Supreme Court: Patent Eligibility Not Conferred by Computer Implementation

Supreme Court: Patent Eligibility Not Conferred by Computer Implementation

 WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court unanimously held today that a patent that claims a computer-implemented method of providing intermediated settlement services for financial obligations is directed to a patent-ineligible concept under Section 101 of the Patent Act (Alice Corporation Pty. Ltd. v. CLS Bank International and CLS Services Ltd., No. 13-298, U.S. Sup.; See 4/7/14, Page 4) [lexis.com subscribers may access Supreme Court briefs and the opinion for this case].

In a 21-page decision authored by Justice Clarence Thomas, the Supreme Court deemed “instructive” the case of Mayo Collaborative Services v. Prometheus Labs Inc., 132 S. Ct. 1289, 1297 (2012) [an enhanced version of this opinion is available to lexis.com subscribers]; See 4/2/12, Page 4), in which it held that the simple implementation of a mathematical principle on a physical machine is not a patentable application of that principle.

“The mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea while adding the words ‘apply it’ is not enough for patent eligibility. Nor is limiting the use of an abstract idea ‘to a particular technological environment.’  Stating an abstract idea while adding the words ‘apply it with a computer’ simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to ‘implemen[t] an abstract idea on . . . a computer,’ that addition cannot impart patent eligibility,” the Supreme Court held, citing Mayo.

Declaratory Judgment

Petitioner Alice Corporation Pty. Ltd. owns four U.S. patents by assignment that relate to a computerized trading platform known as “Inventco,” which is used for conducting financial transactions in which a third party settles obligations between a first and a second party so as to eliminate the risk to the first two parties that either may not pay their financial obligation when a currency trade closes at settlement. The patents contain claims that recite methods of exchanging obligations between parties and claims that are drawn to data-processing systems and computer-readable media containing a program code for directing an exchange of obligations.

Respondents CLS Bank International and CLS Services Ltd. are part of CLS Group Holdings AG, a New York-based financial institution launched in 2002 that provides settlement services to its members in the foreign exchange market. In 2007, after Alice threatened a patent infringement suit, CLS Bank and CLS Services (collectively, CLS) sued Alice in the U.S. District Court for the District of Columbia, seeking a declaratory judgment that the asserted claims of the Alice patents are invalid, unenforceable and not infringed. Alice answered and counterclaimed, alleging infringement.

In 2009, CLS moved for summary judgment, arguing in part that Alice’s asserted claims were drawn to ineligible subject matter and, therefore, invalid under 35 U.S. Code Section 101. Alice cross-moved for summary judgment. After the Supreme Court issued its decision in Bilski v. Kappos, 130 S. Ct. 3218 (2010) [enhanced version]; See 7/2/10, Page 4), the District Court granted summary judgment in favor of CLS, holding each of the asserted claims of Alice’s patents invalid under Section 101. The District Court found that Alice’s method claims “are directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”  The court similarly rejected the patents’ system claims and media claims.

Rehearing Granted

Alice appealed to the Federal Circuit U.S. Court of Appeals, which in a divided July 2012 panel opinion reversed the District Court’s ruling, holding that the claims at issue, including claims drawn to methods, computer-readable media and systems, are all patent eligible under Section 101. CLS then won en banc rehearing (CLS Bank International v. Alice Corporation Pty. Ltd., No. 11-1301, Fed. Cir.; See 10/15/12, Page 7), at which the parties were ordered to address two questions:  “What test should the court adopt to determine whether a computer-implemented invention is a patent ineligible ‘abstract idea’ and when, if ever, does the presence of a computer in a claim lend patent eligibility to an otherwise patent-ineligible idea?” and “In assessing patent eligibility under 35 U.S.C. § 101 of a computer-implemented invention, should it matter whether the invention is claimed as a method, system, or storage medium; and should such claims at times be considered equivalent for § 101 purposes?” Twenty-five amicus curiae briefs were filed on behalf of 47 amici.

Following rehearing, the Federal Circuit issued a 135-page divided decision that included a one-paragraph per curiam opinion affirming the District Court. The decision also contained a concurring opinion of five of the 10 circuit judges participating (with one judge not participating); a concurring-in-part and dissenting-in-part opinion of four circuit judges, with some taking part in only certain sections of the opinion; a dissenting-in-part opinion of four circuit judges; a concurring-in-part and dissenting-in-part opinion filed by one circuit judge; a dissenting opinion filed by two circuit judges; and “Additional Reflections” filed by Judge Randall R. Rader.

