The US Supreme Court recently handed down its eagerly awaited judgment in the case of Alice Corporation Pty. Ltd. Vs CLS Bank International et al.

The question at issue was how to define which subject matter is eligible for patent protection, in particular in the context of the computer implementation of otherwise abstract ideas.

Here, I will look at the background, summarise the decision, and then assess the impact it may have.


I explained the background in some of my previous posts but to summarise, the patents at issue relate to a reducing settlement risk by effecting trades through a third-party intermediary to avoid settlement risk (the risk that either party does not pay its obligations after a transaction has been agreed).  The intermediary verifies that both parties can fulfil their obligations before allowing the exchange.  The invention was claimed as a method and a computerised trading platform.

The claims were held to relate to patent-ineligible subject matter by the Discrict and Federal courts, and now the Supreme Court has issued its ruling after an appeal was filed there.

The Decision

The Supreme Court held that the claims are drawn to a patent-ineligible abstract idea, and so are not patent eligible subject matter.  They also set out some new guidelines for assessing when the exception should apply, stating that “merely requiring generic computer implementation fails to transform an abstract idea into a patent-eligible invention”.

The US patent law (35 U.S.C.) defines, in section 101, the basic criteria for patent protection:  “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” (extract).  This broad definition is limited by established exceptions stating that laws of nature, natural phenomena and abstract ideas are excluded from patent eligibility.

The court referred to the judgment of Mayo Collaborative Services v. Prometheus Laboratories Inc. and confirmed that ” In applying the section 101 exception, the Court must distinguish patents that claim the building blocks of human ingenuity, which are ineligible for patent protection, from those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention.” (paraphrased).

This framework provides a two-step framework for assessing the issue:

1. Are the claims at issue directed to a patent-ineligible concept?

2. If so, what else is in the claims?  Do the claim’s elements, considered both individually and as an ordered combination, provide an “inventive concept” sufficient to “transform” the claimed abstract idea into a patent-eligible invention?

These steps as set out in the previous Mayo decision have previously only been applied when examining whether a claim is directed to a “law of nature”; but this decision is now saying that the test will now also apply for the examination of whether a claim is directed to an “abstract idea”.

The court confirmed that the idea of an intermediated settlement was an abstract and well known idea that was “a fundamental economic practice long prevalent in our system of commerce”.  They then held that the method claims merely required a “generic computer implementation” and on that basis would fail to transform the abstract idea into a patent-eligible invention.  They held that 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 (of the subject matter of the claim from an abstract idea into patent-eligible subject matter).  They said:

“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 purely conventional.  Considered “as an ordered combination,” these computer components add nothing that is not already present when the steps are considered separately.  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.” (paraphrased)

USPTO Examination Instructions

Following the decision, the USPTO have issued instructions to their examiners.  These confirm that the USPTO will immediately start applying the tests mentioned above when assessing the patent-eligibility of abstract ideas, and in particular computer-implemented abstract ideas.

In the instructions, the examiners are specifically told that examples of abstract ideas include fundamental economic practices, certain methods of organizing human activities, an idea of itself, and mathematical relationships/formulas.

They are also instructed that, if a claim is directed to such an abstract idea, they should assess whether the claims define “something more” that would avoid the exclusion.  Examples are improvements to another technology or technical field, improvements to the functioning of the computer itself, or meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.  Examples which do not provide “something more” are adding the words “apply it” (or an equivalent) with an abstract idea, or mere instructions to implement an abstract idea on a computer, or requiring no more than a generic computer to perform generic computer functions that are well-understood, routine and conventional activities previously known to the industry.

The Impact

So, what impact does this have?  First of all, it seems correct that the claims in question were rejected.  But the more important question is how this practice will have in general, both on pending and future patent applications and also on existing granted patents.

Opinion online has been mixed – some commentators feel that this is very positive and represents a positive step away from granting “bad quality” patents, while others feel that the decision won’t make much difference.  I haven’t seen any articles that suggest this decision makes the situation worse or opens the floodgates for more bad quality patents to be granted.

I personally feel that the decision will have a positive impact and indeed a significant one, but that its effects should not be overstated.  In particular, looking from an outside-in European perspective, it is misleading to think that the US system is moving closer to our own.

