Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014), was a 2014 United States Supreme CourtAlice Corp. Pty. Ltd. v. CLS Bank Int'l, . decision about patent eligibility of business method patents.Since about 2000, the US Supreme Court and lower federal courts have tended to use the term "patent eligibility" rather than the terms "patentable subject matter" or "statutory subject matter" to describe the kinds of thing that can be patented, if novel and otherwise meeting the requirements for patent applications, in contrast to the kinds of thing, such as ideas, laws of nature, and mathematical principles, on which patents may not be granted. Recent Supreme Court opinions use the term "patent eligible" (and its converse "patent ineligible") almost exclusively in this connection. The opinion in the Alice case discussed in this article is an example illustrating the point. In current US usage, the term "patentability" is reserved to describe failure to meet other requirements for a patent grant, such as not being obvious over the prior art, satisfying the enablement requirement, and the like. The issue in the case was whether certain patent claims for a computer-implemented, electronic escrow service covered abstract ideas, which would make the claims ineligible for patent protection. The patents were held to be invalid, because the claims were drawn to an abstract idea, and implementing those claims on a computer was not enough to transform that abstract idea into patentable subject matter.
Although the Alice opinion did not mention software as such, the case was widely considered as a decision on software patents or patents on software for business methods."By clarifying that the addition of a generic computer was not enough for § 101 patentability, Alice has had a significant impact on software patents. In the wake of Alice, the Federal Circuit and numerous district courts have wrestled with the issue of whether various software patents disclose the "inventive concept" required for patentability." Netflix, Inc. v. Rovi Corp., - F. Supp. 3d -, -, 2015 WL 4345069, at *5 (N.D. Cal. July 15, 2015). Alice and the 2010 Supreme Court decision of Bilski v. Kappos, another case involving software for a business method (which also did not opine on software as suchDennis Crouch, Bilski v.Kappos: Business methods out, Software still patentable, Patently O, (Jun. 28, 2010)), were the most recent Supreme Court cases on the patent eligibility of software-related inventions since Diamond v. Diehr in 1981.Jones Day, Commentary: Alice Corp. v. CLS Bank , Jones Day, (Jun. 2014)
Background
Alice Corporation ("Alice") owned four patents on electronic methods and computer programs for financial-trading systems. These financial-trading systems described how two parties could settle their exchange through a third party to reduce "settlement risk"—the risk that one party will perform while the other will not. Alice alleged that CLS Bank International and CLS Services Ltd. (collectively "CLS Bank") began to use similar technology in 2002. Alice accused CLS Bank of infringement of Alice's patents,Citation missing and when the parties did not resolve the issue, CLS Bank filed suit against Alice in 2007, seeking a declaratory judgment that the claims at issue were invalid.Alice Corp. Pty. Ltd. v. CLS Bank Intern., 134 S. Ct. 2347, 2353, 189 L. Ed. 2d 296 (2014). Alice counterclaimed, alleging infringement.
The relevant claims are in these patents:
US patent 5,970,479 filed 1992, issued 1999 (available at the USPTO site and ) US patent 6,912,510 filed 2000, issued 2005 (available at the USPTO site and ) US patent 7,149,720 filed 2002, issued 2006 (available at the USPTO site and ) US patent 7,725,375 filed 2005, issued 2010 (available at the USPTO site and )
Rulings in lower courts
District court
In 2007, CLS Bank sued Alice in the United States District Court for the District of Columbia seeking a declaratory judgment that Alice's patents were invalid and unenforceable and that CLS Bank had not infringed them. Alice countersued CLS Bank for infringement of the patents. After the court had allowed initial, limited discovery on the questions of CLS Bank's operations and its relationship to the allegedly infringing CLS Bank system, the court ruled on the parties' cross-motions for summary judgment. It declared each of Alice's patents invalid because the claims concerned abstract ideas, which are not eligible for patent protection under 35 U.S.C. § 101.CLS Bank Int'l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221 (D.D.C. 2011) at Casetext site
The court stated that a method "directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk" is a "basic business or financial concept," and that a "computer system merely 'configured' to implement an abstract method is no more patentable than an abstract method that is simply 'electronically' implemented."CLS Bank Int'l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221, 242-255 (D.D.C. 2011) at Casetext site In so holding, the district court relied on Bilski v. Kappos. as precedent, in which the Supreme Court held that Bilski's claims to business methods for hedging against the risk of price fluctuations in commodities markets were not patent-eligible because they claimed and preempted (i.e., monopolized) the abstract idea of hedging against risk.
