The Federal Circuit has delivered a controversial decision concerning business-method patentability.
Yesterday, the appeals court ruled that four of Alice Corp.’s patents that cover a computer system designed to reduce risk in financial transactions are unique and patentable. Alice specializes in financial patents.
The litigation dates back to 2007, when London-based CLS Bank International, which also runs a system designed to minimize risk in foreign-exchange transactions, sued Alice Corp., claiming its patents were invalid under Section 101 of the Patent Act. Section 101 holds that “laws of nature, natural phenomena and abstract ideas” aren’t patentable, whereas unique applications of an idea are.
A district court found Alice’s business method to use a third party to insure the execution of a deal was not patentable. The court relied on the Supreme Court’s 2010 Bilski v. Kappos decision, in which the high court ruled that a business-method patent for protecting against investment risk in certain markets was an abstract idea and therefore not patent-eligible.
But yesterday, the Federal Circuit ruled 2-1 to overturn the lower court’s decision. Writing for the majority, Judge Richard Linn conceded that “the abstractness of the ‘abstract ideas’ test to patent eligibility has become a serious problem, leading to great uncertainty,” because all innovations somehow rely on natural phenomena and abstract ideas. However, he wrote, an idea simply needs to be tied to a specific application in order for an invention to be patentable. The majority reasoned that Alice’s patents involve the creation of computerized credit and debit records, which qualify as a specific application.
Judge Sharon Prost dissented, saying the majority wasn’t aligning with the Supreme Court’s more discriminatory position on patent eligibility in recent cases, including Mayo v. Prometheus, in which the court found that a diagnostic test manufacturer couldn’t patent one of its diagnostic processes because it was a law of nature.
Steven Glassman, who represented CLS in the case, says the decision creates more confusion for businesses about patent-eligibility. “[Alice’s business method] is really a very basic, fundamental concept implemented on a computer. There’s no advance in computer technology of any sort,” he told Thomson Reuters.