First of all, the term “software patents” can often mean different things to different people.  In one sense, Alice’s patents didn’t have anything to do with software at all.  The systems described in the patents were technically trivial and a software developer would not have any difficulty in quickly writing code to make a basic implementation of the claimed system.  Yet in another sense Alice’s patents were all about software.  This is because they relied heavily on the automation of the risk management meaning that no manual intermediary was required.  In this sense, the use of software was the essence of their invention.

The patents also stated that the claimed inventions were “something having economic value to individuals, enterprises and societies as a whole. Methods and apparatus that provide for the management of risk offer material advantages by, for example, minimising adverse future outcomes, providing both a form of compensation in the event of adverse future outcomes, and forms of risk management not otherwise supported or available in the prior art, and thus have value in the field of economic endeavour.”

Software is featured in US patent claims quite commonly in an attempt to show that the claimed invention is not “abstract”.  Just about every kind of business endeavour you can think of uses computers, so a lot of “software patents” are simply software for performing some kind of business function. It is still correct to call them software patents, because they are infringed by the sale or use of software.  However, this decision confirms that the assessment of whether the claims represent patent-eligible subject matter will depend more on the underlying business function rather than the mere fact that software is used to implement it.

In that sense, I think the decision places some real and meaningful restrictions on “business method” patents and I am hopeful that it will contribute to an improvement in patent quality in the US.  However, there are some important caveats to this which mean these effects might not be as positive as you might think.

First of all, the term “business method patents” does not really appear in the US legislation and case law.  You’ll often see it because a method of doing business (as such) is explicitly excluded from patentability in Europe, and this represents a fundamental difference of approach between Europe and the US.  In the US, a supreme court ruling in 1952 in Diamond v. Chakrabarty held that “anything under the sun made by man is patentable”.  Business method patents then became popular after the famous State Street decision in 1998 that held that a claim is eligible for protection by a patent if it involves “some practical application and it produces a useful, concrete and tangible result”.  This broad statement is generally accepted as having opened up the door to a flood of “business method” type patents.  In that context, the current decision builds on some qualifications made by previous cases so that the door is being pushed shut a little more.  However, it is not completely closed.

First of all, the first step involves deciding whether an invention is an abstract idea.  In assessing this, look at this part of the judgement:

“At some level, all inventions embody, use, reflect, rest upon or apply laws of nature, natural phenomena, or abstract ideas.  Thus, an invention is not rendered ineligible for patent simply because it involves an abstract concept.  Applications of such concepts to a new and useful end, we have said, remain eligible for patent protection.  Accordingly, in applying the §101 exception, we must distinguish between patents that claim the building blocks of human ingenuity and those that integrate the building blocks into something more, thereby transforming them into a patent-eligible invention.”

The specific invention of Alice’s patents was held to be a “fundamental economic practice” and a “building block of the modern economy”.

To me this seems to significantly narrow the scope of what is considered to be “an abstract idea”.  Requiring an idea to be a “building block” seems to result in a much more narrow exclusion.

There is also a question of when a computer will be considered as being “generic” and when it performs “generic computer functions”.  This would seem to leave plenty of scope for arguing that a computer is not generic, for example as soon as it is provided with any customised application or a program that could not operate via pre-existing applications such as spreadsheets or web browsers.

The decision also makes use of some language that will chime with readers accustomed to European patent law.  The court suggest that a claim could offer “something more” than an abstract idea if it improves the functioning of a computer itself or effects an improvement in any other technology or technical field.  However I would caution against equating this to some kind of “technical effect” test as is seen in Europe.  Remember that the basic criteria for what is considered patent-eligible is much broader in the US.  The basic legislation starts by referring to “any new and useful process, machine, manufacture, or composition of matter”.  In contrast, the corresponding basic legislation in Europe (Article 52(1) EPC) states that “European patents shall be granted for any inventions, in all fields of technology, provided that they are new, involve an inventive step and are susceptible of industrial application.”  This reference to “technology” at the core of the European legislation means that technical considerations are always at the heart of decisions in Europe, whereas protection in the US will always be broader, given the more generous scope of the fundamental statute.


It will take some time before the impact of this decision becomes clear so it is dangerous to draw definite conclusions at this stage.

There will of course be some scenarios where this case will restrict protection but fundamentally, there are still massive differences between US and European practice which will not be affected by this decision.  However it is always good to have these tests in mind when writing or amending patent applications and this decision may affect the specific route that is taken to achieve a granted patent.

I’m more than happy to provide more detail or answer any specific queries anyone has on this issue.  Comment on the blog or contact us on mail<at>scintilla-ip<dot>com for any enquiries.