit against Alice Corporation in federal district court, seeking a declaratory judgment that Alice's patent claims were invalid, unenforceable, or not infringed.
- Alice Corporation counterclaimed, alleging infringement by CLS Bank.
- The parties filed cross-motions for summary judgment regarding whether the asserted claims were eligible for patent protection under 35 U.S.C. § 101.
- The District Court held that all of Alice Corporation's claims were patent-ineligible because they were directed to the abstract idea of 'employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk'.
- A divided panel of the United States Court of Appeals for the Federal Circuit reversed the District Court's decision, concluding it was not 'manifestly evident' that the claims were directed to an abstract idea.
- The Federal Circuit subsequently granted rehearing en banc, vacated the panel opinion, and affirmed the District Court's judgment in a per curiam opinion.
- Seven of the ten participating judges on the en banc Federal Circuit agreed that Alice's method and media claims were patent ineligible, and the system claims were affirmed as patent ineligible by an equally divided vote.
- The Supreme Court of the United States granted certiorari.
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Issue:
Are computer-implemented claims for mitigating settlement risk by using a third-party intermediary patent-eligible under 35 U.S.C. § 101, or are they drawn to a patent-ineligible abstract idea merely implemented on a generic computer?
Opinions:
Majority - Justice Thomas
No, the claims are not patent-eligible because they are drawn to the abstract idea of intermediated settlement, and merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention. The Court applied the two-step framework from Mayo Collaborative Services v. Prometheus Laboratories, Inc. First, the Court determined whether the claims were directed to a patent-ineligible concept. It concluded that the concept of intermediated settlement—using a third party to mitigate settlement risk—is a "fundamental economic practice long prevalent in our system of commerce," much like the risk hedging concept found to be an abstract idea in Bilski v. Kappos. This concept is a method of organizing human activity, not a "preexisting, fundamental truth." Second, the Court asked whether the claims contained an "inventive concept" sufficient to "transform" the abstract idea into a patent-eligible application. It found that the computer implementation did not provide such a concept. The claimed steps (creating shadow records, obtaining balances, adjusting records, and issuing instructions) were purely conventional computer functions, such as electronic recordkeeping, and were "well-understood, routine, conventional activit[ies]" previously known to the industry. The claims did not purport to improve the functioning of the computer itself, nor did they effect an improvement in any other technology, distinguishing them from the patent-eligible invention in Diamond v. Diehr. Merely stating an abstract idea and adding the words 'apply it with a computer' does not impart patent eligibility, especially given the ubiquity of computers and the desire to prevent pre-emption of fundamental tools. The system and media claims failed for the same reasons, as they merely recited generic computer components configured to implement the same abstract idea, rather than specific hardware offering a meaningful limitation beyond generic computer implementation.
Concurring - Justice Sotomayor
No, the claims are not patent-eligible. Justice Sotomayor joined the Court's opinion, adhering to her view from Bilski v. Kappos that any claim merely describing a method of doing business does not qualify as a 'process' under § 101. She further agreed with the majority that the method claims at issue are drawn to an abstract idea.
Analysis:
This landmark decision solidified the two-step Mayo/Alice test, establishing a high bar for patent eligibility of computer-implemented inventions and business methods. It reinforces that simply applying an abstract idea on a generic computer is insufficient, requiring a true "inventive concept" that adds "significantly more" to the abstract idea or improves the technology itself. The ruling has significantly narrowed the scope of patentable subject matter in these fields, leading to challenges and invalidations of numerous existing software and business method patents and making it more difficult to secure new ones.
