How is patent eligibility of computer-implemented inventions to be determined in the United States in view of Alice v CLS Bank?

Author: Susan Keston (HGF Limited)

Alice Corporation Pty Ltd v CLS Bank International and others, Docket No 13-298, Supreme Court of the United States, 19 June 2014

Journal of Intellectual Property Law & Practice (2014) doi: 10.1093/jiplp/jpu154, first published online: September 18, 2014

The US Supreme Court has issued its eagerly awaited decision on whether or not claims to computer-implemented inventions are directed to patent-eligible subject matter, avoiding any pronouncement that either business methods or software inventions are patent ineligible per se, but holding that if claims are directed to a patent-ineligible concept such as an abstract idea, generic computer implementation or recitation of conventional computer hardware is not sufficient to provide the ‘inventive concept’ needed to transform the abstract idea into a patent-eligible invention.

Legal context

In the USA, in contrast to Europe, there is no statutory exclusion from patentability of either computer programs or business methods per se. The claimed invention must, first, be directed to one of the four statutory categories of 35 United States Code (USC) § 101, and, secondly, must not be wholly directed to subject matter encompassing a judicially recognized exception. Quoting from 35 USC § 101:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

The judicially recognized implicit exception is that laws of nature, natural phenomena and abstract ideas are not patentable, as noted in US Supreme Court decision (Docket No 12–398) in Molecular Pathology v Myriad Genetics, Inc (2013).

United States case law on computer-implemented inventions has evolved through a series of tests for patent eligibility under 35 USC § 101. In 1981, patentable subject matter was assumed to have the legislative intent of ‘anything under the sun made by man’ in Diamond v Diehr, 450 US 175 (1981), referencing Diamond v Chakrabarty, 447 US 303, 309, 206 USPQ 193, 197 (1980). The decision of the Court of Appeals for the Federal Circuit in State Street Bank and Trust Company v Signature Financial Group, Inv, 149 F 3d 1368 (1998) expanded the scope of patentable subject matter in the USA to include business methods, provided that they produce ‘a useful, concrete and tangible result’. This tangible result test was rejected in favour of the ‘machine or transformation test’ by the Court of Appeals for the Federal Circuit in Bilski v Kappos, 545 F 3d 943, 959–60 (2008). However, the Supreme Court in Bilski, 561 US 593 (2010) disagreed that this was the sole test for determining patent eligibility of a process, deciding it merely provided an ‘important clue’ and decided by a narrow 5:4 majority that business methods are not categorically excluded from patentability.

Facts

Alice, an Australian company, is the assignee of four related patents covering a computerized trading platform for conducting financial transactions in which a third party mitigates settlement risk. Three of the four patents were issued after the State Street Decision of 1998, but before the Federal Circuit Decision in Bilski, while the fourth patent issued just prior to the Bilski Supreme Court decision. The Alice patents comprise between them independent claims to: a method; a data processing system including a computer and a data storage unit; and computer-readable media containing program code. By way of contrast, the Supreme Court decision in Bilski dealt with method claims only.

In the USA, litigation commenced with CLS Bank challenging the validity of the Alice patents, and Alice countersued CLS Bank for infringement. At first instance, the District Court decided that each of the asserted claims of the Alice patents was invalid for not claiming patent-eligible subject matter. A panel of three judges in Court of Appeals for the Federal Circuit (CAFC) subsequently reversed the District Court decision and granted an en banc rehearing before a panel of ten judges at CAFC.

In the en banc CAFC decision, a majority of the judges affirmed the District Court's holding that Alice's method and computer-readable media claims were not patent eligible under 35 USC § 101. However, there was no single consistent legal rationale for this majority decision. Furthermore, the court was evenly split in affirming the District Court's holding that the asserted system claims were not directed to patent eligible subject matter. Given the lack of legal certainty, Alice petitioned the Supreme Court to decide:

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.C. § 101 as interpreted by this Court.

The Supreme Court decided unanimously in favour of CLS Bank, holding that the asserted method claims were directed to the abstract idea of intermediated settlement and thus not patent eligible under 35 USC § 101. This conclusion followed from Bilski, because intermediated settlement, like the risk hedging of Bilski, is a fundamental economic practice long prevalent in commerce. The system (or apparatus) claims and the computer-readable media claims of the Alice patents were also found to be patent ineligible under § 101. The court's reasoning was that the method claims recite an abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea.

Analysis

The Supreme Court's rationale in applying the § 101 exception was motivated by ensuring that the basic tools of scientific and technological work, such as laws of nature, natural phenomena and abstract ideas should not be monopolized, because the grant of a patent to such ‘fundamental building blocks’ might impede, rather than promote, innovation. However, they were careful not to construe the § 101 exception so broadly that it would swallow all of patent law, referring to the finding in Mayo, that at some level ‘all inventions … embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas’.

The Supreme Court applied a two-part test for patent-eligibility, adapted from Supreme Court decision in Mayo Collaborative Services v Prometheus Labs, Docket No 10-1150 (2012), as follows:

Part 1: Are the claims at issue directed to a patent ineligible concept (in this case, an abstract idea)?

Part 2: If the claims at issue are directed to an abstract idea, then determine whether or not the claim's elements, considered both individually and as an ordered combination, transform the nature of the claim into a patent-eligible application.

Applying this test specifically to the Alice method claims, the Supreme Court reasoned that mitigation of settlement risk was an abstract idea. Requiring ‘generic computer implementation’ in the method claims failed to transform the abstract idea into a patent-eligible invention. The claims at issue amounted to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement, using a generic computer.

Practical significance

Alice v CLS Bank does not pronounce either that software inventions or business methods inventions are patent ineligible per se, but reinforced Bilski and Mayo. The Alice decision expands upon Bilski by providing that method, apparatus and computer-readable media claims are likely to rise or fall together, the recitation of ‘generic computer hardware’ being insufficient to evade patent ineligibility under § 101.

The two-part Mayo framework is already being used by the US Patent and Trademark Office (USPTO) for claims involving the laws of nature/natural phenomena categories of implicit exceptions to patent eligibility. The same test will now be applied to the abstract ideas implicit exception. This test is likely to be difficult to apply in practice and thus falls short of the goal of providing significantly improved legal certainty in the assessment of § 101 patent-eligibility by the USPTO and by the lower courts.

The definition of ‘abstract idea’ relevant to Part 1 of the Mayo framework has been deliberately left open to interpretation by the Supreme Court. In Part 2 of the framework, what is required to transform the abstract idea into something significantly more than an implementation of the idea on a generic computer also lacks certainty. Improvements in the functioning of a computer or improvements in technology seem to be indicative of patent eligibility. These factors will be difficult to assess without reference to relevant prior art, but the court in Mayo rejected a conflation of novelty (§ 102) and non-obviousness (§ 103) with the patent-eligibility assessment of § 101.

Care ought to be taken when drafting new patent applications in the business methods and software fields to clearly describe the underlying technical innovation beyond use of conventional computer hardware.

Defendants in patent infringement disputes are likely to be encouraged by the uncertainties in interpretation of the two-part Mayo framework to raise patent-eligibility as a ground for invalidity at an early stage, such as via a Rule 12 of the Federal Rules of Civil Procedure motion to dismiss, perpetuating the increasing use of post-grant procedures such as post-grant review, inter-partes review or covered business method review, where available.

We can expect the definitions of ‘abstract idea’, ‘generic computer’ and ‘inventive concept’ required to transform the abstract idea into something patent-eligible to be hotly debated in forthcoming patent litigation in the USA.