1. What is the test the Supreme Court articulated in Alice v. CLS Bank for software patented in the United States? From which previous case did the Supreme Court take this test?

2. What were the abstract ideas that the Court identified in Bilski and in Alice?

3. Do you think that this case makes it clear what types of software patents are patent eligible?

Alice Corporation held a patent that uses a computer as a third party intermediary to minimize the risk associated with the exchange of financial obligations. The intermediary creates and updates “shadow” records to reflect the value of each party’s actual accounts held at “exchange institutions,” thereby permitting only those transactions for which the parties have sufficient resources. At the end of each day, the intermediary issues irrevocable instructions to the exchange institutions to carry out the permitted transactions.

CLS Bank International operates a global network that facilitates currency transactions. It sought a declaratory judgment that Alice’s patent was invalid. Section 101 of the Patent Act provides: “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 therefor.…”

JUDICIAL OPINION

THOMAS, J., delivered the opinion for a unanimous Court.… “We have long held that this provision contains an important implicit exception: Laws of nature, natural phenomena, and abstract ideas are not patentable.” Association for Molecular Pathology v. Myriad Genetics, Inc. 133 S. Ct. 2107 (2013). We have interpreted § 101 and its predecessors in light of this exception for more than 150 years.

In Mayo Collaborative Services v. Prometheus Laboratories, Inc., 132 S. Ct. 1289 (2012), we set forth a framework for distinguishing patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patenteligible applications of those concepts. First we determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask, “[w]hat else is there in the claims before us?” To answer that question, we 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. We have described step two of this analysis as a search for an “inventive concept”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”

A We must first determine whether the claims at issue are directed to a patent-ineligible concept. We conclude that they are: These claims are drawn to the abstract idea of intermediated settlement. The “abstract ideas” category embodies “the longstanding rule that ‘[a]n idea of itself is not patentable.’ ” In Benson, for example, this Court rejected as ineligible patent claims involving an algorithm for converting binary-coded decimal numerals into pure binary form, holding that the claimed patent was “in practical effect…a patent on the algorithm itself.” And in Parker v. Flook, 437 U.S. 584 (1978), we held that a mathematical formula for computing “alarm limits” in a catalytic conversion process was also a patent-ineligible abstract idea. We most recently addressed the category of abstract ideas in Bilski v. Kappos, 561 U.S. 593 (2010). The claims at issue in Bilski described a method for hedging against the financial risk of price fluctuations. “[A]ll members of the Court agree[d]” that the patent at issue in Bilski claimed an “abstract idea.” Specifically, the claims described “the basic concept of hedging, or protecting against risk.” The Court explained that “[h]edging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” Ibid. “The concept of hedging” as recited by the claims in suit was therefore a patent-ineligible “abstract idea, just like the algorithms at issue in Benson and Flook.” Ibid.

It follows from our prior cases, and Bilski in particular, that the claims at issue here are directed to an abstract idea. Petitioner’s claims involve a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk.… Like the risk hedging in Bilski, the concept of intermediated settlement is “a fundamental economic practice long prevalent in our system of commerce.” ………………………………………...