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Supreme Court Issues Opinion on Software Patents and USPTO Reacts with Preliminary Examination Guidelines

In late June, the United States Supreme Court issued a long-awaited decision in Alice Corporation Pty. Ltd. v. CLS Bank International that may have broad-reaching implications on patenting software. At issue in the case was whether claims to a computer-implemented system and method for mitigating “settlement risk” in financial transactions are eligible for patenting under 35 U.S.C. § 101. In a unanimous decision, the Court held that the claims were directed to an abstract idea and, although implemented on a computer, were not patentable.

The Court’s analysis for patent-eligibility followed a two-step approach based largely on the Court’s prior holding in Mayo Collaborative Services v. Prometheus Laboratories, Inc. In the first step, one must determine whether a claim at issue is directed to a patent-ineligible concept (i.e., a law of nature, a natural phenomenon, or an abstract idea). If so, in the second step, one must consider whether the elements of the claim both individually and as an ordered combination “transform the nature of the claim into a patent-eligible application.”

Applying that analysis, the Court found that a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk was an abstract idea. The Court then concluded that claiming an implementation of this abstract idea on a generic computer did not amount to an “inventive concept” sufficient to transform the idea into a patent-eligible invention. The Court treated the system claims in a similar fashion as the method claims, holding that recitation of “a handful of generic computer components” configured to implement the abstract idea did not render the claims patent-eligible.

The Court’s decision does little to clarify a very complex and unsettled area of patent law. Those hoping for more certainty and predictability in this area will likely be disappointed with the ruling. The Court did, however, offer some clues as to what types of computer-implemented inventions might be eligible for patenting. For example, the Court observed that the claims at issue did not “purport to improve the functioning of the computer itself,” nor did they “effect an improvement in any other technology or technical field.” Implicit in these statements is guidance for practitioners hoping to draft or argue in favor of claims that will survive the § 101 inquiry. That the claims at issue in the ruling were directed to financial transaction processing and, moreover, as noted by the Court, to concepts “long prevalent in our system of commerce” offers additional ground for distinguishing patent-eligible software inventions from those that are not.

The Court’s willingness to extend Mayo, a case on the application of natural phenomena to medical diagnostics, to the realm of abstract ideas and computer-implemented inventions could portend more lengthy and expensive prosecution of software inventions and cast doubt on the validity of thousands of issued software patents. If nothing else, the Court’s decision may also be argued by some to signal an end to patent protection for computer-implemented business method inventions.

Following closely on the heels of the Court’s decision, the United States Patent and Trademark Office (USPTO) issued guidelines for the examination of patent applications claiming abstract ideas. The guidelines are preliminary and the USPTO indicates that it will issue additional guidance after further consideration of the Court's decision and public feedback.

The new examination guidelines effectively retract (with respect to examination of claims directed to abstract ideas) those issued by the USPTO following the 2010 decision in Bilski v. Kappos. As mentioned above, the current guidelines for such claims are more akin to those for examination of claims to laws of nature under Mayo, and the new guidelines mandate the same analysis for product and process claims alike. Further, the USPTO was quick to note that the Court’s decision does not create any per se categories of patent ineligible subject matter, e.g., software or business methods.

Like the decision that they parallel, the USPTO’s new guidelines are both measured and vague. Those hoping for more concrete guidance will have to wait until the USPTO issues final guidelines in the coming months or, more likely, until that agency and the courts have developed a fuller body of case law defining both abstract ideas and the claim limitations that transform them into patent-eligible subject matter.

CLS Bank is expected to have long-term ramifications in the software and computer industries. Patent applicants, owners, and licensees should review and evaluate their patents and applications to see how the decision might affect their claims. Companies may also want to review and evaluate competitor software patent claims and revisit prior freedom to operate analyses in view of this decision.

This update was prepared by Nutter's Intellectual Property practice. For more information, please contact your Nutter attorney at 617.439.2000.

This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.

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Maximizing the protection and value of intellectual property assets is often the cornerstone of a business's success and even survival. In this blog, Nutter's Intellectual Property attorneys provide news updates and practical tips in patent portfolio development, IP litigation, trademarks, copyrights, trade secrets and licensing.

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