Supreme Court Toughens Business Process Patent Test

In what some legal experts are calling a landmark decision that could make it harder to obtain and uphold business process patents, the US Supreme Court on Thursday unanimously rejected patents on abstract ideas implemented on a computer.

The high court's specific ruling applied to US patents held by Australian company Alice Corp. on a method for mitigating "settlement risk" on financial transactions. In its Supreme Court brief, the company argued that its method is patent-eligible because it involves "shadow records" updated in real time that "require a substantial and meaningful role for the computer."

But Justice Clarence Thomas, writing for the entire court, ruled that such an "abstract idea" isn't patent-eligible just because computers are used to apply it.

Like most Supreme Court decisions, this one's complicated -- and not clear cut. The high court's ruling referred to Section 101 of the Patent Act, which defines what's eligible for patent protection as those inventions or discoveries of any "new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." The high court also reiterated the exceptions to that principle: "laws of nature, natural phenomena, and abstract ideas."

However, so as not to strike down thousands of existing business process and software patents held by technology and other companies, Justice Thomas wrote that the high court is treading carefully. Quoting a prior decision, Mayo Collaborative Services v. Prometheus Laboratories, the court reiterated that at some level "all inventions … embody, use, reflect, rest upon, or apply laws of nature, natural phenomena, or abstract ideas," adding that an invention isn't ineligible for a patent simply because it involves an abstract concept.

Justice Thomas indicated that the Alice decision isn't a repudiation of the concept of software patents. "There is no dispute that many computer-implemented claims are formally addressed to patent-eligible subject matter."

Nonetheless, "this is one of the most important intellectual property decisions in recent memory," says Robin Feldman, director of the Institute for Innovation Law at University of California Hastings College of the Law. Prof. Feldman says the Supreme Court's decision in the Alice case "eviscerated" the more accommodating approach taken by the US Court of Appeals for the Federal Circuit during the past 20 years in approving software and process patents.

"The Court sent a strong message with the Alice decision," Feldman said in an email. "Courts should ask first, what is the 'inventive concept' and is it simply an abstract idea? If it is an abstract idea, what have you added to transform it into something patentable? With the Alice patent, the Court held that the steps added were just well known routine processes. Many, many patents are drafted in the manner of the Alice patents. The question is whether the lower courts and the USPTO will pay attention. I suspect there will be cases ahead in which the Supreme Court says, 'We meant what we said.'"

The debate on software and business process patents goes back decades, grabbing headlines in the late 1990s as dot-com trailblazers sought patents on myriad software-based business processes. Priceline.com founder Jay Walker went so far as to form a separate company, Walker Digital, which hired lots of "inventors" to dream up ways to corner the market on minutia -- ways to automatically bill subscribers for magazine renewals, for instance, or relieve fast food customers of their spare change. Then came the patent trolls, companies formed with the express purpose of buying up existing (and often arcane) technology and other patents and enforcing them against unsuspecting, deep-pocketed infringers.

Today, most big tech companies play both sides of the patent issue: They hold valuable portfolios of patents that they enforce against rivals and other alleged infringers (Apple, Samsung, Google, Qualcomm, Microsoft, Oracle, and IBM are among the most vigilant); but they remain leery of the trolls and other opportunists.

As for process-oriented patents, the Supreme Court has rejected several of them in recent years. In 2010 it ruled against a patent on a method for hedging losses in the energy industry, for example, and in 2012 it rejected a patent on a method of measuring optimal drug dosages. Back in 2008, in the famous Bilski case, having to do with a patent on a method to hedge risk in commodities trading, the Federal Circuit Court ruled that for a process to be patentable, it must be "tied to a particular machine or apparatus" or must "transform a particular article into a different state or thing."

But in 2010, the Supreme Court reversed the Circuit Court's Bilski decision, ruling that the machine-or-transformation test can't be the sole test of process patent eligibility.

Prof. Feldman thinks the Alice decision makes the high court's Bilski decision "much less important."

"Alice is a unanimous opinion, and it provides a much clearer path for courts to follow," she says. "There is still plenty to argue about, but the Supreme Court has carefully carved out a set of parameters across recent decisions. 1) Pre-emption is key. 2) What is the inventive concept (is there any 'there there'). 3) Just connecting it to a computer is not enough. 4) We are unimpressed with creative drafting -- what did you give us?"

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