What is not a Patentable Business Method

On June 19, 2014, in the case of Alice Corp. v. CLS Bank International, the US Supreme Court unanimously affirmed the holding of the Federal Circuit Court finding that patent claims drawn to an abstract idea are not patentable under 35 USC Sec. 101.  Section 101 of the Patent Code defines what is patentable and states that “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.”.   However, earlier Supreme Court decisions have established that there are exceptions to Sec. 101 and its listing of what is patentable, and the following exceptions are specifically not patentable:  laws of nature, natural phenomena and abstract ideas.  The Supreme Court concluded that the abstract business method claims in Alice are not patentable.  However, there’s more to the Court’s analysis than merely concluding the business method claims of Alice Corp.  are abstract ideas.

In applying the Sec. 101 “abstract ideas” exception to patentability, the Supreme Court must distinguish between abstract idea claims that are merely the “building blocks” of human ingenuity, and are ineligible for patent protection, from abstract idea claims that integrate the building blocks of human ingenuity into something more, thereby  transforming such ideas into  patent-eligible inventions.

So, to determine the patentability of a business method patent claim, the Court applies a two-part test.  The Court first determines whether the claims at issue are directed to a patent ineligible abstract idea, and if the claims are found to encompass such an abstract idea, the Court then determines whether the patent claims’ elements of that abstract idea transform the nature of the claim into something more, i.e., a patent eligible claim.

The patent claims at issue in Alice Corp. v. CLS Bank are directed to a patent-ineligible concept:  the abstract idea of intermediated settlement, i.e., the use of a third party intermediary, e.g. a clearing house, to mitigate settlement risk, a fundamental economic practice prevalent in our system of commerce .  Thus, intermediated settlement is an “abstract idea” beyond the scope of Sec. 101 (and not patentable).

With regard to the second step in the two-part analysis, the Court finds that the method claims in Alice Corp. merely require (recite) generic computer implementation and therefore fail to transform the abstract idea of intermediated settlement into a patent-eligible invention.

The Court went on to elaborate that simply appending conventional computer implemented steps to a method already well known in the art is not enough to supply the inventiveness necessary to transform the abstract idea into a patent-eligible invention.

So, for the benefit of the prospective client, the executive summary of the Court’s opinion in Alice Corp. is that “computerization” of a tried and true business practice is unlikely to result in a patentable claim.

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