Will the Supreme Court clarify which 'computer-implemented inventions' are patent eligible?

CLS Bank Int’l v. Alice Corp. Pty. Ltd. has had a long and unclear history on its way to the Supreme Court

On Dec. 6, 2013, the United States Supreme Court granted Alice Corporation’s petition for a writ of certiorari in Alice Corporation Pty. Ltd. v. CLS Bank International. The question presented is: “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?” Alice Corporation will be the 10th time the Supreme Court has addressed a Section 101 issue since the 1952 Patent Act, and the fourth time in merely four years.

This question presented to the Supreme Court summarizes the two questions the Federal Circuit invited the parties to address in its order granting en banc reconsideration in CLS Bank Int’l v. Alice Corp. Pty. Ltd., which were:

  1. 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?
  2. 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?

The four patents at issue, owned by Alice, relate to a computerized trading platform used to conduct financial transactions. More specifically, the patents are directed to eliminating “settlement risk” by using a trusted third party to ensure that, during a financial exchange, either both parties will meet their obligations or neither party will. On March 9, 2011, the United States District Court for the District of Columbia found Alice’s patents invalid under Section 101. Although a Federal Circuit panel reversed the district court’s decision on July 9, 2012, three months later the Federal Circuit granted CLS’s petition for rehearing en banc.

The Federal Circuit issued its en banc decision in CLS Bank International v. Alice Corporation Pty. Ltd. on May 10, 2013. The two-sentence per curiam opinion stated that a majority of the Federal Circuit affirmed the district court’s holding that Alice’s “asserted method and computer-readable media claims” were not directed to eligible subject matter under 35 U.S.C. § 101; and that an “equally divided court” affirmed that Alice’s “asserted system claims” were not directed to eligible subject matter under Section 101. Five concurring or dissenting opinions followed, before final “additional reflections” from Chief Judge Randall Rader.

As the first of the additional opinions, Judge Alan Lourie’s concurrence was joined by Judges Timothy Dyk, Sharon Prost, Jimmie Reyna and Evan Wallach. After providing background to the case and to Section 101, Judge Lourie described the two-step analysis to determine whether a patent claim satisfies Section 101: the claimed invention must be a process, machine, manufacture, or composition of matter (as described in Section 101); and the claim must not be drawn to a patent-ineligible law of nature, natural phenomenon, or abstract idea (the three judicially created exceptions). After analyzing Supreme Court precedent on Section 101, Judge Lourie examined the patents-in-suit. He found that although the claims passed the first step of patent eligibility, they were all directed to an abstract idea — reducing settlement risk by conducting trades through a third party (“i.e., a form of escrow”). Simply linking this abstract idea to a computer does not make it patent eligible, regardless of whether the abstract idea is claimed via method, computer-readable medium, or system claims. “Abstract methods do not become patent-eligible machines by being clothed in computer language,” stated Judge Lourie.

Along with Judges Richard Linn, Kimberley Moore and Kathleen O’Malley, Chief Judge Rader filed a concurring-in-part and dissenting-in-part opinion. The judges began their analysis by looking at the words of the statute in Section 101 and the definition of “process” in Section 100(b). They looked to the history of the 1952 Patent Act, which among other things replaced any need for an “invention” with Section 103’s objective test for “obviousness.” All four judges consider Section 101 to provide broad categories for eligible subject matter that are constrained by the limited, narrow, judicially created exceptions for laws of nature, natural phenomena, and abstract ideas. Although all four judges agreed that the asserted system claims were patent eligible, Chief Judge Rader and Judge Moore concluded that the asserted method and media claims were not eligible under Section 101, because — unlike the system claims — these claims did not “tie the otherwise abstract idea to a specific way of doing something with a computer.” (Emphasis in original). The judges criticized the majority’s conflation of principles of patent eligibility with those of validity.

The same four judges were the source of the next opinion, too — a dissent-in-part authored by Judge Moore and joined by the other three judges. In the opinion, Judge Moore wrote separately to address her concerns that Section 101 was being staggeringly broadened from “what is meant to be a narrow judicial exception” and to explain why the asserted system claims are patent eligible. She noted that if all the asserted claims were ineligible, so too would be more than 300,000 patents granted between 1999 and 2011 in the same technology area. She was particularly concerned that the majority could find that a “system of tangible machine components with limited specialized functions programmed consistent with detailed algorithms disclosed in the patent” could be an “abstract idea.”

Judge Pauline Newman filed a concurring-in-part and dissenting-in-part opinion. Judge Newman expressed her disappointment with “today’s irresolution concerning section 101.” Judge Newman proposed that the Federal Circuit “reaffirm three basic principles relating to section 101”:

  1. That “section 101 is an inclusive statement of patent-eligible subject matter” (eliminating the “abstractness” and “preemption” inquiries entirely);
  2. That “the form of the claim does not determine section 101 eligibility” (to prevent eligibility from turning on “the ingenuity of the draftsman”); and
  3. That “experimental use of patented information is not barred” (to prevent concerns that have been raised in cases such as Myriad).

Judge Newman believes that adopting these principles will stabilize the law of Section 101.

In Judges Linn and O’Malley’s dissent, they expressed their belief that Chief Judge Rader and Judge Moore, as well as Judge Lourie, had conducted a flawed analysis of the asserted claims because their analyses were divorced from the record. Judges Linn and O’Malley seized upon CLS’s concession in the district court to limit the claimed methods to electronic implementations. Because of this limitation, all the claims at issue — not just the system claims — “contain the same computer-based limitations.” Judges Linn and O’Malley found that because all the claims had computer-based limitations, they were not directed to abstract ideas, and therefore were all patent eligible.

Chief Judge Rader’s additional reflections took him back to Arrythmia Research Tech. v. Corazonix Corp. In that case, as with the present case, he relied on a simple phrase: “When all else fails, consult the statute!” Judge Rader explained that, based on the patent statute, Section 101 should be considered neither a condition of patentability nor an invalidity defense.

As Judge Newman stated in her concurring-in-part and dissenting-in-part opinion: “Instead [of providing objective standards for section 101 patent-eligibility] we have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation.”

Given the lack of clarity provided by the Federal Circuit, the Supreme Court has the chance to provide clearer guidance regarding the metes and bounds of the patent eligibility of computer-implemented inventions. Because of the breadth of the question presented, the Supreme Court’s decision could knock out hundreds of thousands of existing patents — if the Court decides that computer-implemented inventions are per se ineligible under Section 101. It is more likely, however, that the Court will draft a narrower opinion, particularly in light of its prior Section 101 jurisprudence. Practitioners, investors, and many others must be hoping that the Court provides clearer guidance than the Federal Circuit.

Contributing Author

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Robert A. Surrette

Robert A. Surrette is the President and a shareholder at McAndrews, Held & Malloy, Ltd. He focuses his practice on the resolution of intellectual property...

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Contributing Author

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Dunstan H. Barnes

Dunstan H. Barnes is an associate at McAndrews, Held & Malloy. He has considerable experience in a wide range of technological fields, and worked in...

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