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Generic Computer Implementation Cannot Save Patent-Ineligible Abstract Idea
June 23, 2014

On June 19, 2014, the Supreme Court issued its much-anticipated opinion inAlice Corp. v. CLS Bank Int'l. The Petitioner, Alice Corporation ("Alice Corp.") is the assignee of the four patents at issue which disclose method, system, and media claims related to a computerized scheme for mitigating "settlement risk." Respondents CLS Bank International and CLS Services Ltd. ("CLS") operate a network that facilitates currency transactions. In 2007, CLS filed claims against Alice Corp. seeking a declaratory judgment that the claims at issue were invalid, unenforceable, and not infringed. The parties filed cross-motions for summary judgment as to whether the asserted claims were patent-eligible subject matter under 35 U.S.C. § 101. The District Court held that the claims were patent ineligible for failing to meet the requirements of section 101. On appeal, a divided panel of the Court of Appeals for the Federal Circuit originally reversed the decision of the District Court however, after a rehearing en banc, the Federal Circuit affirmed the opinion of the District Court.

Alice Corp. appealed the decision of the en banc panel of the Federal Circuit to the Supreme Court. The Supreme Court utilized the two-step framework set forth in Mayo Collaborative Servs. v. Prometheus Laboratories, Inc. in order to determine whether (1) the claims at issue are directed to a law of nature, natural phenomenon, abstract idea, or otherwise patent ineligible concept and (2) if so, the elements of the claim both individually and "as an ordered combination" add elements such that the patent ineligible concept was "transformed" into a patent-eligible application.

At the first step, the Supreme Court cited its precedent in Bilski v. Kappos in analyzing the claims at issue. The Court wrote, "Petitioner's claims involve a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk. . . . 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 then compared these claims to the "risk hedging" in Bilski in determining that "intermediated settlement, like hedging, is an 'abstract idea' beyond the scope of § 101." Citing Bilski, the Court rejected Alice Corp.'s argument that the abstract idea category is confined to "'preexisting, fundamental truth[s]' that '"exis[t] in principle apart from any human action.'" As such, the Court held that the claims are "squarely within" the realm of abstract ideas and, thus, directed at patent-ineligible subject matter.

At the second step of the Mayo analysis, the Court reviewed its decisions in Gottschalk v. Benson, Diamond v. Diehr, Parker v. Flook, and Mayo in once again confirming that the "mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention." The Court found the use of the computer in the claim elements was "purely conventional" and amounted to nothing more than "an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer." The Court further found that neither the system nor the media claims were different in substance and simply "recite a handful of generic computer components configured to implement the same idea."

Accordingly, the Supreme Court affirmed the decision of the Federal Circuit, finding the method claims to be patent ineligible and "[b]ecause petitioner's system and media claims add nothing of substance to the underlying abstract idea, we hold they too are patent ineligible under § 101."

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