Supreme Court Affirms Patent Ineligibility of Business Method Invention in Alice Corp. Decision

By Marcelo Copat, Faegre Baker Daniels LLP

On June 19, 2014, a unanimous U.S. Supreme Court affirmed the judgment of the U.S. Court of Appeals for the Federal Circuit (“Federal Circuit”), holding that claims directed to the “abstract idea of intermediated settlement using some unspecified, generic computer” do not transform the abstract idea into a patent-eligible invention. Alice Corp. owns several patents on schemes to manage risk in financial transactions. At issue was whether the subject-matter of the patented claims is eligible for patent protection under 35 U.S.C. § 101. The District Court held the claims are patent-ineligible. A panel of the Federal Circuit reversed, and the en banc Federal Circuit vacated the panel decision and affirmed the District Court in a plurality opinion. Judges Lourie, Rader, Moore, Newman, and Linn and O’Malley wrote separate opinions.

The Court analyzed the asserted claims using the framework it developed in Mayo Collaborative Services v. Prometheus Laboratories, Inc. in 2012. The framework has two parts. In the first step, determine if the claims are directed to patent-ineligible concepts. In this case, the Court found the claims are patent-ineligible because, like the idea of risk hedging in Bilski v. Kappos, 561 U.S. 593 (2010), the claims are directed to a fundamental economic practice. In the second step, consider the elements of each claim individually and as an ordered combination to determine if the claim includes an “inventive concept.” In Mayo, the Court stated that ‘“[s]imply appending conventional steps, specified at a high level of generality,” was not “enough” to supply an “inventive concept.”’ Here, the Court found that a generic computer implementation failed to convert the abstract idea of intermediated settlement into a patent-eligible invention.

So what claim elements might satisfy the second step of the Mayo framework to convert an abstract idea into a patent-eligible invention? The Court considered that the claimed invention does not “improve the functioning of the computer itself.” Also, unlike the claims at issue in Diamond v. Diehr, 450 U.S. 175 (1981), the claimed invention does not “effect an improvement in any other technology or technical field.” The invention in Diehr was patent-eligible because it used a thermocouple to measure temperatures in a rubber mold, even though the invention also included use of a computer and a mathematical equation.