Supreme Court Decision on Alice v. CLS Bank

In Alice Corp Pty. Ltd. v. CLS Bank International, the Supreme Court attempted to clear up the law around 35 U.S.C. §101. The Supreme Court unanimously affirmed the judgment of the Federal Circuit, ruling that all of Alice Corp’s claims were invalid as directed to non-statutory subject matter.

The claims at issue were directed to a computed implemented scheme for mitigating settlement risk using a third party intermediary. In particular, the claims were designed to facilitate the exchange of financial obligations between two parties using a computer system as a third-party intermediary. The intermediary maintains balances in the parties’ real-world accounts, and instructs relevant financial institutions to carry out a transaction if the balances of each parties’ accounts allows such a transaction. The claims included a method claim, a computer system configured to carry out the method, and a computer-readable medium containing program code for performing the method.

The Supreme Court used the two step test from Mayo v. Prometheus to answer the question of whether the claims at issue were directed to non-statutory subject matter. The first step is: are the claims directed to non-statutory subject matter (laws of nature, natural phenomena, and abstract ideas). If the claims are directed to non-statutory subject matter, the second step is addressed, which was described as a “search for an ‘inventive concept’” over and above the ineligible subject matter.

For the first step of the test, the Supreme Court recapped previous decisions including Gottshalk v. Benson, Parker v. Flook, and Bilski v. Kappos. The Supreme Court concluded that an algorithm (Benson and Flook) was an abstract idea, as was “a fundamental economic practice” such as the hedging in Bilski. At the end, the Court held that the claims at issue were drawn to the abstract idea of intermediated settlement which, like hedging, was a “fundamental economic practice long prevalent in our system of commerce.”

For the second step the Court concluded that there was nothing in the claims at issue that transformed them from a patent-ineligible abstract idea to a patent-eligible invention. In particular, the Court explained that the mere recitation of a generic computer was not sufficient to transform the claims to a patent-eligible invention. Moreover, the Court indicated that this analysis applied to system and computer-media claims as well as method claims. The Court indicated that the system claims at issue merely recited a computer system configured to implement the method of intermediated settlement, and therefore did not add significant additional features to the patent-ineligible method.

The full opinion of the Supreme Court can be found here: Alice Corp. Pty. Ltd. v. CLS Bank International

Summary By: Aaron Pederson, associate attorney at Fogg & Powers LLC; Posted: August 19, 2014

The information contained herein is not intended as legal advice but merely conveys general information about law and/or court decision(s).  This information should not be relied upon or used as a substitute for consultation with a licensed professional.  Please consult a licensed professional to obtain advice with respect to any particular legal issue or problem.