On June 19, 2014, in Alice Corp. v. CLS Bank International, the Supreme Court unanimously affirmed the Federal Circuit, holding that the challenged claims were not patent-eligible under 35 U.S.C. § 101. In particular, the Court held that the challenged claims were drawn to an abstract idea and that "merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention."

Section 101 of the Patent Act provides that "[w]hoever 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." Additionally, prior Supreme Court precedent has established that, as an implicit exception to Section 101, laws of nature, natural phenomena and abstract ideas are not patentable. The Court stressed that this exception exists to ensure "the basic tools of scientific and technological work" are not monopolized or preempted by the grant of a patent.

To determine whether the claims at issue were patent-eligible under Section 101, the Court employed the two-pronged framework established in Mayo Collaborative Services v. Prometheus Laboratories.¹ First, the Court looked to whether the claims at issue were "directed towards" a patent-ineligible concept. If so, the elements of each claim must be considered "both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application." In effect, an "inventive concept" must exist that ensures the patent does not cover the abstract idea itself.

The Court found that the claims at issue are drawn to the concept of intermediated settlement, that is, to "the use of a third party to mitigate settlement risk." The Court noted that the concept of intermediated settlement is "a fundamental economic practice long prevalent in our system of commerce" and "a building block of the modern economy." The Court then answered the first question by turning to its prior decision in Bilski v. Kappos,² finding that "there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement" — both are patent-ineligible as abstract ideas.

Secondly, the Court concluded that, although the parties stipulated the method claims require a computer, the mere requirement that a method be implemented on a generic computer is insufficient to transform an abstract idea into a patent-eligible invention. Similarly, the Court held that the claims directed to "a computer system" and "a computer readable medium" are also patent-ineligible because "they add nothing of substance to the underlying abstract idea." The Court held that "the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention." In other words, merely adding specific hardware elements to an abstract idea that generally links the idea to a particular technological environment is insufficient to "transform the nature of the claims" into patent-eligible subject matter. Instead, the additional elements must "offer a meaningful limitation" that does more than implement the idea on a generalized computer system.

If you have questions about Alice Corp. v. CLS Bank International, or for more information on patent eligibility under Section 101, please contact Christopher P. Moreno at +1 (312) 609 7842, John K. Burke at +1 (312) 609 7622 or your Vedder Price attorney.