On Thursday, June 19, 2014, the US Supreme Court issued its decision in Alice v CLS Bank, a court case dealing with the patentability of software.  See our earlier post on the lower court rulings.

What is Patentable?

In the US, we have a law (35 USC §101) that lays out what kinds of subject matter are eligible for patent protection.  Under the law, which is pretty broad, any machine (like a smartphone), process (like how to make tires), article of manufacture (tires), or composition of matter (like toothpaste) is eligible for a patent grant.  To be clear, you don’t get such a patent unless the smartphone etc.  meets other requirements…like novelty (it’s the first one) and nonobviousness (its more than a straightforward tweak to existing technology).  But this “subject matter” test is the first test any invention has to meet in order to obtain a patent.  Think of the 110 meter high hurdles – you have to pass this first hurdle to have any chance of obtaining a patent.


But this is the US, so over the years courts have added caveats to this broad list of eligible subject matter.  A key caveat is that laws of nature, natural phenomena, and abstract ideas are not eligible for patents.  Why do we have these exceptions?  The general concern is that patents are granted in order to encourage progress in science and technology.  That progress is predicated on applying laws of nature or abstract ideas to solve problems. If somebody can get a patent on, e.g., an abstract idea, any future use of that idea could be precluded….which would frustrate, rather than promote, the very progress the patent system was set up to encourage.

This Decision.

The court looks at prior caselaw and concludes the test to be applied is this:

  • First, do the claims recite an abstract idea?
  • Second, is there other structure/function in the claims that render the claimed invention “significantly more” than the abstract idea?

Let’s look at the claim in question here (paraphrasing a tad):

  • a “shadow credit record and a shadow debit record” that is
  • held independently by a supervisory institution from the exchange institutions,
  • where “the supervisory institution adjust[s] 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 where “at the end-of-day…the exchange institutions…exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments… the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.”  (based on the Opinion, Note 2)

Here’s the $64K question – do you think  this claim really, truly calls for an “abstract idea?”  Here’s why the court thinks it does:

On their face, the claims before us are drawn to….the concept of intermediated settlement..[which] is “a fundamental economic practice long prevalent in our
system of commerce.”  Opinion, Page 9

Three Problems.

First, what’s this “concept” discussion about?  When you apply for patents…and later, when you enforce them…every single word in the claims counts.  You don’t get to ignore words in the claim at any point of the process.  So how is it right, or fair, that for these purposes courts get to ignore the literal words of the claim, and find they really cover an abstract idea because they are “drawn to [a] concept?”

What’s so “abstract” about this claim? It does not simply say “I claim intermediated settlement.”  That might be a pithy way of expressing an opinion on the “essence” of what is claimed….but that is not what the claim actually says.  Seems to me there could be other ways of practicing “intermediate settlement” without infringing this claim.  The court did not say one way or the other.  More on that later.

Second, what’s this analysis of prior art (“a fundamental economic practice long prevalent in our system of commerce”) doing in what is supposed to be an analysis of eligible subject matter?  Remember our hurdle analogy….here the court talks about the second hurdle when we have not even crossed the first.  More to the point, by mashing together subject matter and novelty analyses, has Alice really gotten a fair shake at arguing either one?  For the purpose of deciding what is eligible to obtain a patent, it should not matter whether an invention is as old as the hills or as fresh as a daisy.  That should be a separate analysis.

Third, under the second part of the analysis, the Court discards limitations under which the method is implemented on a computer as a “wholly generic computer implementation” which “is not generally the sort of  additional feature” that will be the lynchpin of patentability.  So once again, we’re parsing claims, considering words in isolation.

OK……So, Now What?

Here, the court was following its precedent, so the solution is not yet another court case.  We  need Congress to clarify the law here to deal with this line of decisions.  In pertinent part I think the law should say

  1. You have to consider all the words in the claim in figuring out whether an invention is abstract.  No “essence,” “concept,” “boiling down,” etc.  All the words count.
  2. An invention can only be “abstract” if that is true regardless of whether it is as old as the hills or as fresh as a daisy.  In other words, how it compares to prior work should be irrelevant to this analysis.
  3. Even if we decide for some reason we must preserve this notion of boiling claims down to their base “concepts” for the purpose of this analysis, to me a claim should only be fatally “abstract” if and only if the actual claims as a whole are so basic and so broad such that there is no practical way of using the “general idea” without infringing the claim.  Then, and only then, might it make sense to forestall further analysis.

I don’t think that is the case here…I don’t think these specific claims as a whole recite the one and only way to conduct intermediated settlement.  The way it is now, courts look to the claim language only to see if there is anything left that somehow “salvages” an abstract idea.  But that methodology does not work either…it again does not consider the claims as a whole.  It simply becomes another characterization exercise that is at best loosely based on the claims.

This whole line of court cases on what is an “abstract idea” has just gotten out of hand.  This decision, and others like it, sacrifices fairness for the illusion of clarity.

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