Alice Corp Goes Through Supreme Court’s Looking Glass

The Supreme Court may be separated five to four across a cultural divide, but they have a run going of unanimous decisions on intellectual property. Today’s is another “long awaited” one which some commentators expected to be the end of software and business method patents. Others hoped it would end confusion with a crystal clear definition. It does neither. 

The opinion in Alice Corporation Pty. Ltd. v. CLS Bank International will disappoint patent commentators looking for simple mechanical rules to define forevermore an important category of things that cannot be patented—abstract ideas. 

Perhaps responding to the tide of infringement lawsuits filed by patent trolls and criticism of junk patents, federal courts have been invalidating a lot of patents as nothing more than abstract ideas camouflaged by clever writing. Some are pleased to see the patent system getting a good housecleaning while others think babies are being thrown out with the bath water. 

Most looked to the Federal Circuit appeals court for a clear definition of “abstract ideas” when Alice landed there after losing its four patents at the trial court. That didn’t happen. Instead, there were seven opinions in the second round before that court. 

So hope focused on the Supreme Court when it decided to review the case. Instead of handing down a magic definition, however, the court repeated a two-step test. The unwritten message of the decision may be “we said it before, we mean it, so deal with it.” They said it before in 2012. Mayo Collaborative Ser­vices v. Prometheus Laboratories, Inc. 

When a patent is challenged as invalid because it is just an abstract idea, the first step for a court is to decide if the patent is directed to one of the three “patent-ineligible” concepts. They are laws of nature, natural phenomena, and abstract ideas. But how do you define an abstract idea? 

The closest thing to a definition from the Supreme Court is a quote from an 1853 decision, Le Roy v. Tatham. Not a misprint, it’s an opinion from before the Civil War that says “A principle, in the abstract, is a fundamental truth; an original cause; a motive…” Then two recent cases involving algorithms are offered as examples with patents that are only abstract ideas. 

Step two only happens if step one concludes the patent is directed to a patent-ineligible concept. If it is, step two asks if the patent has elements that add something sufficient to “trans­form the nature of the claim.” Or is it just an attempt to corner the market on an abstract idea?  That’s all Alice’s patents do according to the court. 

They are about financial transaction clearance by computer instead of by hands and paper. The court says they call for using generic computers, performing generic computer operations, and a system of generic computer components. That’s not enough to earn a patent for going through the same process financial transaction intermediaries have been doing for generations. 

This decision is rare because it affirms the Federal Circuit’s ultimate one paragraph decision saying the district court was correct. Alice lost its patents and is out of appeals. Instead of a wonderland where everyone understands what abstract ideas are when they show up in patents, we must do the hard work of figuring it out one patent at a time.

About Craig Pinkus

Craig Pinkus is a partner in the Intellectual Property Group. He also is a member of the Litigation and the Sports, Entertainment and Media Groups. He assists clients with a broad range of disputes and transactions involving all areas of intellectual property, entertainment, and other complex business arrangements. He has conducted trials and arbitrations throughout the United States and has argued appeals before the Seventh, Sixth and Federal Circuit Courts of Appeal, the Indiana appellate courts, and United States Supreme Court.
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