Yesterday, the U.S. Supreme Court unanimously ruled that implementing an otherwise unpatentable idea in software doesn’t magically make it patentable. But the decision in the much-anticipated Alice Corp. v. CLS case is only the latest in a string of high-court cases on patent eligibility that advances the law only incrementally and raises at least as many questions as it answers.
Alice’s patents in question involved a “computer-implemented scheme for mitigating ‘settlement risk’” via a third-party intermediary. Specifically, the claims use a computer system as a neutral middleman that exchanges obligations between parties to a transaction and ensures neither party assumes obligations in excess of its available resources.
The trial court invalidated these claims, finding they entailed a mere abstract idea of using an intermediary to minimize risk. The appellate court agreed, with a handful of dissents.
The Supreme Court, in turn, affirmed (0) the lower courts, finding that this abstract idea was not eligible for patent protection. The Patent Act defines patentable subject matter to include “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” As the court explained in a 2010 landmark case, Bilski v. Kappos (1), natural phenomena and abstract ideas are not included (the technology there (2) concerned a method for hedging against price fluctuations in financial markets).
But what qualifies as sufficiently “abstract” to negate patent protection? Put differently, when are such ideas applied to the real world with adequate vigor as to merit patent eligibility? The justices addressed this issue in another recent case, Mayo Collaborative Services v. Prometheus Laboratories (3) (2012), where it articulated a two-part test: first, do the claims involve an abstract idea? Second, if they do, “what else is there in the claims before us?” In other words, is there anything in the claims that “transforms” the abstract into the concrete?
The Mayo case involved a diagnostic method of administering a drug, assessing blood solute concentrations, and calibrating the dosage as necessary. And in Alice, the Supreme Court applied the same framework to business methods and their instantiation in software.
Specifically, Justice Thomas, writing for a unanimous court, found, first, that the claims in Alice’s patents were indeed “drawn to the abstract idea of intermediated settlement” and that “there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here.”
And second, the Supremes held that Alice’s claims “fail to transform that abstract idea into a patent-eligible invention,” and that merely using a computer to implement a settlement strategy wasn’t enough. In Thomas’s memorable verbiage:
the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea “while adding the words ‘apply it’” is not enough for patent eligibility… Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result.
In addition, three justices – Sotomayor, Ginsburg, and Breyer – concurred with the ruling, adding more broadly that a “claim that merely describes a method of doing business does not qualify” as a patentable process, citing Justice Stevens’s concurrence in Bilski.
So the high court held in fairly clear terms that abstract business methods can never be patent-eligible if those methods are simply executed by a computer program. The ruling represents an incremental advance over Bilski and Mayo, but certainly not the dramatic overhaul to software patents that some had predicted.
“Today [the justices] closed the circle in Mayo and Bilski,” my law partner John Dragseth told Forbes (4), “and brought a grand unifying approach. Usually when you get a grand unifying theory, you get clarity. Not here.” [Disclosure: my firm represented the Mayo Clinic in Mayo v. Prometheus, although I was not personally involved in the case.]
Indeed, in this space (5) a few weeks ago, Kristen Osenga rightly urged the Supremes not to “issue a general rule regarding patent eligibility of software and computer-related technology based on this case,” and sure enough, the justices heeded her advice. As Justice Sotomayor asked rhetorically during oral argument in Alice, “what is the necessity for us to announce a general rule with respect to software? There is no software being patented in this case.”
Thus, far from eroding the patentability of software, the high court left computer patents more or less intact, to the satisfaction of some.
“Microsoft is pleased that the Court has confirmed existing law that abstract ideas are not eligible for patent protection, and distinguished the Alice patent from software inventions,” said Horacio Gutierrez, Microsoft’s Deputy General Counsel and Vice President of Legal and Corporate Affairs. “Software powers nearly every inventive device, service and product in our world today, and providing patent protection for software-enabled technologies is critical to incentivizing innovation in every industry and sector of the economy.”
So in the end, Alice didn’t squash software patents, it didn’t totally eviscerate business method patents, and it goes little further than Bilski or Mayo in sharpening the line between the abstract and the concrete. All in a day’s work.