An abstract idea is not patent eligible under US law

With decision issued on June, 19 2014 among Alice Corporation PTY Ltd v. CLS Bank International et al., the United States Supreme Court has affirmed the judgment of the Court of Appeals for the Federal Circuit.

It holds the principle that abstract ideas implementable on a generic computer, are invalid to be transformed into patentable subject matter.

The Court holds that the claims at issue are drawn to the abstract idea of intermediated settlement, that merely requires generic computer implementation, thus failing to be transformed into a patent-eligible invention under 35 US C § 101.

Alice Corporation is the owner of a system reducing settlement risk

The Alice Corporation is the assignee of four patents on electronic methods and computer programs that disclose a scheme for the mitigation of settlement risk upon financial exchanges.

When two parties agree to exchange payments, one of them may not satisfy its obligation.

For this event, a computer system whose patent claims is owned by Alice Corporation acts as a third-party intermediary reducing the risk that only one party will perform his duty.

By a computer configuration, it introduces the intermediary between two parties settling and allows only safe transactions

The system is composed by a method for exchanging financial obligations, by a configuration of the computer to perform that method and by a computer-readable medium containing a program code.

A complex apparatus made of electrical components and data processing systems carry out the task to manage and reduce the risk related to future events applied to financial matters.

It operates as an intermediary between the two parties settling that assesses how far goes the risk that one of the parties would not enter into payment.

The system creates a shadow record for each party. It contains a sum of their credits and debits and it mirrors their actual situation with banks or other exchange institutions.

When one of these parties enters into an agreement, the system updates the shadow records and if they shows sufficient resources to satisfy their mutual obligations, it allows the transaction.

Instructions to exchange insititutions to carry out the transactions

As a part of the risk mitigation, the intermediary instructs the financial institutions at stake to carry out the transactions sending them the updated shadow records. The whole system is an invention Alice Corporation assumes to be patent eligible.

Patents are related to three claims: the method claims, the system claims, the media claims and all of them require the use of a computer and of the software that Alice Corporation has implemented.

The lower court ruled for invalidation and higher courts affirmed the decision

CLS Bank in 2007 files suit against Alice Corporation seeking a declaratory judgement in the US District Court of Colombia. Petitioner Alice Corporation counterclaims. The lower court ruled for summary judgment declaring patents invalid. Alice Corporation appeals the decision to the US Court of Appeals for the Federal Circuit that reverses the District Court’s decision. Members of the Court reargument the case addressing questions to both parties and amici curiae. The US Supreme Court has granted certiorari and affirmed the patent being ineligible.

The resistand claims for invalid, unforceable or not infringed patents

Refusing to adhere to the Alice Corporation requests to desist, CLS Bank file suit against petitioner seeking for a judgement that patent claims are invalid, unforceable or not infringed because they are directed to an abstract idea and not resulting in a patentable application.

Alice Corporation counterclaims for infringement of their system since 2002

Petitioner Alice Corporation counterclaims for alleged infringement and a declaratory of claims to be eligible for patent protection under 35 U. S. C. §101. It acknowledges that its claims describe intermediated settlement but refuses the category of the abstract idea being it not a preexisting fundamental truth existing apart from any human action.

It states that its methods require substantial role for the computer denying the abstract idea concept

It states that its method claims contains four steps (creating shadow records, obtaining balances, allowing safe transactions, issuing instructions to exchange institutions) all requiring substantial and meaningful role for the computer.

The US Supreme Court decides the first case on software patent

The Court unanimously affirms the claims behind the electronic escrow service patent claimed by Alice Corporation are not eligible under a software patent application and invalid under 35 U. S. C. §101, addressing the interest of many companies that have filed amicus curiae briefs arguing that the patents should be invalidated. The judgment comes after a two-steps analysis where the first demonstrates that the patent claims contains an abstract idea potentially not patentable and the second that the idea does not embody any inventive concept.

As a logical premise, the Court assesses whether the claims at issue are patent eligible, finding they are not, being drawn to the abstract idea of intermediated settlement. This category determines that a principle, or an idea, can not be patented or an exclusive right claimed in it by anyone.

The decision stems from the assessment of US Patent Statute that defines patentable subject matter any process, machine or manufacture that is new and useful as well as their improvements. On the contrary, this privilege cannot be granted for abstract ideas with the restriction of software being patented only if it is empowerd into a hardware or a system. Among the unpatentable claims we find not only abstract ideas but also natural phenomena or laws of nature, and all the inventions that are directed to them without an innovative or inventive touch.

Protecting parties against financial risk cannot be considered and original idea because it is a basic commerce principle

The abstract idea the Court is pointing at, is the basic concept of protecting against risk, a long-standing principle proper of any commerce system. The use of a third party as an intermediary mitigating the settlement risk is also a fundamental economic practice, in the modern economy commonly referred to as the “clearing house” concept.

The Court concludes that requiring generic computer implementation is not sufficient to transform the method claims from an abstract idea into a patent eligible invention. It still remains a further step to reject the claims as ineligible, since they can contain an inventive concept useful to this transformation, as additional features yet not well known in the art or a low level of generality or a new and useful application.

The whole system of the petitioner is considered as the application of a mathematical principle on a physical machine

This is not the case, as the Court points out, since the computer implementation can be carried out by any existing computer without requiring a particular technological environment and an implementation process of a mathematical principle on a machine can not be considered as a patentable application.

The Court looks at the whole process, from creating a shadow record to issuing instructions, as a complex of the most basic and well-known functions of a computer.

The Court points out the lack of improvement in tecnological or technical field of the method claims for the fact that it is a mere instruction to apply the abstract idea of intermediated settlement using some unspecified computer. The system claims is assessed not differently from the method claims for it is generic computer components configured to implement the method system.

Arguments against the patent application have been brought by many software companies

Many companies such as Google, Amazon or Microsoft have filed briefs for the Court, arguing that abstract ideas are not eligible since they harm innovation and that, as a software that implement a business method, it should not be patented just for the fact that it can be performed with a computer.

If the idea that must be implemented by a generic computer process, fails to demonstrate its specific purpose or its unconventional concept, it can not be qualified for a patent. The main purpose is preventing low quality software patents, balancing protection and incentives to innovation.

Patenting an abstract idea can harm innovation, companies said in their briefs to curia

The Court itself does not mention software as such in the present case, but it is widely considered as a decision involving software for business. This brought to the conclusion that, after the Alice v. CLS Bank case, many software patents and business-method patents have been invalidated under US patent laws, being recognized that they recite standard computer operations to perform functional steps and do not contain innovation or invention that empower and define the idea itself.

The Mayo leading case

Being the first Supreme Court decision upon software patents, the Court relies on Mayo v. Prometheus as the leading law case. The judgment is often based onto the Mayo framework that works as the criteria to assess whether a claim is patent eligible. It is condensed in the two-steps analysys on which the Court has based its judgement in the case at issue.