Client Alerts
June 20, 2014

US Supreme Court Finds Computer Implemented Method and System Claims Directed to “Fundamental Economic Practice" is a Patent-Ineligible Abstract Idea

Stites & Harbison Client Alert, June 20, 2014

In an unanimous decision, the U.S. Supreme Court issued its opinion in Alice Corp. v. CLS Bank Int’l., finding that the patent claims at issue were invalid as being directed to patent ineligible subject matter (under 35 U.S.C. § 101). While not exactly a welcomed decision, the outcome in the case was consistent with prior U.S. Supreme Court cases and consistent with our first hand observations and predictions after hearing the oral augments in this case as previously reported in our article entitled, “Eyewitness Insights on Arguments Heard by the U.S. Supreme Court on the Patentability of Computer Implemented Methods.” The invalid claims included both computer-implemented business method claims as well as computer system claims in which the computer system performed various business methods. (See. e.g. footnote 2, page 2 of the opinion for a representative method claim and our prior OP-IP blog post, “Déjà vu all over again…” for a representative system claim). This is the most recent case in which the U.S. Supreme Court has weighed in on what constitutes patent eligible subject matter (under 35 U.S.C. § 101), building on its prior decisions in the business method context (Bilski v. Kappos) and more recently in the biotechnology context (Mayo v. Prometheus and Association For Molecular Pathology. v. Myriad Genetics, Inc.).

The specific question before the Supreme Court was whether computer-implemented inventions, including claims to computers/computer systems, software, and processes are eligible for patent consideration. The Supreme Court had to decide whether such computer-implemented inventions are patent eligible by qualifying as “a process, machine, manufacture, or composition of matter”. Alternatively, the Supreme Court had to decide whether computer-implemented inventions fall within one of the Court’s previously identified exceptions to patent eligible subject matter, namely, “Laws of nature, Natural Phenomena and Abstract ideas” (“LNA”). In answering these questions, the Supreme Court looked to the patent claims at issue to determine if they were directed to patent ineligible subject matter and thereby invalid.

In this case, the Supreme Court decided that the financial method claims were directed to a “fundamental economic practice” of the use of the “concept of intermediate settlement,” “long prevalent” in use, and thus an “‘abstract idea’ beyond the scope of § 101.” Applying the U.S. Supreme Court’s own precedent on the prohibition of patenting LNA, the Court found the method claims to be invalid as being directed to ineligible subject matter under 35 U.S.C. § 101. In addition, the Supreme Court also found the computer system claims to be invalid as being directed to patent ineligible subject matter based on a finding that the computer system claims “merely [recite] a generic computer” which does not transform “a patent-ineligible abstract idea [i.e. an abstract method] into a patent-eligible invention.”

In reaching its decision, the Supreme Court extended its two-step analysis test for determining patent eligibility of patent claims announced in Mayo v. Prometheus. Step 1 is examining the patent claim to determine if the claim is directed to one of the three patent ineligible concepts (namely LNA). If the claim is directed to one of the three patent ineligible concepts, then Step 2 is determining whether the claim includes an “inventive concept” –i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.” Although this appears to blur the distinction between determining patent eligibility under §101 and novelty and non-obviousness under 35 U.S.C. §§ 102 and 103, one can distill step 2 down to determining whether a patent claim recites a meaningful application of the LNA so that the claim is not merely the LNA performed in a computer environment.

Thus, the test for patent eligibility under § 101 for computer implemented methods, including business methods, is the same as the test for patent eligibility of biotechnology claims.

  • Step 1: Is the patent claim directed to a LNA. If no, then the patent claim does not raise a § 101 issue. If yes, then step 2.
  • Step 2: If the claim is directed to a LNA, does the claim put meaningful limitations on the LNA and/or apply the LNA in a way that limits the LNA and thereby claims less than the LNA, itself.

Like the prior U.S. Supreme Court cases of Bilski v. Kappos, Mayo v. Prometheus and Association for Molecular Pathology v. Myriad Genetics, Inc., we now have a fourth example of patent claims which are not patent eligible. Regrettably, in recent years, we have not had a case in which patent claims were held to be valid under §101. Therefore, it remains a challenge for patent practitioners to know what the U.S. Patent Office and the courts, all the way up to the Supreme Court, will find to be patent eligible. While each decision makes it more clear as to what is not patent eligible, we still do not have clear vision on what patent claims are absolutely patent eligible.

In addition, the Alice case leaves additional unanswered questions. For example, the Court never defines the term, “abstract idea.” The Court merely equates “fundamental economic practice” of the use of the “concept of intermediate settlement”, “long prevalent” in use, as an “abstract idea.” What we do not know is how to analyze a patent claim to determine whether a patent claim is directed to a “fundamental economic principle,” let alone some other concept qualifying as an “abstract idea.”

Finally, the U.S. Patent and Trademark Office (“USPTO”) is likely to issue interim examination guidelines for examining patent applications with claims directed to computer implemented methods and systems in view of this decision. The USPTO previously issued interim guidelines after Bilski v. Kappos, Mayo v. Prometheus and Association for Molecular Pathology v. Myriad Genetics, Inc. As needed, we will issue future updates with relevant information regarding the determination of patent eligible subject matter.

We at Stites & Harbison evaluate clients’ inventions and identify subject matter that is likely to be patent eligible. Notwithstanding the outcome in this case, the protection of one’s intellectual property (including computer implemented methods and business methods) through patents will remain a vital tool for profiting from your business’ intellectual capital. Please feel free to contact us if you have would like us to evaluate your business and its intellectual property.

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