HAS THE US SUPREME COURT FINALLY KILLED BUSINESS METHOD PATENTS AFTER ALICE v. CLS BANK?

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It may not appear so.

In fact, in Alice v. CLS Bank (June 2014), the US Supreme Court seems to have provided no additional guidance of what is patentable subject matter - especially in the context of software and business method patents. Rather, the Supreme Court relied heavily on its earlier opinion in Mayo v. Prometheus (2012) to seemingly just reiterate the principles therein.

In Alice, the US Supreme Court found invalid patent claims to reducing the risk that only one party to a financial transaction will perform. The claims were nothing beyond an abstract idea.

An exemplary patent claim stated the following:

(a) creating a shadow credit record and a shadow debit record for each stakeholder party;
(b) obtaining from each exchange institution a start-of-day balance;
(c) the supervisory institution allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, and
(d) at the end-of-day, the supervisory institution instructing the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties.

Prior to reaching the US Supreme Court, the Federal Circuit twice heard the matter. Upon its first review, the Federal Circuit found the claims to be valid.

On its second review, before the entire court en banc, the Federal Circuit found the claims to be invalid. "The concept of reducing settlement risk by facilitating a trade through third-party intermediation is an abstract idea because it is a 'disembodied' concept." The analysis therefore turns to whether the balance of the claim adds "significantly more." "Apart from the idea of third-party intermediation, the claim's substantive limitations require creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions. None of those limitations adds anything of substance to the claim."

In Alice, the Supreme Court started by explaining that "[l]aws of nature, natural phenomena, and abstract ideas are not patentable." Yet, they recognized that all inventions embody "at some level" the foregoing matters that are not patentable.

The Supreme Court relied on its prior two-step analysis in Mayo. First, are the claims directed to a patent-ineligible concept - laws of nature, natural phenomena, and abstract ideas? If so, then second, do additional claim elements transform the claims into patent eligible matter - something "significantly more" than the ineligible concept.

Reducing settlement risk via a third party intermediary was, according to the Supreme Court, a "fundamental economic practice" and therefore an abstract idea. Yet, the Court refused to define the "precise contours" of an abstract idea.

Under the second Mayo step, the Supreme Court noted that adding conventional steps is insufficient to raise the level of the claims to an inventive concept. Nor is the addition of a generic computer. A technological environment is also insufficient.

In this case, according to the Supreme Court, the computer performs "purely conventional" steps. In other words, a generic computer performs generic computer functions.

COMMENT:
Simply tying functional steps to a computer would not appear to overcome the Alice requirements. Likewise, combining long established fundamental concepts with a computer would not appear sufficient.

What could be sufficient to overcome the Alice requirements is a new feature added to a fundamental business concept. Or, it could be the refinement of a step in a fundamental business concept, or perhaps even the elimination of a fundamental step.

 

© Michael A. Shimokaji, 2014
The contents of this article represent the opinions of the author and not those of the author's law firm or clients

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