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June 19 — A method, a computer system, and a computer-readable medium to carry out a method for ensuring that a party to a contract has funds in its account to fulfill the contract are drawn to a patent-ineligible abstract idea, the U.S. Supreme Court held June 19 in a unanimous decision.
Affirming a ruling by the U.S. Court of Appeals for the Federal Circuit, the high court echoes a 2010 ruling that killed a patent on a computer algorithm for hedging investment risks.
The court's opinion was authored by Justice Clarence Thomas. Justice Sonia M. Sotomayor filed a brief concurring opinion—that was joined by Justice Ruth J. Bader Ginsburg and Justice Stephen G. Breyer—stating that business methods in general should be considered unpatentable.
In Bilski, the concurring justices numbered four—Sotomayor, Ginsburg, and Breyer joined a concurring opinion by John Paul Stevens, who retired in 2010. Stevens's successor, Justice Elena Kagan, did not join the concurrence this time, suggesting that the balance of justices who believe that all business methods should be unpatentable has shrunk.
Matthew J. Dowd of Wiley Rein LLP, Washington, D.C., told Bloomberg BNA that this was at least a sign that “there may yet be life in business method claims.”
Bilski v. Kappos, 130 S. Ct. 3218, 2010 BL 146286, 95 U.S.P.Q.2d 1001 (2010), ruled that a computer algorithm by itself was not patent eligible under Section 101 of the Patent Act. However, it did not answer whether including implementation by a computer in the claims would have made it patentable.
Observers told Bloomberg BNA that this decision seemed to definitively answer at least one broad question, whether simply reciting application by a computer could render an abstract idea patentable.
Stuart P. Meyer of Fenwick & West LLP, Mountain View, Calif., said that the court “once again resorts to the ‘abstract idea' analysis” while giving “virtually no guidance as to how one could tell what qualifies as an ‘abstract idea.' ”
“We are all left wondering,” Meyer told Bloomberg BNA, “how anyone is supposed to undertake this analysis, with such little guidance being provided. The Court tells us to ignore computer implementation unless it does more than ‘apply the abstract idea … using some unspecified generic computer.' Accordingly, the potential impact of this case on other software patents is large but significant further litigation will be needed before we see the contours of what is considered ‘abstract' by courts.”
John F. Murphy of Baker & Hostetler LLP, Philadelphia, also noted that the court had explicitly avoided offering a strict definition of an abstract idea
Furthermore, he said, in saying that recitation of the use of a computer that could be applied by taking “purely conventional” steps was not transformative, the court also did not specify “what makes the computer aspects of a claim more than merely conventional?”
“These questions have been, and still are, of profound interest to the computer software industry,” Murphy said.
Adam Mossoff, a law professor at George Mason University, Arlington, Va., agreed that it was a concern that there was “little to no legal guidance” regarding application of the decision in the future.
However, he said, “the one ray of hope in this decision is that, similar to its affirmation of the patentability of business methods in Bilski, the Court in Alice Corp. expressly holds that ‘many computer-implemented claims are formally addressed to patent-eligible subject matter.' Thus, innovative software inventions in the high-tech industry are now definitively deemed patentable.”
This ruling seems to close that loophole, blocking any attempt to get around Bilski by including computer implementation in the claims.
The court said “there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of ‘abstract ideas' as we have used that term.”
Mayo Collaborative Servs. v. Prometheus Labs. Inc.,132 S. Ct. 1289, 2012 BL 66018, 101 U.S.P.Q.2d 1961 (2012), required that a claim that begins with an abstract idea must incorporate an “inventive concept” that is “sufficient to ‘transform' the claimed abstract idea into a patent-eligible application.”
According to the court, “The introduction of a computer into the claims” was insufficient to meet this requirement. The court said:
There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter. But if that were the end of the §101 inquiry, an applicant could claim any principle of the physical or social sciences by reciting a computer system configured to implement the relevant concept. Such a result would make the determination of patent eligibility “depend simply on the draftsman's art,” … thereby eviscerating the rule that “ ‘[l]aws of nature, natural phenomena, and abstract ideas are not patentable,' ” ….
The dispute began with four patents held by Alice Corp. (U.S. Patent Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375) related to the formulation and trading of risk management contracts. It sued CLS Bank International, alleging patent infringement. Before the Federal Circuit sitting en banc, the method claims fell in a 7-3 decision, but the appeals court was split 5-5 on the system claims.
The Supreme Court granted a writ of certiorari in the case on the following questions:
Whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 U.S.C. §101 as interpreted by this Court?
The court's opinion began with the assertion that 35 U.S.C. §101—which states what subject matter is patent-eligible—had “for more than 150 years” been subject to an exception that “Laws of nature, natural phenomena, and abstract ideas are not patentable.”
“At the same time, we tread carefully in construing this exclusionary principle lest it swallow all of patent law,” the court said.
Mayo established a two-part test for application of this principle, the first step being to determine “whether the claims at issue are directed to a patent-ineligible concept.” The second step was whether the claims incorporated any “inventive concept,” or “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.”
Bilski found that a “method for hedging against the financial risk of price fluctuations” was directed at the abstract idea of hedging. Similarly, the patent at issue in the instant case was also “directed to an abstract idea.”
“On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk,” the court said. “Like the risk hedging in Bilski, the concept of intermediated settlement is ‘ “a fundamental economic practice long prevalent in our system of commerce.” ' ”
The court rejected Alice's argument that “the abstract ideas category is confined to ‘preexisting, fundamental truth[s]' that ‘ “exis[t] in principle apart from any human action.” ' ” The court said:
Bilski belies petitioner's assertion. The concept of risk hedging we identified as an abstract idea in that case cannot be described as a “preexisting, fundamental truth.” the patent in Bilski simply involved a “series of steps instructing how to hedge risk.” … Although hedging is a longstanding commercial practice, … it is a method of organizing human activity, not a “truth” about the natural world “ ‘that has always existed,' ” ….
The court concluded that there was “no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.”
Thus, having found that the claims had described an abstract idea under the first Mayo step, the court moved to the second step, and concluded that Alice's method claims “fail to transform that abstract idea into a patent-eligible invention.”
The court found no “inventive concept” that might constitute such transformation.
“The introduction of a computer into the claims does not alter the analysis at Mayo step two,” the court said.
More specifically, “the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea ‘while adding the words “apply it” ' is not enough for patent eligibility,” the court said. “Nor is limiting the use of an abstract idea ‘ “to a particular technological environment.” ' ”
Indeed, the court said, applying an abstract idea by specifying only that it be done with a computer “simply combines those two steps” of Mayo.
The method claims in this case simply amounted to directing the application of an abstract idea with an “unspecified, generic computer,” the court said. There was no inventive step that transformed this into an invention.
The claims to the computer system and computer-readable medium failed under the same reasoning, the court said, after concluding that “the system claims are no different from the method claims in substance.”
To contact the reporter on this story: Anandashankar Mazumdar in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Naresh Sritharan at email@example.com
Text is available at http://pub.bna.com/ptcj/13298SupCtAlice20140619.pdf.
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