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Software Patent Denied, Considered Abstract Idea

Supreme Court affirms
Federal Circuit ruling
On software patents

In a unanimous decision, the US Supreme Court affirmed that the claims of a software patent are ineligible for patent protection because they are directed to an abstract idea.

Petitioner Alice Corporation is the assignee of several patents that disclose schemes to manage forms of financial risk involving credit. The inventions “enable the management of risk relating to specified, yet unknown, future events.”

The claims before the court involve a computerized method for mitigating “settlement risk” – the risk that only one party to a financial exchange will meet its obligations.

The claims are designed to facilitate the exchange by using a computer system as a third-party intermediary which creates “shadow” credit and debit records.

All of the claims are implemented using a computer. The system and method claims expressly recite a computer and the parties stipulated that the method claims of the patents also require a computer.

Respondents CLS Bank and CLS Services operate a global network that facilitates currency transactions.

In 2007, CLS sued Alice seeking a declaratory judgment that the claims of Alice’s patents were invalid, unenforceable, or not infringed. Alice counterclaimed, alleging infringement.

The parties filed cross-motions for summary judgment on the issue of whether the patent claims were eligible for patent protection under 35 U. S. C. §101.

The district court held that the claims were patent ineligible because they were directed to the abstract idea of “employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk.”

The Federal Circuit initially reversed, holding that it was not “manifestly evident” that the claims were directed to an abstract idea.

But the Federal Circuit then granted rehearing en banc and affirmed the district court’s decision.

As we previously reported, in its May, 2013 decision the Federal Circuit struggled to harmonize Supreme Court precedent on this issue – as shown by the seven separate opinions adding up to 135 pages.

The Supreme Court noted that Section 101 of the Patent Act defines subject matter eligible for patent protection as follows:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

The Court also noted that, as stated in the 2013 Myriad case:

We have long held that this provision contains an important implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable.

Accordingly, said the Court,

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.

The Court concluded that the claims of Alice’s patent were drawn to the abstract idea of intermediated settlement and were therefore patent-ineligible.

The Court also concluded that the method claims of the patents, which “merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention.”

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