has the us supreme court finally killed business method patents - after alice v. cls by michael...

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© Michael A. Shimokaji, 2014

The contents of this article represent the opinions of the author and not those of the

author’s law firm or clients.

HAS THE US SUPREME COURT FINALLY KILLED BUSINESS

METHOD PATENTS AFTER ALICE v. CLS BANK?

It may not appear so.

In fact, in Alice v. CLS Bank (June 2014), the US Supreme Court seems

to have provided no additional guidance of what is patentable subject matter

– especially in the context of software and business method patents. Rather,

the Supreme Court relied heavily on its earlier opinion in Mayo v. Prometheus

(2012) to seemingly just reiterate the principles therein.

In Alice, the US Supreme Court found invalid patent claims to reducing

the risk that only one party to a financial transaction will perform. The claims

were nothing beyond an abstract idea.

An exemplary patent claim stated the following:

(a) creating a shadow credit record and a shadow debit record for each

stakeholder party;

(b) obtaining from each exchange institution a start-of-day balance;

(c) the supervisory institution allowing only these transactions that do

not result in the value of the shadow debit record being less than the

value of the shadow credit record at any time, and

(d) at the end-of-day, the supervisory institution instructing the

exchange institutions to exchange credits or debits to the credit record

and debit record of the respective parties.

Michael Shimokaji

www.shimokaji.com

949-788-9968

http://www.shimokaji.com/

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Prior to reaching the US Supreme Court, the Federal Circuit twice heard

the matter. Upon its first review, the Federal Circuit found the claims to be

valid.

On its second review, before the entire court en banc, the Federal

Circuit found the claims to be invalid. “The concept of reducing settlement

risk by facilitating a trade through third-party intermediation is an abstract

idea because it is a ‘disembodied’ concept.” The analysis therefore turns to

whether the balance of the claim adds "significantly more." “Apart from the

idea of third-party intermediation, the claim's substantive limitations require

creating shadow records, using a computer to adjust and maintain those

shadow records, and reconciling shadow records and corresponding exchange

institution accounts through end-of-day transactions. None of those

limitations adds anything of substance to the claim.”

In Alice, the Supreme Court started by explaining that “[l]aws of nature,

natural phenomena, and abstract ideas are not patentable.” Yet, they

recognized that all inventions embody “at some level” the foregoing matters

that are not patentable.

The Supreme Court relied on its prior two-step analysis in Mayo. First,

are the claims directed to a patent-ineligible concept - laws of nature, natural

phenomena, and abstract ideas? If so, then second, do additional claim

elements transform the claims into patent eligible matter - something

"significantly more" than the ineligible concept.

Reducing settlement risk via a third party intermediary was, according

to the Supreme Court, a "fundamental economic practice" and therefore an

abstract idea. Yet, the Court refused to define the "precise contours" of an

abstract idea.

Under the second Mayo step, the Supreme Court noted that adding

conventional steps is insufficient to raise the level of the claims to an inventive

concept. Nor is the addition of a generic computer. A technological

environment is also insufficient.

In this case, according to the Supreme Court, the computer performs

"purely conventional" steps. In other words, a generic computer performs

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generic computer functions.

COMMENT:

Simply tying functional steps to a computer would not appear to

overcome the Alice requirements. Likewise, combining long established

fundamental concepts with a computer would not appear sufficient.

What could be sufficient to overcome the Alice requirements is a new

feature added to a fundamental business concept. Or, it could be the

refinement of a step in a fundamental business concept, or perhaps even the

elimination of a fundamental step.

has the us supreme court finally killed business method patents - after alice v. cls by michael...

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