As noted in an earlier overview article by Kevin Noonan, the Court did not bar software or business method patents per se.  This case, however, continues the trend of two other patent cases decided this term, Limelight Networks, Inc. v. Akamai Technologies, Inc. and Nautilus, Inc. v. Biosig Instruments, Inc., in which the Court has placed further limits on the scope of patent protection.  Consequently, the Court has introduced new avenues for challenging the validity of patents.

The following is a collection of initial thoughts regarding the CLS Bank decision and its impact on software and business method practice.

• The Court declined to clearly define the term "abstract idea."  It stated that "we need not labor to delimit the precise contours of the 'abstract ideas' category in this case."  Instead, the Justices relied on the conceptual similarity between Alice's claims and those found patent-ineligible in Bilski.  Alice argued that abstract ideas must exist apart from any human interaction (e.g., an equation would be an abstract idea, but a process involving human activity would not).  The Court would hear nothing of this, couching the abstract claims of Bilski as "a method of organizing human activity."

• In Bilski, the Court held that "while the machine-or-transformation test has always been a 'useful and important clue,' it has never been the 'sole test' for determining patentability."  In this case, Alice's computer-readable media and system claims were struck down under § 101, despite reciting general-purpose computer components.  Thus, it appears that to pass the machine-or-transformation test, claims must be tied to a particular machine and not just a generic computer.

• To that point, the Court has taken a rather dim view of the ability of general purpose computing to lift an otherwise abstract idea above the § 101 bar.  For instance, the Court stated that "method claims, which merely require generic computer implementation, fail to transform [an] abstract idea into a patent-eligible invention," "[t]he fact that a computer necessarily exist[s] in the physical, rather than purely conceptual, realm is beside the point," "each step [of Alice's claims] does no more than require a generic computer to perform generic computer functions," and "nearly every computer will include a 'communications controller' and 'data storage unit' capable of performing the basic calculation, storage, and transmission functions required by the method claims."  It is now abundantly clear that recitation of generic computer structure will not save a claim that is drawn to an abstract idea.

• 1980's Diamond v. Diehr noted that "[t]he question therefore of whether a particular invention is novel is wholly apart from whether the invention falls into a category of statutory subject matter."  After today, it appears as if novelty (or lack thereof) can play a major role in determining whether claims are statutory under § 101.  In finding Alice's claims drawn to the abstract idea of "intermediated settlement," the Court cited several references (some of which might not qualify as prior art under §§ 102 or 103) to establish that such undertakings were "fundamental economic practice long prevalent in our system of commerce."  Similarly, when considering the impact of the recited (or stipulated) computer implementation, the Court stated that "all of these computer functions are well-understood, routine, conventional activities previously known to the industry."

• Justice Breyer's two step test for § 101 worthiness introduced in Mayo was thought by some to be an aberration or a temporary departure from the Court's previous holdings.  Others criticized it as being subjective and too difficult to apply in practice — the test certainly divided the Federal Circuit judges.  With the Justices relying on the test, it is now evident that the Mayo framework was no passing fad.

• The first prong of the Mayo test is to "identify the abstract idea represented in the claim."  In doing so, the Court did not focus on the language of the claims, but instead focused on a summary of the claimed invention.  But almost any invention can be made to look abstract or conventional through summarization, or by downplaying certain aspects of the claim.

• The second prong of the Mayo test is to determine whether a claim directed to an abstract idea recites "an element or combination of elements that is sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the ineligible concept itself."  But we have little guidance as to what "significantly more" entails.  In the last 40 years, the only example of a claim meeting the § 101 bar in the Supreme Court is that of Diehr.

• The Court seems to use the word "technological" as something of a synonym for "physical."  Thus, novel and non-obvious algorithmic improvements might not be patent-eligible unless they are integrated somehow with a physical process.  For instance, the Court wrote that "the claims in Diehr were patent eligible because they improved an existing technological process, not because they were implemented on a computer."  This fixation on physicality may demonstrate an underlying predisposition against software, which is technology that operates in a mostly unseen fashion.

Alice's claims could have, and probably should have, been attacked as being anticipated or obvious.  After all, this decision relies on the existence of prior art that could have been used for such a purpose.  Instead, the Court has fully opened the § 101 Pandora's Box that it peeked into with Mayo.

Alice Corp. v. CLS Bank International (2014)

By Kevin E. Noonan —

This morning, in Alice Corp. v. CLS Bank, the Supreme affirmed the Federal Circuit's per curiam opinion in CLS Bank v. Alice Corp. in a unanimous opinion by Justice Thomas with a concurring opinion by Justice Sotomayor joined by Justices Breyer and Ginsberg.  The decision appears to be an incremental one, insofar as it does not strike down all software patents and is crafted as an application of the Court's earlier precedent, particularly Bilski v. Kappos and Mayo Collaborative Serv. v. Prometheus Labs.

