Centre for Internet & Society

The US Supreme Court delivered a unanimous decision in Alice Corporation Pty Ltd v CLS Bank International Et Al last month. The decision concerning software related inventions (with respect to carving an exception to “abstract ideas” patent eligibility category) was the most awaited and the final patent ruling of the US’ Supreme Court’s term. This post presents an analysis of the decision and a timeline of landmark US judicial decisions on software patents.

The Court declared Alice Corporation’s patent claims to be invalid by applying the tests and frameworks propounded in Mayo Collaborative Services v. Prometheus Laboratories Inc.(“Mayo”) and Bilski v. Kappos[1] (“Bilski”). You may read CIS’ analysis of the Bilski decision here and its impact here. A timeline of landmark decisions on software patents is inserted at the end of the analysis. 


Section 101 of  35 U. S. Code, 1952 (US Patent Act, 1952) provides 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 thereof, subject to the conditions and requirements of this title.

However, there exist certain judicially recognised exceptions to this section, namely, laws of nature, natural phenomena and abstract ideas.[2] Any claims wholly falling under any of these exceptions shall be ineligible for patent protection. [3]

Facts of the case

Alice Corporation’s software related inventions concerned a computer system which helped close financial transactions by avoiding a settlement risk. Specifically, the patent claims (granted by US Patents and Trademarks Office (“USPTO”)) involved, inter alia (1) a method for exchanging financial obligations, (2) a computer system as a third-party intermediary, and (3) a computer-readable medium (“CRM”) containing program code for performing the method of exchanging obligations.

CLS Bank filed for a declaratory judgment action seeking non-infringement, invalidity, and unenforceability of the patents. The district court granted a summary judgment[4] rendering the impugned patents invalid. Alice appealed in the Federal Circuit which reversed[5] the district court decision and found that the patent claims were not directed to an “abstract idea”, therefore were patent-eligible subject matter. Consequently CLS Bank appealed for an en banc hearing, which led to the Federal Circuit reversing its decision and ruling that the patents were indeed directed to patent-ineligible subject matter.[6] This decision was rather fragmented consisting of seven opinions without any clear majority[7], and did not address any of the unanswered issues pertaining to software patenting in wake of the Mayo and Bilski rulings.

Alice filed a certiorari writ at the Supreme Court which was granted in 2013, and the Court in the instant ruling affirmed the Federal Circuit’s decision by invalidating the patents. The opinion was authored by Justice Clarence Thomas. Relying on Bilski, the Court held that the claims were not patent eligible under section 101 since they were drawn to an “abstract idea”.  It expressed the importance of pre-empting patenting of concepts fundamental to scientific and technological progress.

Determination of patent-worthiness of the subject matter

To ensure the openness of fundamental scientific concepts the Court highlighted the pressing need to “distinguish between patents that claim the ‘building blocks’ of human ingenuity and those that integrate the building blocks into something more.” The latter would qualify as a patent-eligible invention after the said transformation. However, instead of formulating a test to distinguish between the two kinds of claims, it went ahead and applied the framework devised in Mayo Collaborative Services v Prometheus. In the instant case, the Court elucidated on section 101, stating that:

“Section 101 framework has two parts: (1) determine if the claim at issue is directed towards an abstract idea; and (2) examine the elements of the claim to determine whether it contains an inventive “concept” sufficient to transform the abstract idea into a patent-eligible application.”

The Court applied the first part by turning to its recent decision in Bilski v. Kappos and held that the patent claims were indeed directed towards an abstract idea. The Court explained, illustratively, that in Bilski v. Kappos the claim consisted of a method for hedging against financial risk and in the instant case the claim consists of the concept of intermediated settlement. “Like the hedging risk in Bilski, the concept of intermediated settlement is “a fundamental economic practice long prevalent in our system of commerce.” The Court squarely rejected Alice’s argument that an “abstract idea” is merely confined to “pre-exist­ing, fundamental truths which exist in principle apart from any human action.” It refrained from setting any definitive limitations on the “abstract idea” category.

