Alice Corp. v. CLS Bank International

Alice Corp. v. CLS Bank International

Argued March 31, 2014
Decided June 19, 2014
Full case name Alice Corporation Pty. Ltd. v. CLS Bank International, et al.
Docket nos. 13-298
Citations

573 U.S. ___ (more)

134 S.Ct. 2347
Holding
Merely requiring generic computer implementation fails to transform an abstract idea into a patent-eligible invention.
Court membership
Case opinions
Majority Thomas, joined by unanimous court
Concurrence Sotomayor, joined by Ginsburg, Breyer
Laws applied
35 U.S.C. § 101

Alice Corp. v. CLS Bank International was a legal case about patentable subject matter (patent eligibility)[1] that the United States Supreme Court heard in 2014. The case presented the issue of whether certain claims about a computer-implemented, electronic escrow service for facilitating financial transactions concern abstract ideas ineligible for patent protection.[2] The patents were held to be invalid because the claims were drawn to an abstract idea, and implementing those claims on a computer was not enough to transform that idea to a patentable invention.[3] It was the first Supreme Court case on the patent eligibility of software since Bilski v. Kappos in 2010, which was the first such case in three decades.[4]

Background

Alice Corporation ("Alice") owns four patents on electronic methods and computer programs for financial-trading systems on which trades between two parties who are to exchange payment are settled by a third party in ways that reduce "counterparty" or "settlement" risk, or the risk that one party will perform while the other will not. According to Alice's account, CLS Bank International and CLS Services Ltd. (collectively "CLS Bank") began to use a similar technology in 2002. Alice notified CLS Bank of its probable infringement of Alice's patents, and the companies discussed licensing of the patents.[5]

The relevant claims are in these patents:

The three later patents are all derived from the first through continuation and/or continuation-in-part applications.

The concept of a third-party to confirm a complete transaction is called escrow, and has been used in finance for thousands of years. The patents in question described how the escrow function could be performed by a general-purpose computer. However, they did not describe how such a computer would work, and did not include any source code or specifications. Australian Ian Shepherd received the patents in 1999, and then formed Alice Corporation to own the patent. However, Alice never produced any such computer system as described, or used the patents in any of its business. As a result the company has been called a patent troll. CLS, a consortium of banks, has actually developed such a computer system that it uses to facilitate US$5 trillion in transactions every day.[6]

US Patent law specifies several requirements before something can receive a patent. 35 U.S.C. §101 of the federal patent law has been interpreted as implicitly disqualifying abstract ideas from being patented and forbidding patents on laws of nature and physical phenomena. 35 U.S.C. §102 requires the submission to be novel, and sets out conditions for what can be used as prior art. 35 U.S.C. §103 requires that patentable claims should not be obvious to someone familiar with the subject. 35 U.S.C. §112 requires (among others) that patents must be clear and detailed enough for someone familiar with the subject to implement it. Alice Corporation's patents have been argued invalid under all of these sections, but the primary litigation focus has been on Section 101 and if Alice's patents claim an abstract idea.[6]

Lawsuits

In 2007, CLS Bank sued Alice in the United States District Court for the District of Columbia seeking a declaratory judgment that Alice's patents were invalid and unenforceable and that CLS Bank had not infringed them. Alice countersued CLS Bank for infringement of the patents. After the court had allowed initial, limited discovery on the questions of CLS Bank's operations and its relationship to the allegedly infringing CLS Bank system, the court ruled on the parties' cross-motions for summary judgment, declaring each of Alice's patents invalid because the claims concerned abstract ideas, which are not eligible for patent protection under 35 U.S.C. § 101.[7] The court stated that a method “directed to an abstract idea of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk” is a “basic business or financial concept,” and that a “computer system merely ‘configured’ to implement an abstract method is no more patentable than an abstract method that is simply ‘electronically’ implemented.”[8] The district court judge followed Bilski v. Kappos as precedent, in which the 2010 Supreme Court held that certain claims to business methods for hedging against the risk of price fluctuations when trading in commodities markets were not patent-eligible because they covered the abstract idea of hedging against risk.[7] In the Bilski case the Supreme Court had said that allowing such claims would preempt the use of risk-hedging in all fields and grant a monopoly over an abstract idea.[9]

Appeals

The judges of the Federal Circuit in 2012.

