Supreme Court Weighs In On Patent Eligibility of Computer-Implemented Inventions

Executive Summary

On June 19, 2014, the U.S. Supreme Court issued its decision in Alice Corporation PTY, LTD v. CLS Bank International. The case related to the type of computer-implemented inventions that are eligible to be patented. It was widely anticipated that the decision would bring some clarity to the question of what ideas—and, specifically, what business-method or software patent claims—are too “abstract” to be entitled to patent protection.

The Supreme Court affirmed the en banc decision of the U.S. Court of Appeals for the Federal Circuit (Federal Circuit) which found the claims ineligible for patent protection because they covered only an abstract idea. It provided, however, only limited guidance as to what exactly constitutes an “abstract idea.”

The unanimous decision is not the death knell for software patents as some were predicting. It is another incremental guidepost in the Supreme Court’s attempts to provide guidance as to the type of computer-implemented inventions that may be patent-eligible.

According to the Supreme Court, patent-ineligible abstract ideas are not limited to mathematical algorithms and preexisting fundamental truths, but may also include “methods of organizing human activity” and “fundamental economic practices.” Determining the scope of the “abstract idea” exception to patent eligibility will continue unabated as the courts and the U.S. Patent and Trademark Office (USPTO) apply the test set forth in the opinion.

Background

Section 101 of the patent statute provides that inventions eligible for patent protection include “any new and useful process, machine, manufacture, or composition of matter.” The Supreme Court has interpreted this provision to exclude laws of nature, natural phenomena, and abstract ideas. These exceptions are considered the basic tools of scientific and technological work. In the Court’s view, allowing patents on these tools would restrict, rather than promote, innovation.

Many accused infringers have argued that certain computer-implemented inventions merely cover abstract ideas performed on a programmed general-purpose computer and thus should not be patent-eligible under the above exception.

In this case, the patents covered a computerized trading platform used to reduce settlement risk in financial transactions by effecting those transactions through a third-party intermediary that would act essentially as an escrow agent. The patents contained three types of claims: 1) method claims, which recite the steps that a computer implements; 2) claims to computer-readable media, such as hard disks, that contain programs that would implement those steps; and 3) data processing system claims, in which the system includes the computer and related hardware programmed to implement those steps.

In a badly fractured en banc decision, the Federal Circuit decided that all three types of claims were ineligible for patenting. The decision included six different opinions—written and joined in by various judges expressing widely diverging viewpoints—none of which provided definitive guidance concerning the patent eligibility of computer-implemented inventions.

Supreme Court Decision

In a unanimous decision, the Supreme Court affirmed the Federal Circuit, holding that the claims are directed to an abstract idea and thus are not patent-eligible.

Building upon the analysis in its prior Bilski, Myriad, and Mayo cases, the Supreme Court set forth a two-part test. First, the claim must be analyzed to determine whether it is directed to an abstract idea. If so, it is then analyzed to see if its elements, combined in the claimed manner, transform it into a patent-eligible application.

Applying the first part of the test, the Supreme Court did not, unfortunately, provide a clear definition of an “abstract idea,” as many had hoped. The Court did reaffirm certain well-known examples of abstract ideas, such as mathematical algorithms and universal truths that exist apart from any human action, but went on to state that abstract ideas are not limited just to these categories. In particular, the Court held that methods of organizing human activity and fundamental economic practices may also be abstract ideas. In this case, the Court found that the claims were directed to the fundamental financial process of settlement risk management, which it held to be an abstract economic idea.

Having identified the claimed idea as abstract, the Court then went on to the second part of its test, which it described as a search for an “inventive concept” in the claims, that is, a combination that amounts to “something more” than the abstract idea. The Court held that the mere fact that the idea was implemented by a generic computer performing well-known computer functions does not satisfy this requirement.

In sum, the Supreme Court held that the mere fact that an abstract idea is implemented on a general-purpose computer does not imbue the concept with sufficient technological originality to be patent-eligible. That a computer is a machine does not alone render the abstract idea sufficiently tangible. Nor does the form of the claim—be it method, machine, or computer readable medium—make a difference.

That said, certain ideas, implemented on certain computers, may still survive the test if they offer a sufficiently novel or inventive concept. What exactly this gray area encompasses (and to what extent it overlaps with the well-established patentability requirements of novelty and non-obviousness) remains for future decisions to resolve.

Takeaways

The sky did not fall on the eligibility of patents directed to computer-implemented inventions, but this decision does represent yet another in a series of incremental steps by the Supreme Court to narrow the scope of patent protection in certain technology areas (particularly ones that have seen considerable enforcement activity by non-practicing entities).

Going forward, patents directed to computer-implemented inventions may be subject to validity challenges under the Supreme Court’s new two-part test, both in the USPTO and in a litigation or other dispute. The paucity of concrete guidelines in the Supreme Court’s decision, however, leaves open the question of how the USPTO, as well as lower courts, will implement and apply the two-part test.

At a minimum, computer-implemented inventions that include unique hardware, or that improve an existing technological process, may well still be patent-eligible. How far a computer-implemented claim may stray from modifying a specific technological implementation without falling into the abyss of unpatentable “abstractness” remains unclear.

Although the decision provides some direction, it does not end the controversy. Further disputes, and further incremental guidance by the courts and the USPTO applying this new test, are inevitable before the bounds of patent eligibility of computer-implemented inventions become clear.