Intellectual Property Law: Counseling, Licensing, Litigation & Procurement

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Alice v. CLS Bank

Banner & Witcoff offers the following content as a resource to help clients understand and prepare for the potential impact of this case:

Background

On March 31, 2014, the U.S. Supreme Court heard arguments in Alice Corp. v. CLS Bank International on whether claims to computer-implemented process or system inventions are ineligible for patent protection under 35 U.S.C. § 101 as being directed to abstract ideas.

Alice’s patents relate to a computerized trading platform used for conducting financial transactions. Under the claimed invention, a third party “settles” (oversees and ensures) obligations between a first and second party so as to eliminate the risk that one party will perform while the other will not.

CLS allegedly began infringing the Alice patents in 2002. After licensing negotiations failed, CLS filed declaratory judgment in the District Court of D.C., asserting invalidity and noninfringement. The District Court granted summary judgment of invalidity, holding that Alice’s patents constituted patent ineligible abstract ideas under § 101.

The district court explained that the method “of employing an intermediary to facilitate simultaneous exchange of obligations in order to minimize risk” is a “basic business or financial concept.” Thus, the court continued, a “computer system merely ‘configured’ to implement an abstract method, is no more patentable than an abstract method that is simply ‘electronically’ implemented.”

At the Federal Circuit, a three-judge panel reversed the district court, holding that computer-implemented inventions like Alice’s are eligible under § 101 unless it is “manifestly evident” that the claims are about an abstract idea. To be “manifestly evident,” the “single most reasonable understanding” must be “that a claim is directed to nothing more than a fundamental truth or disembodied concept, with no limitations in the claim attaching that idea to a specific application.”

CLS petitioned for rehearing en banc, and after granting the petition, the Federal Circuit vacated the earlier panel opinion, reinstated the district court’s holding and ultimately issued six separate opinions spanning more than 125 pages. The Court split 5-5 with respect to the eligibility of Alice’s computer system claims and failed to offer a majority-endorsed approach for determining whether a computer-implemented invention is a patent-ineligible, abstract idea.

In urging the Supreme Court to grant its cert petition, Alice pointed to the Federal Circuit’s “inability to make a decision” and the apparent “enormous confusion that exists” as evidence that prompt intervention is necessary.

At oral argument, the Justices struggled to gain clarity and consensus on what benefits, if any, the proposed changes to software patent eligibility may provide. Justice Stephen Breyer, the most active member of the bench, likened the Court’s predicament to being “between Scylla and Charybdis.” Like Odysseus navigated a strait between the two monsters, the Supreme Court endeavored to define patent eligibility so as to allow the patenting of “real inventions with computers,” yet prevent the patenting of abstract ideas.

On June 19, 2014, the Supreme Court held that all the patent claims in the case, meaning all method, system and “computer-readable medium” claims, were not patent eligible.

In a unanimous opinion authored by Justice Thomas, the Court affirmed the Federal Circuit’s decision that Alice’s patents claim nothing more than the abstract concept of managing risk in financial trading using a computer.

Major reasons for the patent owner’s loss are revealed by the weaknesses of the owner’s case. The owner/petitioner’s brief conceded that its patent claims described intermediated settlement. At oral argument, given opportunity, the petitioner was unable to articulate anything that distinguished the inventions from intermediated settlements in the abstract.

Rather than be required to state how the public could determine whether the idea of an invention was abstract, the Court could shirk that it “need not labor to delimit the precise contours of the ‘abstract ideas’ category.”

Rather than be required to confront specifics of sophisticated computer programming, the Court could state that the patent claims at issue involved only “generic computer implementation.” Put in other words, “each step [of the claims] does no more than require a generic computer to perform generic computer functions.”

Important Dates

 

  • June 19, 2014 – U.S. Supreme Court issues decision
  • March 31, 2014 – U.S. Supreme Court hears oral argument
  • Dec. 6, 2013 – U.S. Supreme Court grants Alice’s petition for a writ of certiorari
  • Sept. 4, 2013 – Alice files petition for a writ of certiorari with U.S. Supreme Court
  • May 10, 2013 – Federal Circuit issues en banc decision
  • Oct. 9, 2012 – Federal Circuit orders en banc rehearing
  • July 9, 2012 – Federal Circuit issues panel decision

Court Documents

USPTO Documents

Media

Banner & Witcoff attorneys are available to answer questions and discuss this case. Media inquiries should be directed to Amanda Robert (312) 463-5465 or arobert@bannerwitcoff.com.

Intellectual Property Law: Counseling, Licensing, Litigation & Procurement