Alice Corp. v. CLS Bank: SCOTUS finds Claims in Software Patent Directed to Financial Risk Mitigation to be Ineligible

Category: 101  
By: Jesus Hernandez, Blog Editor/Contributor
TitleAlice Corp. v. CLS Bank Int., No. 13-298 (June 19, 2014).
IssueThe patents at issue in this case disclose a computer- implemented scheme for mitigating “settlement risk” (i.e., the risk that only one party to a financial transaction will pay what it owes) by using a third-party intermediary. The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea.
Alice Corp. at *1.
HoldingWe hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention. We therefore affirm the judgment of the United States Court of Appeals for the Federal Circuit.
Id. at *1.
Editor Comment
For further insight, check out the Audio Brief of oral arguments in Alice Corp. v. CLS Bank Int. by clicking here.
Procedural History
The District Court held that all of the claims are patent ineligible because they are directed to the abstract idea of “employing a neutral intermediary to facilitate simultane- ous exchange of obligations in order to minimize risk.” […] A divided panel of the United States Court of Appeals for the Federal Circuit reversed, holding that it was not “manifestly evident” that petitioner’s claims are directed to an abstract idea. […] The Federal Circuit granted rehearing en banc, vacated the panel opinion, and affirmed the judgment of the District Court in a one-paragraph per curiam opinion. […]
Alice Corp. at *3-4 (internal citations omitted).
Writing for a five-member plurality, Judge Lourie concluded that all of the claims at issue are patent ineligible. […] Chief Judge Rader concurred in part and dissented in part. In a part of the opinion joined only by Judge Moore, Chief Judge Rader agreed with the plurality that petitioner’s method and media claims are drawn to an abstract idea. […] In a part of the opinion joined by Judges Linn, Moore, and O’Malley, Chief Judge Rader would have held that the system claims are patent eligible because they involve computer “hardware” that is “specifically programmed to solve a complex problem.” […] Judge Moore wrote a separate opinion dissenting in part, arguing that the system claims are patent eligible. […] Judge Newman filed an opinion concurring in part and dissenting in part, arguing that all of petitioner’s claims are patent eligible. Id., at 1327. Judges Linn and O’Malley filed a separate dissenting opinion reaching that same conclusion.
Id. at *3-4 (internal citations omitted).
Legal Reasoning (J. Thomas for the Court)
Representative Claims at issue
Method ClaimClaim 33 recites: “A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

“(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

“(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

“(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and

“(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.”