The decision affirms patent ineligibility for the method claims (directed, according to the Court, to methods for implementing an intermediated settlement that are well-known in the art), system claims involving implementation of the method using a general purpose computer and computer code for directing a general purpose computer to implement the method.  From the opinion, it is clear that the Court is still striving for balance between tying up fundamental building blocks that would inhibit innovation while not swallowing patent law whole because everything ultimately is based on an abstract idea, law of nature or natural phenomenon:

We have "repeatedly emphasized this . . . concern that patent law not inhibit further discovery by improperly tying up the future use of " these  building  blocks of human ingenuity" [quoting O'Reilly v. Morse as cited in Mayo].  "At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law" because "[a]t some level, "all inventions . . . embody, use, reflect, rest upon, or apply laws of  nature, natural phenomena, or  abstract ideas" [citing Mayo].

Accordingly, in applying the §101 exception, we must distinguish between patents that claim the "'buildin[g] block[s]'" of human ingenuity and those that integrate the building blocks into something more, thereby "transform[ing]" them into a patent-eligible invention.  The former "would risk disproportionately tying up the use of the underlying" ideas and are therefore ineligible for patent protection.  The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws" [citing liberally from the Mayo opinion].

The Court considers the Mayo opinion to have provided the framework for performing the patent-eligibility analysis:

First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts.  If so, we then ask, "[w]hat else is there in the claims before us?"  To answer that question, we consider the elements of each claim both individually and "as an ordered combination" to determine whether the additional elements "transform the nature of the claim" into a patent-eligible application.  We have described step two of this analysis as a search for an " 'inventive concept'" — i.e., an element or combination of elements that is "sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself."

The Court also considers its jurisprudence from Gottschalk v. Benson, through Parker v. Flook, Bilski and to Mayo to be consistent in both the underlying principles and how the analysis should be done.  The opinion distinguishes its seemingly contrary decision in Diamond v. Diehr in a way that may be useful in making decisions regarding what is patent-eligible subject matter (and how it should be claimed):  "In other words, the claims in Diehr were patent eligible because they improved an existing technological process, not be­cause they were implemented on a computer" (emphasis added).  And, in a footnote, the Court declares that its Mayo analysis is consistent with the patent law principle that the claims should be considered as a whole because the Mayo decision instructs a court to consider the elements of the claim at issue both individually and as a whole.

The Court's opinion expressly ties its decision here to the decision in Bilski, based on the perceived similarity between attempts in each case to preempt a preexisting human activity (hedging in Bislki, intermediated settlement here) as being abstract ideas (and once again conflating Section 101 with Sections 102 and 103), the Court stating that "[i]t is enough to recognize that there is no meaningful distinc­tion between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.  Both are squarely within the realm of 'abstract ideas' as we have used that term."  And after a brief discussion of the Court's understanding of how a conventional general purpose computer works, the Court opines that how the computer implements the claimed (and ineligible) method is not "enough" to render the system claims patent eligible because said implementation is entirely conventional.

The Court's opinion also provides guidance on how it will determine what is "enough" that must be added to an abstract idea, law of nature or natural phenomenon to render a claim encompassing these categories to be patent-eligible, based on the rubric that there must be something in the claimed invention that improves existing technology:

The method claims do not, for example, purport to improve the functioning of the computer itself.  ("There is no specific or limiting recitation of . . . improved computer technology . . . "); Brief for United States as Amicus Curiae 28–30.  Nor do they effect an improvement in any other technology or technical field.  Instead, the claims at issue amount to "nothing significantly more" than an instruction to apply the ab­stract idea of intermediated settlement using some un­specified, generic computer.  Under our precedents, that is not "enough" to transform an abstract idea into a patent-eligible invention [citations omitted].

The system and computer-readable medium claims stand and fall with the method claims:

Put another way, the system claims are no different from the method claims in substance.  The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.  This Court has long "warn[ed] . . . against" interpreting §101 in ways that make patent eligibility 'depend simply on the draftsman's art.'"

The Court's decision is entirely consistent with its disinclination to enunciate broad proscriptions against patenting particular areas of technology, as evidenced by its decisions in Bilski (which did not rule all business method claims to be patent-ineligible), Association for Molecular Pathologists v. Myriad Genetics (which was limited to rendering genomic DNA patent-ineligible but did not disturb patent-eligibility for cDNA, and contained express proscriptions against reading the decision to encompass methods or other applications of the knowledge of the BRCA genes, despite the PTO's recent Guidelines that appear to ignore these proscriptions) and even Bowman v. Monsanto, which cautioned against interpreting the Court's decision in that case to apply to all "self-replicating technologies."

Justice Sotomayor's concurring opinion is brief and to the effect that the Justice believes business method patents to be patent ineligible per se because they do not fall within the ambit of a "process" under the Patent Act.  Justices Breyer and Ginsberg join her here, as they did in Justice Stevens' concurring opinion in Bilski.  The other Justices apparently are not yet ready to make all business method claims ineligible for patenting, provided that they satisfy the rule reiterated here that there must be something that improves existing technology or otherwise does not merely adapt methods for controlling human activity for implementation by a computer.