The per curiam opinion states:  “Upon consideration en banc, a majority of the court affirms the district court's holding that the asserted method and computer-readable media claims are not directed to eligible subject matter under 35 U.S.C. § 101. An equally divided court affirms the district court's holding that the asserted system claims are not directed to eligible subject matter under that statute.”  The Federal Circuit noted that while no single opinion in the decision constituted a majority, seven of the 10 members of the en banc court agreed that the method and computer-readable medium claims failed to recite patent-eligible subject matter, and eight of the judges concluded that the method, medium and system claims at issue in the case should rise or fall together in the Section 101 analysis.

No Meaningful Distinction

Alice filed a petition for writ of certiorari with the Supreme Court that presented the question:  “Whether claims to computer-implemented inventions — including claims to systems and machines, processes, and items of manufacture — are directed to patent-eligible subject matter within the meaning of 35 U.S. Code § 101 as interpreted by this Court.”  The petition was granted in December 2013, and oral arguments were held in March.

Siding with CLS, the Supreme Court wrote that pursuant to its holdings in Mayo, Parker v. Flook, 437 U. S. 584, 594 (1978) [enhanced version] and, “in particular,” Bilski, “the claims at issue are directed to an abstract idea.”  In Bilski, the Supreme Court recalled, a patent which described a method for hedging against the financial risk of price fluctuations was deemed patent-ineligible, for it claimed an “abstract idea.”  There is “no meaningful distinction” between what was claimed in Bilski and what is claimed by Alice, the Supreme Court continued, because “the concept of intermediated settlement is ‘a fundamental economic practice long prevalent in our system of commerce’ and the use of a third-party intermediary is a building block of the modern economy.”

“Thus, intermediated settlement, like hedging, is an ‘abstract idea’ beyond § 101’s scope,” the Supreme Court added.

Analysis Not Altered

Next, the Supreme Court applied the second phase of Mayo’s Section 101 patent-eligibility framework and found that Alice’s method claims fail to transform their abstract idea into a patent-eligible invention. Central to that holding was the Supreme Court’s conclusion that “the introduction of a computer into the claims does not alter the analysis.”

“The fact that a computer ‘necessarily exist[s] in the physical, rather than purely conceptual, realm,’ is beside the point. There is no dispute that a computer is a tangible system (in §101 terms, a ‘machine’), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept. Such a result would make the determination of patent eligibility ‘depend simply on the draftsman’s art,’ thereby eviscerating the rule that ‘[l]aws of nature, natural phenomena, and abstract ideas are not patentable,’” the Supreme Court ruled, citing Flook and Association for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 186 L. Ed. 2d 124 (2013), respectively [enhanced version].

Not Enough

Framing the question presented as whether Alice’s patent claims “do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer,” the Supreme Court answered in the negative, deeming the function to be performed by the computer at each step of the claimed process “purely conventional.”  Using a computer to create and maintain “shadow” accounts “amounts to electronic record-keeping,” according to the Supreme Court; furthermore, obtaining data, adjusting account balances and issuing automated instructions using a computer are “well-understood, routine, conventional” activities previously known to the relevant industry.

“Viewed as a whole, petitioner’s method claims simply recite the concept of intermediated settlement as performed by a generic computer. . . . Nor do they effect an improvement in any other technology or technical field. . . . Under our precedents, that is not ‘enough’ to transform an abstract idea into a patent-eligible invention,” the Supreme Court wrote, citing Mayo.

Lastly, the Supreme Court cited Alice’s concession that its computer system and computer-readable medium claims must necessarily rise or fall with its method claims. Agreeing, the Supreme Court noted that “the method claims recite the abstract idea implemented on a generic computer” and “the system claims recite a handful of generic computer components configured to implement the same idea.”

“Because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under §101,” the Supreme Court concluded.

Concurrence

In a one-paragraph concurrence, Justice Sonia Sotomayor — joined by Justices Stephen Breyer and Ruth Bader Ginsburg — cited Bilski and wrote that she adheres “to the view that any ‘claim that merely describes a method of doing business does not qualify as a process under’” Section 101.

“As in Bilski, however, I further believe that the method claims at issue are drawn to an abstract idea . I therefore join the opinion of the Court,” she added.

Alice is represented by Carter G. Phillips and Jeffrey P. Kushan of Sidley Austin in Washington; Constantine L. Trela Jr., Tacy F. Flint and Timothy R. Hargadon of Sidley Austin in Chicago; Adam L. Perlman of Williams & Connolly in Washington; and Robert E. Sokohl of Sterne, Kessler, Goldstein & Fox in Washington. Mark A. Perry, Helgi C. Walker, Brian M. Buroker and Alexander N. Harris of Gibson, Dunn & Crutcher in Washington represent CLS. Solicitor General Donald Verrilli of the U.S. Department of Justice represents the Patent and Trademark Office.

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