Exploring the abstract: patent eligibility post Alice Corp. v. CLS Bank.

• Author: Clizer, John

Alice Corp. Pty. Ltd. v. CLS Bank International, 134 S. Ct. 2347 (2014).

1. INTRODUCTION

   Most Americans are probably aware of the patent system. For instance, most people know that someone who develops a new machine or process can seek a patent for it from the U.S. government. (1) Most people are also probably aware that there must be some limits on what things can and cannot be patented. For instance, the idea that one could not patent such things as the moon or the sun, forces of nature such as wind or gravity, or abstract things such as love, trust, or happiness would not be surprising to many. It can become somewhat more difficult to consider whether one should be able to patent more concrete things. For instance, while one might assume that Sir Isaac Newton might not have been able to take out a patent on the concept of gravity, what about his law of universal gravitation or its accompanying mathematical equation--things that took considerable work and effort to develop? Could Albert Einstein have sought a patent for his famous mass energy equivalence equation? Could the Ford Motor Company receive a patent on its process of assembling cars using interchangeable parts on an assembly line? Could someone seek to patent such elementary business practices as double-entry bookkeeping, collective investments through the use of mutual funds, or the use of a clearinghouse to reduce settlement risk? Could someone claim a patent on an improvement on these business methods by, say, introducing the use of a computer?

   These questions lie at the heart of the U.S. Supreme Court's decision in the case of Alice Corp. Pty. Ltd. v. CLS Bank International. (2) The decision concerns one of the three longstanding common law exceptions to patent eligibility: abstract ideas. (3) In the course of the decision, the Court attempted to settle an issue that it had seldom addressed. The patents at issue in the case reflect concerns surrounding the patenting of both business methods and software, two areas that have proved somewhat complicated for the lower courts to navigate. (4) At heart, the claimed patents represent a process for performing business transactions, commonly referred to as business method patents. But the primary improvement claimed in the patent was the application of a computer and related software. Thus, the Court's decision reflected on both areas of patent law. In a unanimous decision, the Court determined that the claimed patents were drawn to an abstract idea and were therefore ineligible for patent protection. (5)

   While the outcome of the case is noteworthy, the real significance is that the Court used this case to formally adopt a new test to be applied in cases concerning potential abstract ideas. This test is actually a reconfiguration of an earlier test developed for a similar problem regarding the so-called natural phenomenon exception. (6) The test consists of two parts. (7) The first asks whether there is, in fact, an abstract idea in the claimed patent. (8) The second part then goes on to ask if there is any "inventive concept" that will transform the abstract idea and make it patent eligible. (9)

   While the adoption of this test is helpful because it takes the burden off the lower courts to devise their own tests, the decision leaves open quite a few questions and raises several new ones. For instance, the Court directly refused to give a definition of the term "abstract," though it did help provide some important clues that build and expand on previous precedent and potentially widen its use. (10) There is also a concern regarding the "inventive concept" requirement in that this seemingly innocuous phrase may be misinterpreted to mean less than the Court meant it to say. Finally, there is the ever-important concern of reading this case in light of past decisions including the seemingly contradictory case of Association for Molecular Pathology v. Myriad Genetics in order to grasp a full understanding of the Court's decisions in the area of patent eligibility." Indeed, Alice will clearly have a profound impact on the law of intellectual property, though it is difficult to determine exactly what those eventual effects will be.

   This Note first sets forth the facts and the ultimate holding of the Supreme Court's decision in Alice. It then details the historical background surrounding the ineligibility of abstract ideas for patent protection that has arisen from the Supreme Court and lower federal courts' past decisions. Next, it examines in more in detail the Court's reasoning as applied in this particular case. Finally, this Note discusses several of the questions raised by the Court's decision: what exactly constitutes an "abstract idea," what is the full meaning of the Court's "inventive concept" requirement, and how are we to interpret this decision in light of Court's decision in Myriad?

2. FACTS AND HOLDING

   Alice Corporation ("Alice Corp."), an Australian entity and the petitioner in the suit, was the assignee of four patents granted by the U.S. Patent and Trademark Office between 1993 and 2005. (12) The purpose of the underlying invention in these patents was to mitigate settlement risks, the risk that only one party in a financial exchange will satisfy its obligation. (13) The patents did this through the use of a computer as a third party intermediary. (14) The computer was tasked with creating "shadow" accounts that mirrored the real world accounts of exchange institutions such as banks. (15) The computer updated these accounts in real time as transactions occurred and only allowed transactions when the records indicated that the transacting party had sufficient funds to satisfy the obligation. (16) The computer then passed along only the allowed transactions to the actual financial institutions, "thus mitigating the risk that only one party would perform the agreed upon exchange." (17) Put in substantially simpler terms, the patent was a way of performing the functions typically performed by a clearinghouse with a computer. (18) The actual patents included both the described method for mitigation risk, a computer system for carrying out the method, and the media that contained the program code. (19)

   CLS Bank International and CLS Services Ltd., which together form CLS Bank, the respondent in the case, is a company that operates "a global network that facilitates currency transactions." (20) In May 2007, CLS brought suit against Alice Corp. in the Federal District Court for the District of Columbia "seeking a declaratory judgment of non-infringement, patent invalidity, and patent unenforceability." (21) Alice Corp. responded by counter claiming infringement by CLS Bank. (22) Both parties then filed cross motions for summary judgment to determine whether the asserted claims were patent eligible. (23) The district court held that all of the asserted claims were ineligible for patent protection because they contained patent-ineligible subject matter, specifically that of an abstract idea. (24)

   A three-judge panel of the Court of Appeals for the Federal Circuit (25) reversed the district court's holding, reasoning that it was not "manifestly evident" that Alice Corp.'s claims were an abstract idea. (26) CLS then filed a request for a rehearing en banc, which was granted (27) and which vacated the circuit court's panel opinion. (28) The en banc review held, in a very brief per curiam opinion, that Alice Corp.'s claims were not patent eligible and affirmed the decision of the District Court. (29) The Federal Circuit Court of Appeal's en banc panel was deeply divided over the issues. The five-member plurality held that none of Alice Corp.'s claims were patent eligible. (30) They held that the claims did no more than "draw on the abstract idea of reducing settlement risk by effecting trades through a third-party intermediary." (31) A four-member minority argued to reverse the district court's determination that Alice Corp.'s system claims were ineligible. (32)

   The Supreme Court of the United States granted certiorari and ultimately affirmed the en banc decision of the Federal Circuit Court of Appeals. (33) In doing so, the Court first held that the two-step framework for determining the patent eligibility of applications--originally set forth for laws of nature in Mayo Collaborative Services v. Prometheus Laboratories--would be applied to claims of abstract ideas. (34) The Court then applied this newly refurbished test and further held that the claims at issue did in fact encompass an abstract idea and that the proposed method claims failed to transform the abstract idea into a patent-eligible invention. (35) Finally, the Court held that the media and systems claims were substantially similar to the methods claim and that they were therefore also patent ineligible. (36)

3. LEGAL BACKGROUND

   The power of the U.S. government to grant patents has existed since the country's founding. It is one of the powers specifically outlined and granted to Congress in the U. S. Constitution. (37) The Constitution states that Congress shall have the power "[t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries." (38) Of course, there are limitations on what can be patented and what cannot. For instance, Congress has enacted statutory language that sets out the limits on what types of things might be patented. (39) The language of the statute reads: "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." (40)

   In addition to the statutory provision, the Supreme Court has also created several exceptions to what can properly be patented. For example, the Court has held that natural phenomena, even a previously unknown...