AAI Advisory Board Member Shubha Ghosh Summarizes Supreme Court’s Promising Approach to Software Patents in Alice Corp. v. CLS Bank

The Supreme Court confronted the issue of patentability of software once again in its Alice Corp. v CLS Bank decision, published on June 14, 2014.  Alice Corp. v. CLS Bank Int’l, 82 L. Ed. 2d 296 (2014).  AAI submitted an amicus brief in support of CLS Bank, which was sued for patent infringement by Alice.  The Court held for CLS Bank. Although the opinion does not cite the AAI brief, the Court adopted a promising approach to the treatment of software patents that takes into consideration concerns with overly broad and potentially anticompetitive patents.

At issue in the case was a patent on a method and system for minimizing settlement risk, or the risk that one side of a debt transaction would renege on contractual obligations. The Court upheld the ruling of a fractured Federal Circuit en banc panel that neither the method nor the system was patentable subject matter. Ruling that both were abstract ideas, the Court found that the patent claims lacked an inventive concept and preempted the field for other inventors and users practicing in the field.

While the Court does not offer much guidance on what constitutes an inventive concept or when a claim is preemptive of the field, the Court makes clear that a two step test applies to the determination of when an invention is patentable subject matter.  First, the reviewer of the patent, whether patent examiner or judge, must determine if the patent covers an excluded area from patenting, such as an abstract idea or law of nature.  If the patent covers an excluded area, the reviewer moves on to the second stage: whether there is an inventive concept that is an application of the abstract idea or law of nature.  This two part test is a capstone to the Court’s prior decisions in Bilski v. Kappos, 561 U.S. 593 (2010) (business method patents) and Mayo Collaborative Svcs. v. Prometheus Labs., Inc., 132 S. Ct. 1289 (2012) (medical diagnostic and treatment patents).

The AAI amicus brief asked the Court to more closely engage with the competition issues and acknowledge the anticompetitive effects of overly broad software patents.  Specifically, the AAI asked the Court to adopt a causation approach which would require finding that a claimed invention is a method or means for producing a concrete result.  While the Court did not adopt this approach, the Court did express concern with the preemptive effects of overly broad patents.  Although not framed in terms of competition, the Court’s ruling implies heightened scrutiny for patent claims, especially ones dealing with software, business methods, and other process claims that entail an abstract idea or law of nature.

It is worth noting that Justices Sotomayor, Breyer, and Ginsburg authored a joint concurrence that succinctly stated that business method patents should be per se unpatentable, with a citation to Justice Stevens’ lengthy opinion in Bilski.  The joint concurrence demonstrates a healthy and active debate over patenting of business methods, and by implication software.  The Court’s decisions in CLS Bank, Bilski and Mayo constitute an important trilogy on limits on method claims.  Perhaps in future cases, the Court will more carefully and directly address the intricate and critical competition issues raised by broad patenting.

Shubha Ghosh is Vilas Research Fellow & George Young Bascom Professor in Business Law at the University of Wisconsin School of Law.