Alice appealed the decision and the case went to the United States Court of Appeals for the Federal Circuit. A panel of the appeals court decided by 2-1 in July 2012 to reverse the lower court's decision. The panel held that computer-implemented inventions like Alice's are patent-eligible under § 101 unless it is “manifestly evident” that the claims are about an abstract idea; that is, “the single most reasonable understanding is that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application.”[10]

CLS Bank petitioned the same Federal Circuit court for an en banc rehearing. The court granted the petition and vacated the earlier panel's decision in order to decide the following questions: what test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea; whether the presence of a computer in a claim could ever make patent-ineligible subject matter patentable; and whether method, system, and media claims should be considered equivalent under § 101. The fractured panel of ten judges issued seven different opinions, with no opinion supported by a majority. Seven of the ten judges upheld the district court's decision that Alice's method claims and computer-readable-medium claims were not patent-eligible, but they did so for conflicting and incompatible reasons. Five of the ten judges upheld the district court's decision that Alice's computer-systems claims were not patent-eligible. The panel did not agree on a standard to determine whether a computer-implemented invention is a patent-ineligible, abstract idea.[11]

In the leading, five-member, concurring opinion by Circuit Judge Lourie, joined by Circuit Judges Dyk, Prost, Reyna, and Wallach, a plurality of the court articulated an analysis of patent-eligibility focused on first identifying the abstract idea or fundamental concept applied by the claim and then determining whether the claim would preempt the abstract idea.[12] The analysis involves four steps:

  1. determine whether the claimed invention fits within one of the four classes in the statute: process, machine, manufacture, or composition of matter;
  2. determine whether the claim poses a risk of "preempting an abstract idea";
  3. identify the idea supposedly at risk of preemption by defining "whatever fundamental concept appears wrapped up in the claim";
  4. in a final step called "inventive concept" analysis, determine whether there is genuine, human contribution to the claimed subject matter. The "balance of the claim," or the human contribution, "contains additional substantive limitations that narrow, confine, or otherwise tie down the claim so that, in practical terms, it does not cover the full abstract idea itself." This analysis "considers whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself."[13]

Regarding "human contribution," the Lourie opinion pointed to four questions to ask, which are potentially subjective factors weighing against patent-eligibility:

  1. whether it is necessary to every practical use of the abstract idea and therefore is not truly limiting;
  2. whether it "amount[s] to more than well-understood, routine, conventional activity previously engaged in by researchers in the field";
  3. whether it consists of "token or trivial limitations," such as insignificant post-solution activity; and
  4. whether it is a field-of-use limitation where "the claim as written still effectively preempts all uses of a fundamental concept within the stated field."[14]

The Lourie analysis is framed by three common themes in Supreme Court decisions:

  1. first and foremost, "an abiding concern that patents should not be allowed to preempt the fundamental tools of discovery" and inhibit further discovery or invention;
  2. "caution against overly formalistic approaches to subject-matter eligibility that invite manipulation by patent applicants," noting that the "Supreme Court's precedents require that we look past . . . devices when analyzing a claim to consider its true practical effect with respect to the purpose of § 101—preserving the 'basic tools' of scientific discovery for common use"; and
  3. "a flexible, case-by-case approach to subject-matter eligibility that avoids rigid line drawing" and "can adapt and account for unanticipated technological advances."[15]

Chief Judge Rader and Circuit Judges Linn, Moore, and O'Malley filed an opinion concurring in part and dissenting in part, which articulated a patent-eligibility analysis focused on determining whether the claim, as a whole, was limited to an application of an abstract idea, or was merely a recitation of the abstract idea. Under the Rader approach, Alice's patents would have been held patent-eligible because the system claims were limited to a computer-implemented application.[16] Judge Rader filed "additional reflections" to the ruling (not signed by other judges) expressing his read of the statute as allowing very broad patentability under § 101, and his understanding that natural laws are restricted to "universal constants created, if at all, only by God, Vishnu, or Allah." Referencing Einstein, he states that "even gravity is not a natural law.".[17]

“ [I]f all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents. ”

—Circuit Judge Kimberly Ann Moore, dissenting in part, [18]

Circuit Judge Moore filed an opinion dissenting in part, in which Chief Judge Rader and Circuit Judges Linn and O'Malley joined, which stated, based on reasoning similar to the Rader approach, that a claim must be considered as a whole and that Alice's computer-systems claims should have been ruled patent-eligible. The opinion cautioned that "if all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents."[18]

Circuit Judge Newman filed an opinion concurring in part and dissenting in part, which called for the Federal Circuit to clarify the interpretation of § 101 by affirming three fundamental principles: that § 101 is an inclusive statement of patentable subject matter, that the form of the claim is not relevant to patent-eligibility, and that experimental use of patented subject matter, such as experiments that improve or build upon patented subject matter, compare it with alternatives, seek to understand its mechanisms, or seek to find new applications of it, is not patent-ineligible.[19]

