Alice Did Not Kill Software or Business Method Patents

Whether Alice killed the Jabberwock in Through the Looking-Glass, and What Alice Found There is still up for grabs. Whether the Supreme Court’s Alice Corporation Pty. Ltd. v. CLS Bank decision last month killed all computer enabled patents with abstract ideas should not have been, but many death certificates were issued. They were wrong.

A typical comment said Alice invalidated patents providing for a computer to implement an abstract idea, or invalidated software patents covering abstract ideas. Wanting to be the first to comment, applying dramatic style to undramatic material, or just careless reading may have caused them. But for software, business method, or other computer enabled patent owners or applicants, they were scary.

Good commentators set the record straight quickly. But since sky-is-falling news persists after being proven wrong, another quick explanation can’t hurt.
The abstract idea in Alice is a financial clearinghouse that keeps shadow credit and debit records and makes calculations producing end of day instructions to credit or debit the accounts in question. Check clears or bounces. The unanimous decision says “merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.” What’s generic computer implementation?

The main patent is U S Patent No. 5,970,479. It has 39 claims and mentions “computer” just three times. Claim 1 begins “A computer-based data processing system.” That’s the only reference for the first 14 claims. Claim 15 begins “The computer-based data processing system of claim 1,” and that’s all until Claim 32. It begins “A method of making a computer system” and has subparts which essentially say hook all the transaction parties up to the system, program it to keep track of the shadow accounts and calculate balances, and send end of day instructions to credit or debit the accounts in question.

The Court takes the time to go through the subparts and concludes “each step does no more than require a generic computer to perform generic computer functions.” Nothing new here, but patents must teach something “new and useful.” 35 USC §101.

Alice is a decision in which our highest court bothers to find a few patents invalid and reminds everyone to use the two step analysis they told the federal courts to use in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012). Step one, identify the abstract idea represented in the claim. Here the clearinghouse idea. Step two, deter¬mine if the balance of the claim adds ‘significantly more.’ Here, “computer-based data processing system” does not.
Software patents, business method patents, and any other patents must go through the two step process if they involve an abstract idea. If they pass, they can be found valid. If not, they’re dead.

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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