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Computer Software-Business Method Patents

In a recent case,the U.S. Supreme Court weighed in on the issue of the patent eligibility of software-implemented business methods in Alice Corp. v. CLS Bank International. At issue was the validity of several patents owned by Alice Corp. on computer software designed to facilitate financial transactions through a third party in such a way as to reduce the risk of one party or the other failing to meet their obligations. In simple terms, the patent claims were directed a computerized escrow system. After CLS Bank began to use a similar software platform in 2002, which had grown to handle $5 trillion worth of financial transactions a day in nearly 20 different currencies, Alice Corp. filed suit claiming its patents were infringed.

The trial court relied on the Supreme Court’s 2010 decision in Bilski v. Kappos that certain business methods cannot be patented if the claims are directed to abstract ideas such as hedging. The court found that the patent claims in Alice were directed to an abstract idea, applied Bilski and invalidated the claims. Alice appealed to the Federal Circuit which came down with a flurry of six separate opinions, partial concurrences and partial dissents. A plurality of the Federal Circuit set forth two different four-part tests to determine whether software claims are directed to patentable subject matter.

The Supreme Court took up the case to clarify the issue of patent eligibility. The Supreme Court ruled that Alice Corp.’s patents were invalid for the same reasons identified by the District Court, namely, the patent claims were directed to an abstract idea and did not qualify as a patentable process under 35 U.S.C. §101 merely because the method was implemented through computer software. The decision provided a two-part test to determine if patent claims are directed to non-patentable subject matter. In order to determine whether a patent claim clears the initial hurdle of eligible subject matter, a court must decide 1) whether the claim is directed to an abstract idea, and 2) if so, whether the claim contains an “inventive concept” that might transform the abstract idea into patent-eligible subject matter. The result of this test is that merely using software and a computer to implement a known business method without more in terms of inventive concept will not result in patents claims with eligible subject matter.

To the Supreme Court, Alice’s claimed invention was little more than taking an old business concept and using well known general computer concepts to implement the method. However, the Court did little to clarify the legal requirements needed by inventors and their attorneys to determine when claims contain patentable subject matter.

Since the decision in Alice, a bevy of district courts as well as the Federal Circuit have issued opinions invalidating patent software claims as directed to ineligible subject matter. The decision also calls into question the validity of many previously issued patents. The Patent Office has issued new examination guidelines that incorporate the two part test from Alice. Consequently, any newly filed applications directed to computer systems and software must be carefully drafted so that an “inventive concept” is included in the claims.

For further information on Computer Software Patents, contact the Intellectual Property attorneys of Gertner, Mandel and Peslak at 732-363-3333.