Alice Corp. v. CLS Bank: Supreme Court Holds Computer Implementation Does Not Render Abstract Idea Eligible For Patent

The Supreme Court Holds That Implementing an Abstract Idea on a Generic Computer Does Not Transform that Abstract Idea into a Patent-Eligible Invention under § 101

On June 19, 2014, the Supreme Court issued its opinion in Alice Corp. v. CLS Bank, holding that claiming generic computer implementation of the abstract idea of mitigating "settlement risk" does not transform that abstract idea into patent eligible subject matter under 35 U.S.C. § 101. Alice Corp. Pty. Ltd. v. CLS Bank Int'l, 573 U.S. __ (2014).

The Court's decision clarified that abstract ideas will not be patent eligible simply through implementation on a generic computer, and rejected arguments directed to the form of the claims, including system claims with specific hardware. However, the Court specifically declined to define what would be considered an abstract idea, stating simply that the concept of intermediated settlement at issue in this case was "squarely within the realm of 'abstract ideas' as we have used that term."

Computer-implemented inventions, in particular, those whose novelty is in an algorithm implemented through software, will continue to be subject to attack, although now the battleground will shift to whether the computer-implemented invention is based on an "abstract idea." This decision continues a trend in Supreme Court decisions against the types of patents and strategies favored by non-practicing entities (NPEs), otherwise known as patent trolls. This decision also evinces a preference for dedicated physical elements over pure software implementations.

Background

Alice Corporation ("Alice") is the assignee of several patents that claim a computer-implemented method to mitigate the risk that one party to a transaction will not be able to fulfill its obligations by using a computer system as a third-party intermediary. The computer creates "shadow" account ledgers for each party to the transaction that are updated in real time to reflect the parties' real-world accounts. The computer then "allows" only those account debits and credits that will not impede the parties' ability to satisfy their respective obligations under the transaction and instructs the relevant financial institution to carry out only the permitted account changes. The patents in suit have claims directed toward (1) the method of mitigating transaction risk; (2) a computer system configured to carry out the method; and (3) a computer-readable medium containing program code for...