Alice Corp. at n2.
Counterpart Claims: Beauregard and System ClaimsThe patents in suit claim (1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims). All of the claims are implemented using a computer; the system and media claims expressly recite a computer, and the parties have stipulated that the method claims require a computer as well.
Id. at *3.
Legal Standard: 101Patent Elegibility Exception“We have long held that [101] contains an important implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable.” Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U. S. ___, ___ (2013) (slip op., at 11) (internal quotation marks and brackets omitted). […] [I]n applying the §101 exception, we must distinguish between patents that claim the “‘buildin[g] block[s]’” of human ingenuity and those that integrate the building blocks into something more, Mayo, 566 U. S., at ___ (slip op., at 20), thereby “transform[ing]” them into a patent-eligible invention, id., at ___ (slip op., at 3).
Id. at *5-6.
Framework For Determining Exceptions
Step 1: Is Claim Directed to Patent Ineligible Concepts?In Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___ (2012), we set forth a framework for distinguishing patents that claim laws of nature, natu- ral phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts. First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. Id., at ___ (slip op., at 8).
Alice Corp. at *7.
Step 2. Determine the Inventive ConceptIf so, we then ask, “[w]hat else is there in the claims before us?” Id., at ___ (slip op., at 9). To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. Id., at ___ (slip op., at 10, 9). We have described step two of this analysis as a search for an “‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Id., at ___ (slip op., at 3).
Id. at *7.
Analysis: Application of Exception Framework
Step 1: Is Claim Directed to Patent Ineligible Concepts?
We must first determine whether the claims at issue are directed to a patent-ineligible concept. We conclude that they are: These claims are drawn to the abstract idea of intermediated settlement.
Alice Corp. at *7.
It follows from our prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea. Petitioner’s claims involve a method of exchanging financial obligations between two parties using a third- party intermediary to mitigate settlement risk. The intermediary creates and updates “shadow” records to reflect the value of each party’s actual accounts held at “exchange institutions,” thereby permitting only those transactions for which the parties have sufficient resources. At the end of each day, the intermediary issues irrevocable instructions to the exchange institutions to carry out the permitted transactions. On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “‘a fundamental economic practice long prevalent in our system of commerce.’” […] Thus, intermediated settlement, like hedging, is an “abstract idea” beyond the scope of §101.
Id. at *9.
Step 2. Determine the Inventive Concept
Because the claims at issue are directed to the abstract idea of intermediated settlement, we turn to the second step in Mayo’s framework. We conclude that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention.
Id. at *10.
Taking Each Claim Element SeparatelyTaking the claim elements separately, the function performed by the computer at each step of the process is “[p]urely conventional.” Mayo, supra, at ___ (slip op., at 10) (internal quotation marks omitted). Using a computer to create and maintain “shadow” accounts amounts to electronic recordkeeping—one of the most basic functions of a computer. See, e.g., Benson, 409 U. S., at 65 (noting that a computer “operates . . . upon both new and previ- ously stored data”). The same is true with respect to the use of a computer to obtain data, adjust account balances, and issue automated instructions; all of these computer functions are “well-understood, routine, conventional activit[ies]” previously known to the industry. Mayo, 566 U. S., at ___ (slip op., at 4). In short, each step does no more than require a generic computer to perform generic computer functions.
Id. at *15.
Considering Elements as an Ordered CombinationConsidered “as an ordered combination,” the computer components of petitioner’s method “ad[d] nothing . . . that is not already present when the steps are considered separately.” Id., at ___ (slip op., at 10). Viewed as a whole, petitioner’s method claims simply recite the concept of intermediated settlement as performed by a generic computer. See 717 F. 3d, at 1286 (Lourie, J., concurring) (noting that the representative method claim “lacks any express language to define the computer’s participation”). The method claims do not, for example, purport to improve the functioning of the computer itself. See ibid. (“There is no specific or limiting recitation of . . . improved computer technology . . . ”); Brief for United States as Amicus Curiae 28–30. Nor do they effect an improvement in any other technology or technical field. See, e.g., Diehr, 450 U. S., at 177–178. Instead, the claims at issue amount to “nothing significantly more” than an instruction to apply the abstract idea of intermediated settlement using some un- specified, generic computer. Mayo, 566 U. S., at ___ (slip op., at 10). Under our precedents, that is not “enough” to transform an abstract idea into a patent-eligible invention. Id., at ___ (slip op., at 8).
Id. at *15-16.
On Different Statutory Claim Types
On Beauregard ClaimsPetitioner conceded below that its media claims rise or fall with its method claims. En Banc Response Brief for Defendant-Appellant in No. 11–1301 (CA Fed.) p. 50, n. 3.
Alice Corp. at *16.
On System ClaimsAs to its system claims, petitioner emphasizes that those claims recite “specific hardware” configured to perform “specific computerized functions.” Brief for Petitioner 53. But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit,” for example, see App. 954, 958, 1257—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims. See 717 F. 3d, at 1290 (Lourie, J., concurring). As a result, none of the hardware recited by the system claims “offers a meaningful limitation beyond generally linking ‘the use of the [method] to a particular technological environment,’ that is, implementation via computers.” Id., at 1291 (quoting Bilski, 561 U. S., at 610–611). Put another way, the system claims are no different from the method claims in substance.
Id. at *16.
Dicta on DraftmanshipThe method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea. This Court has long “warn[ed] . . . against” interpreting §101 “in ways that make patent eligibility ‘depend simply on the draftsman’s art.’” Mayo, supra, at ___ (slip op., at 3) (quoting Flook, 437 U. S., at 593);
Id. at *16.
For the foregoing reasons, the judgment of the Court of Appeals for the Federal Circuit is affirmed.
Alice Corp. at *17.
J. Sotomayor, with whom J. Ginsburg and J. Breyer join, concurring. Alice Corp., Sotomayor Op., at *1.
I adhere to the view that any “claim that merely de- scribes a method of doing business does not qualify as a ‘process’ under §101.” Bilski v. Kappos, 561 U. S. 593, 614 (2010) (Stevens, J., concurring in judgment); see also In re Bilski, 545 F. 3d 943, 972 (CA Fed. 2008) (Dyk, J., concurring) (“There is no suggestion in any of th[e] early [English] consideration of process patents that processes for organizing human activity were or ever had been patent- able”). As in Bilski, however, I further believe that the method claims at issue are drawn to an abstract idea. Cf. 561 U. S., at 619 (opinion of Stevens, J.).
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