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Through the Looking Glass? No. Alice Takes on Software Patents

Added by Hawley Troxell in News on June 23, 2014

by Phil McKay, Chief Patent Counsel, and Allison Parker, Patent Attorney

On June 19, 2014, the United States Supreme Court handed down its much anticipated Alice Corp. v. CLS Bank opinion dealing with software patents. The Court affirmed the Federal Circuit’s fractured per curium CLS Bank v. Alice Corp opinion and focused on the notion of abstract ideas. The immediate takeaway from Alice? Reaffirming mostly established principles, the Court unanimously held that software is still patentable, but only within carefully drawn parameters: simply identifying an abstract idea and implementing it with a computer does not result in patent-eligible claims.

Alice Corp. owns several patents on electronic methods and computer programs for a scheme to mitigate “settlement risk”—the risk that only one party to a financial exchange will perform. Specifically, the patents claim a method for exchanging financial obligations, a computer system to carry out the method for exchange, and a computer-readable medium containing code to perform the method.

In Alice, the Court determined that these claims are ineligible for patent protection. The Court has long held that laws of nature, natural phenomenon, and abstract ideas are not patentable. The Court held that the claims at issue are directed to an abstract idea because the mitigation scheme is directed to intermediated settlement. The Court explained that intermediated settlement is nothing new—it stated that “the concept of intermediated settlement is ‘a fundamental economic practice long prevalent in our system of commerce. . . .’” and that third-party intermediaries are “a building block of the modern economy.” Therefore, intermediated settlement is an abstract idea, and not eligible for patent protection.

Turning to Alice Corp.’s method claims, the Court asked whether the claims did more than simply implement the intermediated settlement scheme on a computer. The Court answered this inquiry in the negative, holding that claims reciting an abstract idea and “merely requir[ing] generic computer implementation, fail to transform that abstract idea into patent-eligible invention.” Alice Corp. admitted that its media claims rose and fell with its method claims, so those claims similarly failed.

Ultimately, Alice is the most recent in a series of cases that seeks to limit the scope of software claims and, therefore, these claims must be handled carefully.