Alice Corp. v. CLS Bank Int’l
573 US ___ (2014)

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Justia Opinion Summary

Alice Corporation holds patents that disclose a scheme for mitigating “settlement risk,” i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation. The patent claims are designed to facilitate the exchange of financial obligations between parties, using a computer system as a third-party intermediary. The patents claim: a method for exchanging financial obligations; a computer system configured to carry out that method; and a computer-readable medium containing program code for performing that method. CLS, a global network that facilitates currency transactions, challenged the claims as not infringed, invalid, or unenforceable. Alice counterclaimed infringement. After the Supreme Court’s decision in Bilski, the district court held that the claims were ineligible for patent protection under 35 U.S.C. 101. The Federal Circuit and a unanimous Supreme Court affirmed. Section 101, which defines the subject matter eligible for patent protection, contains an implicit exception for laws of nature, natural phenomena, and abstract ideas. In applying the exception, patents that claim the building blocks of human ingenuity, which are ineligible for patent protection, must be distinguished from those that integrate the building blocks into something more, making them patent-eligible. The claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement, which is “‘a fundamental economic practice long prevalent in our system of commerce.” The method claims, which simply require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention. Stating an abstract idea, adding the words “apply it with a computer,” simply combines two steps, with the same deficient result. Taking the claim elements separately, the functions performed by the computer at each step are purely conventional: creating and maintaining “shadow” accounts, obtaining data, adjusting account balances, and issuing automated instructions. They do not purport to improve the functioning of the computer itself or improve any other technology or technical field. The system claims are no different in substance from the method claims, reciting a handful of generic computer components configured to implement the same idea.

NOTE: Where it is feasible, a syllabus (headnote) will be released, as is being done in connection with this case, at the time the opinion is issued. The syllabus constitutes no part of the opinion of the Court but has been prepared by the Reporter of Decisions for the convenience of the reader. See United States v. Detroit Timber & Lumber Co., 200 U. S. 321 .

SUPREME COURT OF THE UNITED STATES

Syllabus

ALICE CORPORATION PTY. LTD. v. CLS BANK INTERNATIONAL et al.

certiorari to the united states court of appeals for the federal circuit

No. 13–298. Argued March 31, 2014—Decided June 19, 2014

Petitioner Alice Corporation is the assignee of several patents that disclose a scheme for mitigating “settlement risk,” i.e., the risk that only one party to an agreed-upon financial exchange will satisfy its obligation. In particular, the patent claims are designed to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary. The patents in suit claim (1) a method for exchanging financial obligations, (2) a computer system configured to carry out the method for exchanging obligations, and (3) a computer-readable medium containing program code for performing the method of exchanging obligations.

          Respondents (together, CLS Bank), who operate a global network that facilitates currency transactions, filed suit against petitioner, arguing that the patent claims at issue are invalid, unenforceable, or not infringed. Petitioner counterclaimed, alleging infringement. After Bilski v. Kappos, 561 U. S. 593 , was decided, the District Court held that all of the claims were ineligible for patent protection under 35 U. S. C. §101 because they are directed to an abstract idea. The en banc Federal Circuit affirmed.

Held: Because the claims are drawn to a patent-ineligible abstract idea, they are not patent eligible under §101. Pp. 5–17.

     (a) The Court has long held that §101, which defines the subject matter eligible for patent protection, contains an implicit exception for ‘ “[l]aws of nature, natural phenomena, and abstract ideas.’ ” Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U. S. ___, ___. In applying the §101 exception, this Court must distinguish patents that claim the “ ‘buildin[g] block[s]’ ” of human ingenuity, which are ineligible for patent protection, from those that integrate the building blocks into something more, see Mayo Collaborative Services v. Prometheus Laboratories, Inc., 566 U. S. ___, ___, thereby “transform[ing]” them into a patent-eligible invention, id., at ___. Pp. 5–6.

     (b) Using this framework, the Court must first determine whether the claims at issue are directed to a patent-ineligible concept. 566 U. S., at ___. If so, the Court then asks whether the claim’s elements, considered both individually and “as an ordered combination,” “transform the nature of the claim” into a patent-eligible application. Id., at ___. Pp. 7–17.

          (1) The claims at issue are directed to a patent-ineligible concept: the abstract idea of intermediated settlement. Under “the longstanding rule that ‘[a]n idea of itself is not patentable,’ ” Gottschalk v. Benson, 409 U. S. 63 , this Court has found ineligible patent claims involving an algorithm for converting binary-coded decimal numerals into pure binary form, id., at 71–72; a mathematical formula for computing “alarm limits” in a catalytic conversion process, Parker v. Flook, 437 U. S. 584 –595; and, most recently, a method for hedging against the financial risk of price fluctuations, Bilski, 561 U. S, at 599. It follows from these cases, and Bilski in particular, that the claims at issue are directed to an abstract idea. On their face, they are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is “ ‘a fundamental economic practice long prevalent in our system of commerce,’ ” ibid., and the use of a third-party intermediary (or “clearing house”) is a building block of the modern economy. Thus, intermediated settlement, like hedging, is an “abstract idea” beyond §101’s scope. Pp. 7–10.

          (2) Turning to the second step of Mayo’s framework: The method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention. Pp. 10–16.

               (i) “Simply appending conventional steps, specified at a high level of generality,” to a method already “well known in the art” is not “enough” to supply the “ ‘inventive concept’ ” needed to make this transformation. Mayo, supra, at ___, ___. The introduction of a computer into the claims does not alter the analysis. Neither stating an abstract idea “while adding the words ‘apply it,’ ” Mayo, supra, at ___, nor limiting the use of an abstract idea “ ‘to a particular technological environment,’ ” Bilski, supra, at 610–611, is enough for patent eligibility. Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result. Wholly generic computer implementation is not generally the sort of “additional featur[e]” that provides any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.” Mayo, supra, at ___. Pp. 11–14.

               (ii) Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. Taking the claim elements separately, the function performed by the computer at each step—creating and maintaining “shadow” accounts, obtaining data, adjusting account balances, and issuing automated instructions—is “[p]urely ‘conventional. ’ ” Mayo, 566 U. S., at ___. Considered “as an ordered combination,” these computer components “ad[d] nothing . . . that is not already present when the steps are considered separately.” Id., at ___. Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field. An instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer is not “enough” to transform the abstract idea into a patent-eligible invention. Id., at ___. Pp. 14–16.

          (3) Because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, they too are patent ineligible under §101. Petitioner conceded below that its media claims rise or fall with its method claims. And the system claims are no different in substance from the method claims. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea. This Court has long “warn[ed] . . . against” interpreting §101 “in ways that make patent eligibility ‘depend simply on the draftsman’s art.’ ” Mayo, supra, at ___. Holding that the system claims are patent eligible would have exactly that result. Pp. 16–17.

717 F. 3d 1269, affirmed.

     Thomas, J., delivered the opinion for a unanimous Court. Sotomayor, J., filed a concurring opinion, in which Ginsburg and Breyer, JJ., joined.

Primary Holding

A patent claim is not eligible for patent protection if its central concept concerns an abstract idea, such as intermediated settlement, and its method of implementation is not itself protectable.

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