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Supreme Court: Computerized Methods for Mitigating Settlement Risk Are Unpatentable Abstract Ideas
Practical Law Legal Update 3-571-8486 (Approx. 5 pages)
Supreme Court: Computerized Methods for Mitigating Settlement Risk Are Unpatentable Abstract Ideas
by Practical Law Intellectual Property & Technology
| Published on 19 Jun 2014 • USA (National/Federal) |
In Alice Corp. Pty. Ltd. v. CLS Bank Int'l, the US Supreme Court held that methods for mitigating settlement risk using a computer system are unpatentable under 35 U.S.C. § 101 because they cover the abstract idea of intermediated settlement.
On June 19, 2014, in Alice Corp. Pty. Ltd. v. CLS Bank Int'l, the unanimous US Supreme Court held that claims covering a computerized method of mitigating settlement risk were patent ineligible under 35 U.S.C. § 101 because they cover the abstract idea of intermediated settlement (No. 13-298, (S. Ct. June 19, 2014)). The Supreme Court affirmed an en banc decision by the US Court of Appeals for the Federal Circuit that the disputed claims are not patentable under Section 101.
Background
Alice Corp. owns several patents concerning methods of mitigating settlement risk in a financial transaction by using an intermediary to ensure that both parties to the transaction have sufficient funds to satisfy their mutual obligations. CLS Bank Int'l and CLS Services Ltd. operate a global network that facilitates currency transactions. CLS Bank brought suit against Alice for a declaratory judgment that the patents are invalid, unenforceable or not infringed. Alice couterclaimed for patent infringement and the parties filed cross-motions for summary judgment on whether the disputed claims are patent eligible under 35 U.S.C. § 101. The US District Court for the District of Columbia held that the claims are patent ineligible because they cover the abstract idea of using a neutral intermediary to facilitate simultaneous exchange of financial obligations to minimize risk. In a divided en banc decision, the Federal Circuit affirmed the district court's judgment. For more background on this case, see In Dispute: CLS Bank International v. Alice Corporation
Outcome
In a unanimous decision, the Supreme Court affirmed the Federal Circuit and held that Alice's claims are patent ineligible because they cover an abstract idea, explaining that:
- Laws of nature, natural phenomena and abstract ideas are not eligible for patent protection under 35 U.S.C. § 101 because a patent on a fundamental building block of technology can preempt innovation rather than promote it.
- A court must determine whether a patent claims a building block of technology or integrates it into something more that would be eligible for patent protection.
The Supreme Court used the two step framework in Mayo Collaborative Services v. Prometheus Laboratories, Inc. to determine whether Alice's claims are patent eligible:
- The Supreme Court first analyzed whether the method claims are directed to a patent-ineligible concept. The Court found that Alice's claims cover the abstract idea of using a third party to mitigate settlement risk in a financial transaction, a fundamental economic practice long used in commerce. The Court also found that Alice's claims are similar to the claims for hedging financial risk that were held to be unpatentable in Bilski v. Kappos, 561 U.S. 593 (2010).
- The Supreme Court then assessed whether Alice's claims contain additional elements that transform the claims into something more than a patent on the ineligible concept itself. The Court held that Alice's claims do not contain any meaningful additional elements because they only require the use of a generic computer. The Court noted that using a generic computer to implement an abstract idea would effectively preempt use of the idea.
For the same reasons that the method claims are patent ineligible, the Supreme Court held that Alice's claims to a computer system and a computer-readable medium for performing the claimed method are patent ineligible, explaining that none of the claimed generic computer components provide a meaningful limitation beyond linking the use of the abstract idea to a particular technological environment. Justice Sotomayor issued a concurring opinion, joined by Justices Ginsburg and Breyer, explaining that Alice's claims are also ineligible because they describe a method of doing business, which does not qualify as a patent-eligible "process" under 35 U.S.C. § 101.
Practical Implications
The Supreme Court's decision should make it easier to defeat software and method claims that are directed to abstract ideas and recite generic features and components. For more practical implications, see In Dispute: CLS Bank International v. Alice Corporation.