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What to know after the latest patent ruling by the U.S. Supreme Court

Kari Barnes and Sandra P. Thompson | July 29, 2014
The Alice ruling clarifies patent-eligible software processes.

In June, the U.S. Supreme Court unanimously affirmed its earlier ruling on patent claims involving computers and software. In light of that decision, companies and inventors that have business methods patents, software patents or financial methods-based patents should review their portfolios to ensure that their patents are enforceable and not subject to invalidity attacks.

In essence, the Supreme Court ruled that the software patents at issue were ineligible subject matter, not because they were implemented on a computer, but because they were not novel. Therefore, if you have invented something new that is not simply a programming of an existing business practice on computer hardware, then a patent is still likely available to you. If you are on the other side of this issue, with a business that regularly gets cease and desist letters or license requests from companies that hold these types of patents, you may now have some additional leverage to address these inquiries in your favor.

The Alice ruling

The Supreme Court decided in Alice Corporation v. CLS Bank International that "[b]ecause the claims are drawn to a patent-ineligible abstract idea, they are not patent eligible under Sect. 101." The Supreme Court reiterated the test it developed earlier in the Mayo decision ( Mayo Collaborative Services v. Prometheus Laboratories, Inc.) for these types of patent claims: 1) are the claims directed to a patent-eligible concept or idea, and if not, 2) do the claims merely require generic computer implementation?

In Alice, the claims covered a method, system and computer-readable medium for mitigating settlement risk, such that both sides of a financial exchange are more likely to comply with their obligations before one side initiates a transfer (think escrow agent). The claims required electronic shadow credit and debit records updated in real time from the respective financial institutions, and permitted the transaction only if the shadow records indicated sufficient resources of the parties to satisfy their mutual obligations. The Court summarized the claims as a method "to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary." The Court ruled that the claims were directed to an abstract idea, since the facilitation through a third-party intermediary was "a fundamental economic practice long prevalent in our system of commerce" and therefore, was not directed to a patent-eligible concept or idea. The addition of a generic computer to facilitate the exchange did not supply a new and useful application that would make the claims patent eligible.

Result on patentability

In essence, the Court is not making any revolutionary rulings here. Under Sect. 101, a person must invent a new and useful process, machine, manufacture or composition of matter, or improvement thereof. Laws of nature, natural phenomena and abstract ideas are implicitly excluded as not patentable.


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