Supreme Court Declares Computer-Implemented Business Method Ineligible for Patent Protection, But Fails to Offer Clear Guidance For Future Cases

June 19, 2014

Today, the U.S. Supreme Court unanimously declared that claims to computer-implemented methods that add “nothing of substance" to an underlying abstract idea, are ineligible for patent protection. Nevertheless, Justice Thomas, delivering the opinion for the Court, offered hope for proponents of business method and software patents that claims to certain computer-implemented inventions would continue to receive patent protection. Proponents of patent protection for business methods and software can also take some solace in the fact that the retirement of Justice Stevens has reduced to three the number of justices (i.e. Justices Sotomayor, Ginsburg and Breyer) advocating that business methods should be categorically ineligible for patent protection.

Acknowledging that “[a]t some level, all inventions embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas," the Court declared that inventions are not rendered ineligible for patenting merely because they involve an abstract concept. Unfortunately, the Court has continued its recent pattern of declaring what the law is not, but offering little in the way of guidance concerning what the law is. Admittedly, the Court re-emphasized that its over-riding concern with extending patent protection is that such protection not “pre-empt” the use of abstract ideas—“tying up” their use and inhibiting further discoveries by others. The Court’s effort to translate that concern into an analytical framework, however, can seem a bit tautological.

The Alice case has travelled a tortured path. Plaintiff Alice Corporation initially sought and received a declaratory judgment in the United States District Court that CLS Bank’s patents were invalid under 35 U.S.C. Section 101. An initial three-judge panel of the Federal Circuit Court of Appeals reversed that decision, finding that CLS Bank’s patent claims were patentable. Following a chorus of criticism, the entire Federal Circuit reheard the appeal en banc. Ultimately reversing its earlier panel, the Federal Circuit affirmed the District Court’s decision that the claims were invalid. However, the en banc exercise revealed a court so fragmented that then-Chief Justice Rader felt compelled to declare in a separate opinion that "nothing said today beyond our judgment has the weight of precedent.” A majority of the justices found that the method claims were ineligible for patent protection, but they split evenly on the question of whether the related system claims were invalid. There was even less agreement on the rationales for these decisions, with no less than five opinions joined by various combinations of judges.

Repeating the two-step framework it articulated in its recent unanimous decision in Mayo Collaborative Services, v. Prometheus Laboratories that a certain personalized treatments were ineligible for patent protection, the Supreme Court advised that the first step is to determine if the claim is directed to a patent-ineligible concept. If so, the court must then examine the claims to determine if they contain an “inventive concept” that is sufficient to “transform" the claim’s abstract idea into a patent-eligible application. This second step is to be performed on both an element-by-element basis, as well as considering the claim on the whole as “an ordered combination.”

In the final analysis, where a claim is directed to the computer-implementation of an idea, the Court has declared that unless an element of the claim, or the claim as a whole, works a specific improvement in the functioning of known computers, or otherwise effects an improvement in another technology or technical field, the claim is not eligible for patent protection. In the case of CLS Bank’s claims to a means of mitigating settlement risk, the Court declared that such claims do no more than implement such an idea on a generic computer. The Supreme Court leaves the lower courts to struggle with the question of what claims are to be deemed “directed to a patent-ineligible concept,” and whether such claims direct the use of a “generic computer" or otherwise fail to improve a separate “technological process.” In at least one helpful parting bit of guidance, the Court erased the distinction that certain of the Federal Circuit judges had earlier sought to draw between system and method claims. Hereafter, system claims that recite nothing more than elements of a generic computer are deemed indistinct from ineligible method claims.

For those routinely faced with patent litigation, primarily from so-called non-practicing entities, the impact of the Court’s decision is likely to be most immediately felt in the financial industry, with the eCommerce and telecommunications industries likely benefitting as well with respect to patents unrelated to specific hardware or electronic processes.

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