Applying the second part of the framework, the Court concluded that Alice’s claims merely involved implementing a method on a generic computer which was insufficient to transform an abstract idea into a patent-eligible invention. The implementation of a method on a generic computer did not qualify as an “additional (inventive) element.” The Court reiterated Bilski v. Kappos at this point, stating (in the instant case) ..none of the hardware recited by the system claims "offers a meaningful limitation beyond generally linking 'the use of the [method] to a particular technological environment,' that is, implementation via computers."

Observations and Implications

1.      Reiterated focus on substance of claim - The Court concentrated on substance of the claim and not form thereof. It “warned” against interpretation of section 101 in ways that make patent eligibility depend simply on the draftsman’s art. The Court noted that the CRM and apparatus/system claims were only “transformed method claims”. This highlighted the prevalent style of drafting claim sets (CRM, apparatus/system, method) when the hardware/apparatus used was generic.

2.      USPTO soon thereafter issued “Preliminary Examination Instructions[8] – As per the memorandum, this decision "neither creates a per se excluded category of subject matter, such as software or business methods, nor imposes any special requirements for eligibility of software or business methods." Further, examiners have been instructed to apply the framework set forth in the Mayo case, “to analyze all claims directed to laws of nature, natural phenomena, and abstract ideas for subject matter eligibility under 35 U.S.C. § 101.”

This instruction has had twofold implications

The Bilski standard was followed to determine the eligibility of “abstract ideas[9], and Mayo was applied in the “laws of nature” category[10]. Now Mayo shall be uniformly applicable to both categories, and also all statutory classes of claims, not just method claims.

The memorandum also has illustrated the theoretical exposition of the Court on “abstract ideas” by stating that abstract ideas include:

·         Fundamental economic practices;

·         Certain methods of organizing human activities;

·         An idea of itself; and,

·         Mathematical relationships / formulas.

It also exemplifies the limitations which may allow patent eligibility of an “abstract idea”:

·         Improvements to another technology or technical fields;

·         Improvements to the functioning of the computer itself; and

·         Meaningful limitations beyond generally linking the use of an abstract idea to a particular technological environment.

What can you patent after Alice Corporation v CLS Bank?

Evidently, the Court did not seize the opportunity to plug gaps in the framework propounded by it in an earlier decision (Mayo Collaborative Services v. Prometheus Laboratories Inc.[11]]). It refrained from pronouncing a definitive test (to the extent avoided mentioning software patent in the judgment). Instead it relied on its recent decisions, inter alia, Mayo Collaborative Services v. Prometheus Laboratories Inc.(“Mayo”) and Bilski v. Kappos[12]. In consideration of the illustrative reasoning provided by the Court, and it declining from delving into setting of any parameters to define an “abstract idea” and to not clarify the second prong in the Mayo test; the decision completely deals with the rejection of Alice’s patents. A few aspects have emerged to be applicable precedents-wise. However, the decision is bound to limit poor quality software related inventions, at both appeals and prosecution stage. To conclude, the Supreme Court has narrowed the scope of software related inventions, without addressing pressing issues on the existing framework.



Timeline of US Court decisions on software patents


Alice Corporation v CLS Bank[13]

  • SCOTUS declared Alice Corporation’s patent claims invalid by applying tests previously held in the cases of Mayo Medical Laboratories v Prometheus Laboratories[14] and Bilski v Kappos[15]. The principle question in the instant case was whether the claims spoke directly to an abstract idea- which would render the claims invalid on the basis of being patent ineligible subject matter.
  • The Court elucidated on section 101, stating that:

“Section 101 framework has two parts: (1) determine if the claim at issue is directed towards an abstract idea; and (2) examine the elements of the claim to determine whether it contains an inventive “concept” sufficient to transform the abstract idea into a patent-eligible application.”


Mayo Medical Laboratories v Prometheus Laboratories[16]

  • SCOTUS ruled that Prometheus Laboratories’ process patent which provided correlations between blood test results and the patient’s health in determining an appropriate dosage of a specific medication for the patient, was essentially a correlation of that of a law of nature, which was a judicially recognised exception to patentable subject matter.


