Alice Corp. v. CLS Bank Int'l

Background

A company that owned several patents described a computer system meant to reduce "settlement risk" by acting as a third-party intermediary between two banks or traders. The system kept "shadow" credit and debit records that mirrored real accounts, updated them in real time, and then instructed banks to carry out permitted transactions at the end of the day. A global financial network operator asked a court to rule the patents invalid, and the case worked its way up to this Court.

Reasoning

The Court applied its two-step test for patent eligibility. First, it found the patents are directed to the abstract idea of intermediated settlement—using a third party to reduce payment risk—a longstanding economic practice. Second, it held that the claims add nothing inventive beyond that idea because they simply require routine computer tasks: creating electronic records, updating balances, and sending instructions. The Court explained that calling a computer the intermediary or listing generic computer parts does not turn an abstract idea into a patentable invention. The Court therefore affirmed the lower court’s judgment that the method, system, and media claims are not eligible for patents.

Real world impact

The ruling invalidates these patents and signals that patents claiming fundamental business practices implemented on generic computers will face strict review. Financial firms, software developers, and patent owners who rely on broadly phrased computer-implemented business patents will be most affected.

Dissents or concurrances

Justice Sotomayor, joined by two colleagues, agreed that the method claims are abstract and noted that claims describing mere business methods generally do not qualify for patent protection.