U.S. Supreme Court Decides Software Patent Eligibility

Section 101 of the Patent Act provides 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.   35 U.S.C. § 101.  However, the invention cannot be an abstract idea, physical phenomena, or product of nature.

Earlier this month, the USPTO issued guidelines for determining whether a claim reflects a significant difference from what exists in nature and, thus is patent eligible.  The issue of patentable subject matter continues.  On March 31, 2014, in Alice Corp. v. CLS Bank International, the U.S. Supreme Court will address whether claims to computer-implemented inventions including systems and machines, processes, and items of manufacture are patent eligible subject matter.

Background

Alice owns patents covering a computer-implemented method for mitigating risk in financial transactions.  The invention provides a method for a third party to settle obligations between two parties to eliminate the risk of one party failing to perform after the other party has performed.  CLS filed a declaratory judgment action against Alice challenging the validity of the patents under § 101.  CLS alleged Alice’s patent claims were directed to an unpatentable abstract idea.

The district court agreed and held the claims failed to meet the requirements of §101, and thus were invalid.  Applying Bilski v. Kappos, the district court concluded that the method claims were directed to an unpatentable abstract idea. The Bilski Supreme Court invalidated claims directed to instructing buyers and sellers how to hedge risk and how to apply the methods to the energy commodities market.  The district court reasoned that a “computer system merely ‘configured’ to implement an abstract method is no more patentable than an abstract method that is simply ‘electronically’ implemented.”

The Federal Circuit reversed the district court holding that all claims, including the method claims, were patent eligible under § 101.

Sitting en banc, the Circuit vacated the earlier panel’s decision and addressed new questions: (i) what test should the court adopt to determine whether a computer-implemented invention is a patent-ineligible abstract idea; (ii) whether the presence of a computer in a claim could make patent ineligible subject matter patentable; and (iii) whether method, system, and media claims should be considered equivalent under § 101.  The ten member panel released seven different opinions affirming the district court’s ruling that the claims were invalid under § 101.   Seven judges agreed that the method and computer-readable-medium claims lacked subject matter eligibility.  Eight judges concluded that all the claims – method, computer-readable-medium, and system – must rise or fall together. 

Will the Court define Abstract Idea?

Much debate has centered on what is and is not an abstract idea. The Federal Circuit failed to agree on a standard to determine whether a computer-implemented invention is an abstract idea and thus, patent ineligible.  Alice argues that the Court has used the term abstract idea as a synonym for fundamental truth – a preexisting concept analogous to a law of nature.  CLS argues that an abstract idea is a building block of technology, innovation, and the economy.  Only time will tell whether the Supreme Court will provide guidance and eliminate the guessing.

More by | Angela Foster Angela Foster , Law.com Contributor
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