ALICE CORPORATION PVT. LTD. V. CLS BANK INTERNATIONAL 134 S. CT. 2347
FACTS
Alice Corporation was the assignee of several patents that contain a scheme for mitigating “settlement risk”. This risk means that only one party to a financial exchange will satisfy its obligation.
The computer acts as a third party in this transaction. The computer creates shadow debit and credit records for each stakeholder party. It obtains a start of the day balance and only allows for transactions according to the amount available as shown on the shadow records. In this way, it mitigates settlement risk by only allowing for transactions which both party have funds for.
ISSUES
Alice Corporation, as assignee of several patents, seeks infringement on three grounds:
Methods Claims (the foregoing method for exchanging obligations)
System Claims (a computer system configured to carry out the method for exchanging obligations)
The media claims (a computer readable medium containing program code for performing the method of exchanging obligations).
Or
Whether the claims were patent eligible under 35 U.S.C.S. § 101, or were instead drawn to a patent ineligible abstract idea?
PROCEDURAL HISTORY
CLS bank filed a suit against Alice Corporation, arguing that the patent claims at issue are unenforceable and invalid. Alice Corporation counterclaims, stating that CLS bank had infringed those copyrights. The district court affirmed that the patents were ineligible because they were related to an abstract idea. The United States Court of Appeals reversed it stating that it is not evident that the patent is tied to an abstract idea. The en blanc federal Court affirmed the decision of the District Court.
LAWS INVOLVED
35 U.S.C. § 101- "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title."
HELD
The Court held that the patents are ineligible and then discusses the first claim of method claims. The Court begins by stating that there are three exceptions to patent protection which is Laws of Nature, Natural Phenomena and abstract ideas. These cannot be patented. This is an implicit exception to Section 101 which provides for patent protection.
The Court then derives the framework to decide how to reach the conclusion if anything falls within the exception by using Mayo Services v. Prometheus Laboratory. First, the patentable concept has to be directed to one of the three patent ineligible concepts. Second, it is necessary to check if anything has been added to the concept. The second step is to search for an “inventive concept” to see if the concept has transformed the patent ineligible idea into something that can be protected.
In the first step, the claims at issue are directed to the patent ineligible concept of an “abstract idea”. The court used Parker v. Flook, which stated that a mathematical formula for computing alarm limits in a catalytic conversion process was an abstract idea. In Bilski v. Kappos, the claims at issue related to hedging which is an abstract idea and cannot be patented. The courts agreed that hedging was a fundamental economic practice and long prevalent in the system of commerce and finance. Drawing from this, the court held that using a third party intermediary, like the concept of hedging, is a fundamental economic practice and has long been used in commerce.
They discuss the use of “clearing house” as an intermediary to reduce such risk and use literature to substantiate. The Petitioners argued that abstract idea have to be “pre-existing fundamental truth that exist in apart from human action” but the court dismissed this stating no such requirement is necessary.
The Court then stated that the patent failed to transform the concept into something patentable, thereby failing the second step of “inventive concept”. The Court again uses the Mayo Case to further its analysis. It states that additional features are required to transform the concept and simply adding conventional steps, which are highly generic, is not enough to be inventive. In the Flook case, the use of a computer for automatic alarm controlling was highly conventional and did not add to the abstract idea. Thus, limiting the use to a particular technological environment is not enough.
In contrast, the Diehr Case 450 U.S. 175, which required the use of a computer for curing rubber was considered to be patent eligible. This was not because it used a computer but because the use of a thermocouple to record temperature measurements was not available beforehand.
This improved an existing technological process and not just because a computer was used. In this case, the use of a computer is conventional as this is mere electronic bookkeeping. All these uses of obtaining data, adjusting balances are conventional uses of a computer. They do not add anything significant and merely apply an abstract idea of intermediated settlement using a generic computer.
The Petitioners concede that the third claim (media) rises or falls with the first claim (method). The court does not look into it. Whereas the second claim, system claim, is concerned the court says it is similar to the first claim of media claim. The specific hardware is concerned, for example a data storage unit, are generic. Thus, the Court affirms the decision of the federal Court.
While applying the §101 exception, it is important to distinguish between patents that claim the 'building blocks’ of human ingenuity and those that integrate the building blocks into something more, thereby "transforming" them into a patent-eligible invention. The former "would risk disproportionately tying up the use of the underlying" ideas and are therefore ineligible for patent protection. The latter pose no comparable risk of pre-emption, and therefore remain eligible for the monopoly granted under our patent laws.
First, the courts determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, then the courts ask, "what else is there in the claims before us?" To answer that question, we consider the elements of each claim both individually and "as an ordered (as in, step-wise) combination" to determine whether the additional elements "transform the nature of the claim" into a patent-eligible application. This step two of this analysis is a search for an "'inventive concept'"i. e., an element ‘or combination of elements that is "sufficient” to ensure that the patent in practice amounts to significantly more” than a patent upon the ineligible concept itself.
The claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent eligible invention.
Specifically, the concept of intermediated settlement was a fundamental economic practice, and the use of a third party intermediary was a building block of the modern economy. The method claims, which merely required generic computer implementation, failed to transform the abstract idea into a patent eligible invention. The computer components of the patent's method added nothing that was not already present when the steps were considered separately. The assignee's claims to a computer system and a computer readable medium failed for substantially the same reasons.