Last term the U.S. Supreme Court handed down Alice Corp. v. CLS Bank International. Alice drew interest for its focus on software and patentability under 35 U.S.C. § 101, the statute that codified eligibility for patent protection. The outcome impacts industries such as software, computer hardware, and telecommunications. Patents dealing with software or computer-implemented inventions may not lead the ten o'clock news...but some of the most successful American companies, such as Apple, Microsoft, and Google, work in this sector, and the Alice decision was of great interest to the whole industry. So the Supreme Court had all of Silicon Valley on the edge of its seat waiting for Alice.
The patents in suit in Alice dealt with software used in financial trading - specifically a computer-based method for intermediated settlement. For example, two parties to a financial trade choose to use a third party intermediary. This intermediary accepts payments from each side and completes the transaction when each party has fulfilled its obligations. A party's failure to pay terminates the trade. This system presents less risk because no money has been exchanged if one party fails its obligations. Alice's patents took this financial practice and implemented it on a computer. CLS Bank challenged the patents' subject matter eligibility under § 101. Section 101 states:
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.
The Supreme Court has previously found implicit exceptions to this statute, namely, laws of nature, natural phenomena, and abstract ideas are not eligible for patent protection.
The Supreme Court heard the case after the district court invalidated Alice's patents on summary judgment. The judge ruled that a method of intermediated settlement to minimize risk is a "basic business or financial concept." At the Federal Circuit, a panel reversed the district court by a vote of 2-1. CLS Bank petitioned for en banc rehearing, which the court granted. Seven out of ten judges on the en banc panel agreed with the district court and invalidated Alice's patents. But the Federal Circuit created more confusion than certainty. The confusion came from the multiple opinions (seven) and the lack of a discernible standard for applying § 101. The plurality opinion, with five votes, outlined an analysis focusing on the risk of "preemption." Preemption occurs when a patent issues on a fundamental concept or idea. Upholding such a patent preempts the use of the building blocks of invention, therefore stifling innovation.
Alice appealed and the Supreme Court granted cert. A measure of interest in the case: third parties filed over forty amicus curiae briefs. The Supreme Court unanimously invalidated the patents. Justice Thomas, writing for the court, reasoned in part:
We need not labor to delimit the precise contours of the 'abstract ideas' category in this case. It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of 'abstract ideas' as we have used that term.
Alice Corp. v. CLS Bank International, 134 S. Ct. 2347, 2357 (2014).
Since the decision, practitioners have debated whether Alice changed the law or affirmed it. Over the summer numerous courts invalidated computer-implemented patents on § 101 grounds based on the Alice decision. Examples include:
- buySAFE, Inc. v. Google, Inc., No. 13-1575, 2014 WL 4337771 (Fed. Cir. Sept. 3, 2014)
- Loyalty Conversion Systems Corp. v. American Airlines, Inc. et al., No. 2:13-cv-00655-WCB, 2014 WL 4364848 (E.D. Tex. Sept. 3, 2014)
- Tuxis Technologies, LLC v. Amazon.com, Inc., No. 1:13-cv-01771-RGA, 2014 WL 4382446 (D. Del. Sept. 3, 2014)
- DietGoal Innovations LLC v. Bravo Media LLC, No. 13 Civ. 8391 (PAE) (S.D.N.Y. July 8, 2014).
This wave of decisions suggests that Alice changed the law. On the other hand, the first judge to look at Alice's patents found them invalid. The Supreme Court affirmed, not overruled, the trial court judge.
We will see how the case law develops and how the USPTO implements Alice in its rulemaking. Our experience so far is that the USPTO is taking a tougher stand against software patents. Software is still patentable in certain circumstances but it will take time to discern the exact limits of software patentability post-Alice.