Circuit Judges Linn and O'Malley filed a dissenting opinion that, for procedural reasons, the lower court should have been reversed and all claims ruled patent-eligible. The opinion agreed with the Rader opinion with respect to the computer-systems claims but would have applied the Rader analysis to all the claims and would have had all claims rise or fall together. The opinion called for legislative, rather than judicial, action to address the "proliferation and aggressive enforcement of low quality software patents" cited in the many amicus curiae briefs and suggested laws to limit the term of software patents or limit the scope of patents by requiring functional claiming.[20]

Supreme Court

The Supreme Court of the United States granted Alice's petition for a writ of certiorari to decide the question "[w]hether 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."[21]

The keen interest of the software industry and patent experts in the issue was illustrated by the many companies and groups that had filed amicus curiae briefs urging the Supreme Court to decide this issue, including the Electronic Frontier Foundation, Software Freedom Law Center, Institute of Electrical and Electronics Engineers, Intellectual Property Law Association of Chicago, and Accenture Global Services.[22] Nearly all such briefs argued that the patent should be invalidated. They disagreed on the reasoning. A brief prepared by Google, Amazon and other companies argued that the patent was of an abstract idea, which actually harms innovation, and that the real innovation lies in detailing out a working system. Microsoft, Adobe and Hewlett-Packard argued it was nothing more than an unpatentable business method (per Bilski v. Kappos) and merely saying to perform it with a computer does not change this fact. Linkedin, Netflix and others, and a separate brief by the Free Software Foundation and others both argued that no software should be patented, as this blocks innovation and scientific collaboration. IBM disagreed with the "abstract ideas" reasoning and argued that the patent should instead be struck down for being too obvious. Finally, a consortium of retailer and manufacturers, including Dillard's and Hasbro, simply asked for a clear rule.[6]

The Court heard oral arguments in the case on March 31, 2014,[23] and issued a ruling on June 19, 2014.[24] Arguing for Alice Corp. was Carter G. Phillips of Sidley Austin, and arguing for CLS Bank is Mark A. Perry of Gibson, Dunn & Crutcher. The court agreed with those filing amicus curiae briefs and unanimously invalidated the patent.

Reception

According to The Washington Post, "while the court struck down what was universally said to be a bad patent, it didn't do much to say what kinds of software should be patentable. In other words, the court decided the most basic conflict in the case, but more or less declined to offer guidance for other, future cases."[25]

The Electronic Frontier Foundation said the Supreme Court "reaffirmed that merely adding “a generic computer to perform generic computer functions” does not make an otherwise abstract idea patentable. This statement (and the opinion itself) makes clear that an abstract idea along with a computer doing what a computer normally does is not something our patent system was designed to protect. Admittedly, the Supreme Court did not offer the clearest guidance on when a patent claims merely an abstract idea, but it did offer guidance that should help to invalidate some of the more egregious software patents out there."[26]

The Software Freedom Law Center said the Supreme Court "took one more step towards the abolition of patents on software inventions. Upholding its previous positions, the Court held that abstract ideas and algorithms are unpatentable. It also emphasized that one cannot patent “an instruction to apply [an] abstract idea ... using some un-specified, generic computer.”"[27]

The Coalition for Patent Fairness, which advocates for patent reform legislation, said "neither the ruling—nor any single act by the court or the executive branch—can do what is needed to make the business model of being a patent troll unprofitable and unattractive."[25]

Some commentators expressed disappointment with the opinion because it did not define more comprehensively the boundaries between abstract ideas and patent-eligible implementations of ideas. They were particularly critical of Justice Thomas's statement—"In any event, we need not labor to delimit the precise contours of the 'abstract ideas' category in this case. It is enough to recognize that 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."[28] For example, Prof. Robert Merges said, “To say we did not get an answer is to miss the depth of the non-answer we did get.”[29] Prof. John Duffy remarked, "[T]he Supreme Court has been remarkably resistant to providing clear guidance in this area, and this case continues that trend."[30] Law Comics cartooned Justice Thomas saying that "we need not labor..." and replied "yes you do!" while wagging a finger at him as an accompanying article asserted that his opinion “baulked at the messy, challenging issues surrounding software” and was “not a particularly useful” decision about patenting software.[31] Prof. Richard Stern defended the opinion as "the expectable price of unanimity in a nine-member tribunal," arguing that the "greater sensed legitimacy and precedential stability" of a unanimous opinion "outbalanced" the shortcomings of a lack of clear guidance as to details; this commentator also asserted that "it is sensible to make narrow, incremental rulings as to software patent eligibility, because at present we are not so well informed that we can speak with confidence in very broad terms."[32]