Federal Circuit
Alice appealed the decision to the United States Court of Appeals for the Federal Circuit. A panel of the appeals court decided by 2–1 in July 2012 to reverse the lower court's decision. But the members of the Federal Circuit vacated that decision and set the case for reargument en banc. It ordered that the parties (and any amici curiae who cared to brief the matter) address the following questions:
what test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea; whether the presence of a computer in a claim could ever make patent-ineligible subject matter patentable; and whether method, system, and media claims should be considered equivalent under § 101.
A very fractured panel of ten judges of the Federal Circuit issued seven different opinions, with no single opinion supported by a majority on all points. Seven of the ten judges upheld the district court's decision that Alice's method claims and computer-readable-medium claims were not patent-eligible, but they did so for different reasons. Five of the ten judges upheld the district court's decision that Alice's computer-systems claims were not patent-eligible, and five judges disagreed. The panel as a whole did not agree on a single standard to determine whether a computer-implemented invention is a patent-ineligible abstract idea.CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269 (Fed. Cir. 2013).
Plurality opinion
In the leading, five-member, plurality opinion written by Judge Lourie, joined by Judges Dyk, Prost, Reyna, and Wallach, the court stated a test that focused on first identifying the abstract idea or fundamental concept applied by the claim and then determining whether the claim would preempt the abstract idea.717 F.3d at 1282. The analysis involved making four steps:
determine whether the claimed invention fits within one of the four classes in the statute: process, machine, manufacture, or composition of matter; determine whether the claim poses a risk of "preempting an abstract idea"; identify the idea supposedly at risk of preemption by defining "whatever fundamental concept appears wrapped up in the claim"; in a final step called "inventive concept" analysis, determine whether there is genuine, human contribution to the claimed subject matter. The "balance of the claim," or the human contribution, must "contain[] additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself."
The last part of the Federal Circuit plurality analysis "considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself."717 F.3d at 1282-83. In making this determination, the plurality opinion pointed to four questions to ask:
whether it is necessary to every practical use of the abstract idea and therefore is not truly limiting; whether it "amount[s] to more than well-understood, routine, conventional activity previously engaged in by researchers in the field"; whether it consists of "token or trivial limitations," such as insignificant post-solution activity; and whether it is a field-of-use limitation where "the claim as written still effectively preempts all uses of a fundamental concept within the stated field."
717 F.3d at 1283-84. The Supreme Court would later adopt a similar principle. In the Supreme Court's opinion, the Court combined the first three steps into one identification step, resulting in a two-step analysis.
Four-judge opinion
Chief Judge Rader and Circuit Judges Linn, Moore, and O'Malley filed an opinion concurring in part and dissenting in part. Their patent-eligibility analysis focused on whether the claim, as a whole, was limited to an application of an abstract idea, or was merely a recitation of the abstract idea. They would have held Alice's system claims patent eligible because they were limited to a computer-implemented application.717 F.3d at 1292-313.
Judge Rader's "reflections"
Judge Rader also filed "additional reflections" to the ruling (not joined by any other judges) expressing his view of the patent statute as allowing very broad patentability under § 101, and his understanding that natural laws are restricted to "universal constants created, if at all, only by God, Vishnu, or Allah." Referencing Einstein, he stated that "even gravity is not a natural law."717 F.3d at 1333-36.
Opinions supporting patent eligibility of all claims
Judge Newman concurred in part and dissented in part, calling for the Federal Circuit to clarify the interpretation of § 101. She would have held all of Alice's claims patent eligible.
Judges Linn and O'Malley dissented, arguing that all claims were patent eligible. They called for legislative, rather than judicial, action to address the "proliferation and aggressive enforcement of low quality software patents" cited in the many amicus curiae briefs and suggested new laws to limit the term of software patents or limit the scope of such patents.717 F.3d at 1327-33.
Supreme Court
Amicus curiae participation
The keen interest of the software industry and patent professionals in the issue was illustrated by many companies and groups filing 52 amicus curiae briefs urging the Supreme Court to decide the issue of software patent eligibility. Those amici included the Electronic Frontier Foundation, Software Freedom Law Center, Institute of Electrical and Electronics Engineers, Intellectual Property Law Association of Chicago, Accenture Global Services. and the USPTO itself for the United States.Docket File No. 13-298, at supremecourt.gov, viewed Jan 8, 2014 Nearly all such briefs argued that the patents should be invalidated. They disagreed, however, as to the proper reasoning. A brief prepared by Google, Amazon and other companies argued that the patent was on an abstract idea, which actually harms innovation, and that the real innovation lies in detailing out a working system. Microsoft, Adobe and Hewlett-Packard argued it was nothing more than an unpatentable business method (per Bilski v. Kappos) and merely saying to perform it with a computer does not change this fact. Free Software Foundation and others argued that no software should be patented unless it passes machine-or-transformation test, as this blocks both innovation and scientific collaboration.