Alice Corp v CLS Bank International

Facts

• Alice Corporation held patents claiming a method of exchanging financial obligations between parties using a computer system as intermediary
• The computer would maintain shadow records, update in real-time, and instruct actual payment only when both sides could meet obligations (eliminating settlement risk)
• CLS Bank International operated an electronic platform for settling foreign exchange transactions
• CLS sued for declaratory judgment that Alice's patents were invalid as claiming abstract subject matter
• The Federal Circuit (en banc) invalidated the patents; Alice appealed to the Supreme Court

Issues

1. Whether claims directed to a computer-implemented scheme for mitigating settlement risk are patent-eligible under 35 USC §101
2. How to determine when a computer-implemented claim crosses from abstract idea to patentable invention

Held

• The claims are directed to the abstract idea of intermediated settlement (a fundamental economic practice long prevalent in commerce)
• Under the Mayo/Alice two-step framework: Step 1: the claims are directed to an abstract idea; Step 2: the additional elements (generic computer implementation) do not supply an inventive concept
• Stating an abstract idea while adding "apply it on a computer" is not enough for patent eligibility
• All claims (method, system, and media) are invalid; the system claims do not fare differently merely because they recite hardware
• The decision effectively invalidated thousands of software/business method patents

Ratio Decidendi

Section 101 excludes laws of nature, natural phenomena, and abstract ideas from patent eligibility. A claim directed to an abstract idea must demonstrate "something more" (an inventive concept) in the remaining elements. Generic computer implementation, routine data processing, and conventional steps do not transform an abstract idea into a patent-eligible invention. The substance of the claim, not its drafting format, determines eligibility.