Today’s long-awaited decision by the United States Supreme Court in Alice Corporation Pty. Ltd. v. CLS Bank International, 573 U.S. ___ (2014) 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., 566 U.S. ___ (2012). 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 today’s 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 today’s 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.
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.
The full text of the decision can be found here. Any potentially affected or interested parties should consult with a Nutter attorney and continue to follow the developments in this area.
This advisory was prepared by the Intellectual Property practice group at Nutter McClennen & Fish LLP. For more information, please contact your Nutter attorney at 617.439.2000.
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