Post Alice: A Nonexistent Wonderland Filled with Questions

On June 19, 2014, the Supreme Court unanimously ruled in Alice Corp. v. CLS Bank International, that basic business methods could not be patented, even if computers are used to apply them. An Australian company, Alice Corporation, owned the patents at issue. The case questioned the patent eligibility of Alice Corp.’s claims to a computerized method, a computer-readable medium containing computer instructions, and a computer system that implements those instructions. Justice Clarence Thomas wrote for the court and determined that “merely requiring generic computer implementation fails to transform [the] abstract idea into a patent-eligible invention.”

Alice Corp. developed a method for mitigating settlement risks among multiple parties. The Corporation argued the method was eligible to be patented because it involved shadow records updated in real time that “require a substantial and meaningful role for the computer.” CLS Bank International challenged the patents. CLS Bank claimed it clears $5 trillion in foreign exchange transactions a day using methods to ensure that both sides performed and CLS Bank argued that Alice Corp.’s patents simply claimed “the fundamental economic concept of intermediated settlement of escrow.”

A trial court invalidated Alice Corp.’s patents and the United Stated Court of Appeals for the Federal Circuit affirmed the decision. The Supreme Court upheld the invalidity, saying Alice Corp.’s idea was a fundamental economic practice and “a building block of the modern economy.” The courts have long held that laws of nature, natural phenomena, and abstract ideas are not patentable. Justice Thomas wrote that the addition of a computer did not change the patentability of abstract ideas. “Viewed as a whole,” he wrote, “petitioner’s method claims simply recite the concept of intermediated settlement as performed by a generic computer.” The methods neither “improve the functioning of the computer” nor “effect an improvement in any other technology or technical field.”

The question on which review was granted generally considered the patent eligibility of computer implemented inventions, however, the Court ultimately issued an opinion that was heavily focused on the invention essential to Alice Corp.’s patent. For some, the ruling seemed in line with earlier court decisions that were wary of stifling innovation. Others hoped that the Court would address the broader issue of the patent eligibility of computer implemented inventions.

Conversely, the Court’s narrow opinion leaves key questions unanswered. For inventors, the Court’s overall reasoning as to why the Alice Corp. patent was an ineligible abstract idea demonstrated the limitations inherent in applying patent doctrine to computer implemented inventions. The limitations have already caused the U.S. Patent and Trademark Office to pull previously allowed applications and issue §101 rejections, thereby invalidating the patents. The USPTO has also prepared an instruction sheet to assist USPTO personnel in determining subject matter eligibility following Alice Corp. The limitations will govern how future innovators seek protection, questioning whether any software patents will be considered legitimate, patentable subject matter. Justice Thomas stressed that the decision posed no threat to the concept of software patents. “There is no dispute,” he wrote, “that many computer-implemented claims are formally addressed to patent-eligible subject matter.” Still, the Alice Corp. decision leaves inventors questioning how specific technical ideas become eligible for patent protection.

Alice Corp. did offer some lessons regarding patent eligibility under §101. The Court presented a framework for addressing §101 issues by first determining whether claims are directed to one of the judicially-recognized exceptions. The Court also provided important, yet incomplete guidance on what constitutes an abstract idea, such as confirming that algorithms, mathematical formulas, and fundamental economic practices are not patentable. The Court did not explicitly state the need for a technological requirement; however, it hinted that a technological aspect is an important factor for eligibility. Finally, the unanimous decision does not suggest the Court’s refusal to hold business methods completely ineligible. Furthermore, the Court seems to acknowledge that software patents are not totally unable to be patented when it held that many computer-implemented claims are confirmed, patentable inventions.

Overall, the Supreme Court’s decision indicates that §101 will continue to be a pressing issue in determining patentability. Although some lessons can be learned from the opinion, many questions still remain, specifically the details of the abstract idea exception when it comes to software patents. Moving forward, parties should carefully study the Supreme Court opinion and include its lessons into their overall patent strategies and continue to evaluate the issue of patentable subject matter.