Bilski v Kappos[17]

  • SCOTUS upheld the U.S. Court of Appeals for the Federal Circuit decision in In re Bilski. It however, rejected the lower court’s holding that “machine-or-transformation test” was the sole test for patent subject matter eligibility.



In re Bilski[18]

  •  U.S. Court of Appeals for the Federal Circuit narrowed the scope for patenting software and business methods and declared the “machine-or-transformation test” as the sole determinative test to decide the patent eligibility of subject matter. The claim in question consisted of a method for hedging against financial risk.


State Street Bank v. Signature Financial Group[19]

  • U.S. Court of Appeals for the Federal Circuit upheld a software patent granted to Signature Financial Group. The case is widely quoted as one of the first judicially recognised software patents- it set the stage for a deluge of software patent grants in the US.[20] The invention in question was a business method.
  • The Court held that an invention was patentable if it involved some practical application and produced a “useful, concrete and tangible result.”


In Re Beauregard[21]

  • A claim which includes a manufactured article containing a Computer Readable Medium and instructions anointed as a “Beauregard claim”. Illustratively, floppy disks, CD-ROMS, etc would include a Beauregard claim.


Diamond v. Diehr[22] (1981)

  • SCOTUS held that a physical machine or a process making use of a mathematical algorithm which involves “transforming or reducing an article to a different state or thing” is patent eligible subject matter even if it includes a software component. 


Parker v. Flook[23] (1978)

  • The Court held that unless the implementation of an algorithm was novel and non-obvious, the algorithm shall be regarded as prior-art, hence would be patent ineligible subject matter.

Gottschalk v. Benson[24] (1972)

  • SCOTUS addressed the patentability of software for the first time. The Court rejected a “process” patent for a method to convert binary-coded decimal numerals into pure binary numerals on a general purpose digital computer since it was solely directed to an algorithm (patent ineligible subject matter).


[1]  561 U.S. __, 130 S. Ct. 3218, 95 U.S.P.Q.2d 1001 (2010).

[2] Diamond v. Chakrabarty, 447 U.S. 303, 206 USPQ 193 (1980).

[3] ibid.

[4] 768 F.Supp.2d 221, 252 (D.D.C. 2011).

[5] 685 F.3d 1341 (Fed. Cir. 2012).

[6] 717 F.3d 1269 (Fed. Cir. 2013)

[7] ibid.

[8] USPTO, Memo to the Patent Examining Corps, “Preliminary Examination Instructions in view of the Supreme Court Decision in Alice Corporation Ply. Ltd. v. CLS Bank International, et al”, 2014.

[9] USPTO, “Interim Guidance for Determining Subject Matter Eligibility for Process Claims in View of Bilski v. Kappos”, 2010.

[10] USPTO, Memo to the Patent Examining Corps,“2012 Interim Procedure for Subject Matter Eligibility of Process Claims Involving Laws of Nature”, 2012.

[11]  566 U.S. ___ ,132 S. Ct. 1289, 101 U.S.P.Q.2d 1961 (2012).

[12]  561 U.S. __, 130 S. Ct. 3218, 95 U.S.P.Q.2d 1001 (2010).

[13]  573 U.S. __ (2014); 110 U.S.P.Q.2d 1976, 2014 ILRC 2109 (U.S. 2014) [2014 BL 170103].

[14] 566 U.S. ___ ,132 S. Ct. 1289, 101 U.S.P.Q.2d 1961 (2012)

[15] 561 U. S. 593 (2010)

[16] 566 U.S. ___ ,132 S. Ct. 1289, 101 U.S.P.Q.2d 1961 (2012)

[17] 561 U. S. 593 (2010)

[18] 545 f.3d 943 (2008)

[19] 149 F.3d 1368; 47 U.S.P.Q.2D (BNA) 1596

[20] “1998 July The State Street software patents decision” available at <http://www.thomasalspaugh.org/pub/fnd/ipswd-timeline.html#y1998-StateStreet> (last accessed July 29, 2014)

[21] 53 F.3d 1583 (Fed. Cir. 1995)

[22] 450 U.S. 175 (1981)

[23] 437 U.S. 584 (1978)

[24] 409 U.S. 63 (1972)

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