See also

References

  1. ↑ Since about 2000, the US Supreme Court and lower federal courts have tended to use the term "patent eligibility" rather than the terms "patentable subject matter" or "statutory subject matter" to describe the kinds of thing that can be patented, in contrast to the kinds of thing, such as ideas, laws of nature, and principles, on which patents may not be granted. Recent Supreme Court opinions use the term "patent eligible" (and its converse "patent ineligible") almost exclusively in this connection. The opinion in the Alice case discussed in this article is an example illustrating the point. In current US usage, the term "patentability" is reserved to describe failure to meet other requirements for a patent grant, such as not being obvious over the prior art, satisfying the enablement requirement, and the like.
  2. ↑ "Alice Corporation Pty. Ltd. v. CLS Bank International at supremecourt.gov". SCOTUSblog. Retrieved 2014-06-24.
  3. ↑ "Alice Corporation Pty. Ltd v.CLS Bank International et al." (PDF). Retrieved 2014-06-24.
  4. ↑ Lee, Timothy B. (February 26, 2014). "Will the Supreme Court save us from software patents?". The Switch (blog) (Washington Post). Retrieved 2014-06-24.
  5. ↑ Patents, on Alice web site, giving a timeline and list of patents
  6. ↑ 6.0 6.1 6.2 Roger Parloff (March 28, 2014). "Supreme Court to decide when ideas become too 'abstract' to patent". Fortune. Retrieved June 19, 2014.
  7. ↑ 7.0 7.1 CLS Bank Int'l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221 (D.D.C. 2011) at Casetext site
  8. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 768 F. Supp. 2d 221, 242-255 (D.D.C. 2011) at Casetext site
  9. ↑ Bilski et al. v. Kappos, 561 U.S. ___, 130 S.Ct. 3218, 3231 (2010) at supremecourt.gov
  10. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 685 F.3d 1341, 1352 (Fed. Cir. 2012) at Casetext site
  11. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  12. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1282, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  13. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1282-83, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  14. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1283-84, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  15. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1279-82, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  16. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1292-313, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  17. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1333-36, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  18. ↑ 18.0 18.1 CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1313-21, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  19. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1321-27, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  20. ↑ CLS Bank Int'l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1327-33, 106 U.S.P.Q.2d 1696, 2013 ILRC 1851 (Fed. Cir. 2013) [2013 BL 124940] at Bloomberg Law site
  21. ↑ Questions Presented at supremecourt.gov, viewed Dec 31, 2013
  22. ↑ Docket File No. 13-298, at supremecourt.gov, viewed Jan 8, 2014
  23. ↑ Arguments Calendar: Session Beginning March 24, 2014, at supremecourt.gov, viewed Jan 10, 2014
  24. ↑ Alice Corp Pty Ltd v CLS Bank International, 573 U.S. __, 134 S. Ct. 2347 (2014) (Thomas J.)
  25. ↑ 25.0 25.1 Fung, Brian (June 20, 2014). "The Supreme Court’s decision on software patents still doesn’t settle the bigger question". The Switch (blog) (Washington Post). Retrieved 2014-06-24.
  26. ↑ Nazer, Daniel; Ranieri, Vera (June 19, 2014). "Bad Day for Bad Patents: Supreme Court Unanimously Strikes Down Abstract Software Patent". Electronic Frontier Foundation. Retrieved 2014-06-24.
  27. ↑ "Supreme Court issues unanimous decision in Alice Corp. v. CLS Bank". Software Freedom Law Center. June 19, 2014. Retrieved 2014-09-20.
  28. ↑ Alice, 134 S. Ct. at 2357 (2014).
  29. ↑ Robert Merges. Go ask Alice—what can you patent after Alice v. CLS Bank? June 20, 2014. SCOTUSblog.
  30. ↑ John Duffy. The uncertain expansion of judge-made exceptions to patentability. June 20, 2014. Scotusblog.
  31. ↑ “Alice in Patentland is a comic about patent law”. Wired.
  32. ↑ Richard H. Stern, Alice v CLS Bank: US Business Method and Software Patents Marching towards Oblivion?, [2014] Eur. Intell. Prop. Rev. 619, 629.

Further reading