Is Your Software or Business Method Patentable? The Supreme Court Weighs In

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An Article in Schott, P.C.’s IP Law For Start-ups Series
By Stephen B. Schott
Alice Corp v. CLS Bank Int’l Supreme Court Opinion
Today, the Supreme Court took a swipe at business method patents that merely take a known abstract idea and implement that idea using a computer. The Alice Court was careful to distinguish between (1) unpatentable known abstract ideas that were the subject of the case, and (2) abstract ideas that contain “something more…thereby ’transform[ing]’ them into patent-eligible subject matter.’”
The Court called the patent claims at issue “known” and “long prevalent,” and characterized their implementation on a computer a “basic function” that was “’well-understood, routine, [and] conventional.’” The Court took pains to point out that not all abstract ideas implemented using a computer are patent-ineligible, but this particular well-known idea was.
The decision may not, however, have widespread consequences for most patent holders. The Court cited one of its earlier opinions to point out what methods could be patentable. In that opinion (Diamond v. Diehr), the Court found that a computer-implemented method was patentable subject matter “because it improved an existing technological process.” This is an important indicator that software remains patentable subject matter in the Court’s opinion.
It’s going to take years for the US Patent and Trademark Office and courts to interpret and implement the Court’s new test that to be patentable subject matter, a patent claim must provide “something more,” a vague requirement no doubt soon to be dubbed the “something more test.” This something more test would be a hit with Alice in Wonderland’s Mock Turtle, who might conclude, “Well, I never heard it before, but it sounds uncommon nonsense.”
In the meantime, patent claims will not be patentable if they merely take a known idea and implement it generically on a computer.
An Enjoyable Conclusion
It’s worth starting at the end of the opinion because the Court hinted at something that most lay readers will agree with: Lawyers are sneaky.
The Court concluded its opinion by noting that the issue of patentable subject matter is not subject to the “draftsman’s art.” The Court then drew a colorful quote from an 1886 patent case: “The concept of patentable subject matter under §101 is not ‘like a nose of wax which may be turned and twisted in any direction….’” This was a snub to some patent attorneys who spent many of the last 10 or more years tacking magic words like “performed on a computer” onto known methods in an attempt to transform the known method into patentable subject matter. The Court said that patent attorneys don’t possess magic words that permit such a transformation.
The Alice Opinion
Justice Thomas introduced Alice’s much-maligned patent claims early in the Court’s opinion, quoting one of them fully in a footnote:

33. A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, 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, each said adjustment taking place in chronological order, and
(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

After reviewing how the case arrived before the Court and its earlier precedent on this topic, the Court quoted the statute regarding patent-eligible subject matter:

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, subject to the conditions and requirements of this title. 35 USC 101.

And then it reiterated its two-step test for how to apply this statute:

First, we determine whether the claims at issue are directed to [laws of nature, natural phenomena, or abstract ideas]… [Second,] we then ask “[w]hat else is there in the claims before us? We have described step two of this analysis as a search for an “ ‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

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Applying the first step, the Court concluded that the claims encompass an abstract idea. And in applying the second step, regarding whether the claims contain a combination of elements that distinguish them from a known concept, the Court mixed elements of the 35 USC 102 novelty requirement into its 35 USC 101 patentable subject matter analysis, as it has done in earlier opinions (Mayo v. Prometheus and In re Bilski) and during oral argument. This mix is clear in the Court’s statement that taking a known concept and generically implementing it on a computer is “well understood, routine, [and] conventional” and “one of the most basic functions of a computer.…In short, each step does no more than require a generic computer to perform generic computer functions.”
Lessons for Software Inventors
The bottom line is that software is still patentable subject matter, but it will need to be new—not just an implementation of known concepts. “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.” And the more ties and interaction that the software has with the physical world, the better.
This will be a developing area of law, as it has been for the last 30 years.
If you have questions, contact me.
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