Reed Smith Client Alerts

Authors: Cynthia E. Kernick

In a unanimous decision yesterday, the United States Supreme Court provided much-needed clarity on the issue of patentable subject matter in Alice Corporation Pty. v. CLS Bank International. Although the issue presented to the Court was similar in many ways to that addressed in Bilski v. Kappos, 561 U.S. 593 (2010), and the Court reiterated its position in Bilski, the import of the Alice decision is its unanimous illumination on the issue of patentable subject matter that should serve to ameliorate the confusion caused by the clearly diverse views held by Federal Circuit judges as to the import of both Bilski and the related Mayo Collaborative Services v. Prometheus Labs., Inc., 566 U.S. ___ (2012)—views that have created inconsistent determinations on section 101 issues presented to various Federal Circuit panels. The patent obtained by Alice was drawn to a computer scheme for mitigating the settlement risk that only one party to an agreed-upon financial exchange will satisfy its obligation, an “invention” that suffered in many ways from the same ills as Bilski’s invention of a method for hedging against the financial risk of price fluctuation.

In the en banc Federal Circuit decision that led to yesterday's result, one set of judges (Judges Lourie, Dyk, Prost, Reyna and Wallach) hued closely to the Supreme Court’s Bilski caution that merely using a general purpose computer to “apply” an abstract idea could not be patentable subject matter, and also adopted the Supreme Court’s framework set forth in Mayo that required a search for an “inventive concept” within a claimed invention to help determine whether the test for patentable subject matter has been made.

In contrast, Federal Circuit Judges Rader, Linn, Moore and O’Malley first dismissed the merits of the “inventive concept” framework. They then appeared to argue that the combination of a general purpose computer and software code written to apply the abstract idea of mitigating settlement risk created a “new” machine that, in and of itself raised the abstract idea to a patentable level because the computer with the new software would no longer, in their view, be “general purpose.” This group of judges believed that no particular type of limitation of a general purpose computer is necessary to bring an abstract concept within patentable subject matter, and “meaningful limitations may include the computer being part of the solution, being integral to the performance of the method, or containing an improvement in computer technology.” The first two of the offered trilogy of limitations is what caused the division between the respective Federal Circuit opinions.

As a result of these divergent views, while the entire Federal Circuit agreed that the method—standing alone and sans computer—would not be patentable, the Judge Rader-led group would have found that the combination of the abstract intermediated settlement plus computer plus software to apply the abstract idea to be patentable. It was this vast gulf that required the Supreme Court’s attention.

In contrast with the lengthily and sometimes confusing opinion by the Supreme Court in Bilski, the 17-page opinion of Alice provides clear instructions going forward. No matter what software is installed on a computer to “apply” the abstract idea, it does not automatically create a “new machine” that constitutes patentable subject matter, as thought by at least some Federal Circuit judges. If the abstract idea is merely implemented on a general purpose computer with software to apply the abstract idea, even with specialized software, it must either provide for an improvement in the operation of the computer itself, or provide an improvement in another technology or technical field to meet the standard of patentable subject matter. Where a generic computer performs conventional computer steps in the application of an abstract idea, it cannot meet the requirement for patentable subject matter.

Justices Sotomayor, Ginsburg and Breyer filed a short concurrence that restated their prior position in Bilski, one that might be simpler, but could be significantly broader than yesterday’s decision. It remains their view that a “claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.”

Client Alert 2014-176