Last week the U.S. Supreme Court found invalid a patent covering a computer‐implemented method for mitigating “settlement risk” (i.e., the risk that only one party to a financial transaction will pay what it owes) by using a third‐party intermediary. In Alice Corp. v. CLS Bank Int’l, the Court held the invention defined by the claims of the patent to be “patent ineligible.”
The method patent claim the Court considered recites the following steps carried out by computer:
a) “creating” shadow records for each counterparty to a transaction;
b) “obtaining” start‐of‐day balances based on the parties’ realworld accounts at exchange institutions;
c) “adjusting” the shadow records as transactions are entered, allowing only those transactions for which the parties have sufficient resources; and
d) issuing irrevocable end‐of‐day instructions to the exchange institutions to carry out the permitted transactions.
Alice Corp. argued that the claim was patent eligible because these steps “require a substantial and meaningful role for the computer.” In fact, the parties stipulated the claimed method requires the use of a computer to create electronic records, track multiple transactions, and
issue simultaneous instructions. In other words, “[t]he computer is itself the intermediary.”
CLS Bank argued that the claim was patent ineligible because it covered only an abstract idea rather than an inventive concept.
The Patent Act provides:
“Whoever 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.” 35 U.S.C. §101.
The Supreme Court has long held this statute contains an important implicit exception. Laws of nature, natural phenomena, and abstract ideas are not patentable.
The Court discussed what is required for a patent claim to contain an “inventive concept” sufficient to “transform” an abstract idea into a patent eligible application of that abstract idea.
The Court gave the following guidance:
Applying this guidance to the patent claims at issue, the Court stated “the relevant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer.” The Court continued:
“Taking the claim elements separately, the function performed by the computer at each step of the process is ‘[p]urely conventional.’ … Using a computer to create and maintain ‘shadow’ accounts amounts to electronic recordkeeping—one of the most basic functions of a computer…. The same is true with respect to the use of a computer to obtain data, adjust account balances, and issue automated instructions; all of these computer functions are ‘well‐understood, routine, conventional activit[ies]’ previously known to the industry…. In short, each step does no more than require a generic computer to perform generic computer functions.”
The Court then held the method claim patent ineligible and also held, “Because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under §101.”
Our firm has substantial experience patenting computer based inventions dating back to the early 1960’s. We have witnessed the relevant law and technology evolve and are well qualified to help clients identify inventions which are patentable and distinguish those inventions from
abstract ideas which are not. Please contact us if we can help you define and protect patent eligible inventions.