The patents in Alice Corporation 573 US _ (2014) were directed to a scheme for mitigating “settlement risk”. The representative method claim included the steps of (1) “creating” shadow records for each counterparty to a transaction; (2) “obtaining” start of day balances based on the parties” real-world accounts at exchange institutions; (3) “adjusting” the shadow records as transactions are entered, allowing only those transactions for which the parties have sufficient resources; and (4) issuing irrevocable end-of-day instructions to the exchange institutions to carry out the permitted transactions.
The US Supreme Court had little trouble finding the claims at issue as being directed to an abstract idea and thus invalid. Like the risk heding in in Bilski (see below), the concept of intermediated settlement is “a fundamental economic practice long prevalent in our system of commerce” and under the Court’s second prong of the Mayo’s test (discussed below), the function performed by the computer at each step of the prcoess steps was “purely conventional” (e.g., using a computer to create and maintain “shadow” accounts amounts to electronic recordkeeping – one of the most basic functions of a computer, using a computer to obtain data, adjust account balances and issue automated instructions also amount to well-understood, routine, conventional activities previously known in the industry). In short, each step in the process did no more than require a generic computer to perform generic computer functions. Even as considered “as an ordered combination” (see Mayo test below), the method claims simply recited the concept of intermediated settlement as performed by a generic computer. The claims did not, for example, purport to improve the functioning of the computer itself nor did they effect an improvement in any other technology or technical field. The steps amounted to “nothing significantly more” than an instruction to apply the astract idea of intermedaited settlement using some unspecified, generic computer. That was not enough, according to the Court, to transform an abstract idea into a patent eligible invention. The same was true with respect to the product claims to a computer system and computer readable medium because they were no different from the method claims in substance, the Court warning once again against interpreting seciton 101 “in ways that make patent eligibility “depend simply on the draftsman’s art”.
Perhaps the most illustrative of the decision was the Court’s summary of prior court decisions concerning laws of nature, natural phenomena and abstract which the Court has long held are not patentable. A brief resynopsis is presented here (many of these decisions are also discussed in prior blod posts on this site):
- Mayo v. Prometheus, 566 U.S. _ (2012): The case set forth a framework for distinguishing patents that claim laws of nature, natural phenomena and abstract ideas from those that claim patent eligible applications of those concepts. (1) First, one must determine whether the claims at issue are directed to one of these patent ineligible concepts. The Court had no problem finding that intermediated settlement was an abstract idea. (2) Second, one must ask, “what else is there in the claims”. To do this, one must consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements transform the nature of the claim into a patent eligible application. The patents at issue in Mayo were directed to a method for measuring metabolites in the blood in order to calibrate the appropriate dosage of thiopurine drugs in the treatment of autoimmune diseases. The Court held that methods for determining metabolite levels were already “well known in the art” and the process at issue amounted to nothing significanlty ore than an instruction to doctors to apply the applicalbe laws when treating their patients. Simply appending conventional steps, specified at a high level of generality was not enough to supply an “inventive concept”
- Bilsk v. Kappos, 561 U.S. 593 (2010): Claims directed to the basic concept of hedging or protecting against risk were held ineligible as an abstract idea. The Court explained that “hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class”
- Diamond v. Diehr 450 U.S. 175 (1981): The claims were directed to using a “thermocouple” to record constant temperature measurements inside a rubber mold- something the industry had not been able to obtain. The termperature measurements were then fed into a computer, which repeatedly recalculated the remaining cure time by using the mathematical equation. These additional steps, accordingly to the Court, “transformed the process into an inventive application of the formula. Thus, although the claims employed a “well-known” mathematical equation, it used that equation in a process designed to solve a technological problem in “conventional industry practice”.
- Parker v. Flook: 437 U.S. 584, 594-595 (1978): The claims were directed to a method for using a mathematical formula to adjust alarm limits for certain operating conditions (e.g., temperature and pressure) that could signal inefficiency or danger in a catlytic conversion process. First, the formula itself was an abstract idea. Second, the computer implementation was purely conventional since use of computers for automatic monitering alarming were well known in the art. The Court rejected the argument that “implementing a principle in some specific fashion” will “autoamtically fall within the patentable subject matter of section 101”. One cannot circumvent the prohibition of patenting abstract ideas by attempting to limit the use of the idea to a particular technolocal envionment.
- Gottschalk Benson (409 U.S. 63 (1972)): Claims involving an algorithm for converting binary-coded decimal numerals into pure binary form was “in practical effect … a patent on the algorithm itself” and ineligble. A principle, in the absract, is a fundamental truth and cannot be patented. Because the algorithm was an abstract idea, the claim had to supply a “new and useful” application of the idea in order to be patent eligible. But the computer implementation did not suuply the necessary inventive concept since the process could be carried out in existing computers long in use. Thus simply implementing a mathematical principle on a physical machine such as a computer was not a patentable applciaiton of that principle.