The Supreme Court issued its decision in the closely watched Alice Corp. v. CLS Bank case on June 19. The result? In an opinion that seemed to follow naturally from the Court’s precedent in Bilski v. KapposMayo Collaborative Services v. Prometheus Laboratories, Inc., and Association for Molecular Pathology v. Myriad Genetics, Alice garnered “one big shrug” from patent law experts.

Alice involved several patents for “mitigating settlement risk.” Essentially, parties could use a computer system as a third-party intermediary to decide when transactions between them might be too risky to carry out. The computer system monitored financial information at banks to help each party know when there was a risk that the other party would not meet its agreed-upon financial obligations.

The Court relied on prior precedent in its analysis that the intermediated settlement at issue was an “abstract idea.” The concept is fundamental to transactions, and the use of a third party is a “building block” of our economy. Using a computer to implement this idea in a “generic” way was not enough to render the concept patentable.

Alice provides a two-step analysis for future cases. First, the Court will examine whether the claimed patent covers only an abstract idea (like using a third party to lessen financial risk in transactions). Next, the Court will evaluate whether the elements of the claim contain an “innovative concept” that could make an abstract idea a patentable claim. As the Court held in Alice, simply noting that the abstract idea will be applied by using a computer is not enough to make a claim patent eligible.

While the test seems straightforward, the two-part analysis does not work as neatly with some of the cited cases as others, which already raises implementation problems for future claims. For example, the two-part test makes sense applied to Bilski, which involved a method for hedging risk – a general idea that was also not patent eligible. But the Court also worked Gottschalk v. Benson, a case involving mathematical algorithms, into this analysis. As one scholar notes, algorithms like those in Benson are fundamentally different from the ideas in Alice and Bilski, and the Court’s reliance on Benson here will only continue the confusion this case has caused.

Alice was not a particularly surprising decision, and the Court’s reluctance to be more specific about the boundaries between patent eligible and non-patentable claims can be read as an effort to create guidelines that can be broadly applied to a range of topics. However, the decision naturally does not remedy all uncertainty, and Alice leaves the door open for future cases about the patentability of software.

Elizabeth Mulkey

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