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Abstraction in Method of Doing Business Patents

In Alice Corp. v. CLS Bank Int’l. (Docket No. 13-298, 2014), the petitioner, Alice Corporation, asked the Supreme Court to weigh in on a decision of the lower courts that claims drawn to a scheme for mitigating settlement risk are invalid, unenforceable, and therefore not infringed. The scheme involved use of a computer system as an intermediary.

It is well known that laws of nature, natural phenomena, and abstract ideas are not patentable. However, inventions that apply these concepts to a new and useful end are eligible for patent protection.

In Alice Corp. v. CLS Bank Int’l., the Supreme Court revisited the framework for determining patent eligibility, as described in Mayo Collaboratives v. Prometheus Laboratories, Inc., 566 U.S. _____ (2012). In this framework, a first determination must be made as to whether the claims are directed to patent-ineligible concepts, i.e., laws of nature, natural phenomena, and abstract ideas. If the claims are, then a second determination must be made as to whether there is anything else in the claims above and beyond the patent-ineligible concepts that could transform the nature of the claims to patent-eligible claims.

The claims at issue were drawn to the concept of intermediated settlement. The Supreme Court determined that the concept of intermediated settlement is an abstract idea because (i) intermediated settlement is a “fundamental economic practice long prevalent in our system of commerce” and (ii) “use of a third-party intermediary (or ‘clearing house’) is also a building block of the modern economy.”

Naturally, the meaning of “abstract idea” was at issue in this case. Alice Corporation argued that the abstract-ideas category is confined to “preexisting, fundamental truths that exist in principle apart from any human action.” Alice Corporation based this definition of abstract idea at least in part on other cases involving mathematical algorithms. However, the Supreme Court pointed to the Bilski case, where the court determined that the concept of risk hedging was held to be an abstract idea. The Supreme Court noted that risk hedging is not a fundamental truth in the manner suggested by Alice Corporation, but that it was an abstract idea nonetheless because it was a fundamental economic practice.

Thus it seems that the abstract-ideas category is not confined to fundamental truth but also encompasses fundamental practice, or at least fundamental economic practice.

Having established that the concept of intermediated settlement is an abstract idea, the Supreme Court moved on to resolve whether the claims at issue contained anything else above and beyond an abstract idea.

The method claims at issue required generic computer implementation. The Supreme Court had already held in Bilski, for example, that “mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.”

It is worth noting that the representative method claim was cast in a manner to recite that the steps were actually carried out by the computer. The Supreme Court noted that the relevant question here is not whether the computer is carrying out the steps but whether the claims are doing more than simply asking the practitioner to implement the abstract idea on a generic computer. The court concluded that the claims were not. For example, the claims require no more than a generic computer and do not improve the functioning of the computer when implemented in the computer.

The Supreme Court decided that the claims are not patent-eligible because (i) they are directed to an abstract idea of intermediated settlement and (ii) they amount to nothing significantly more than an instruction to apply the abstract idea on a generic computer.