Are Business Method Patents Dead? – Supreme Court Strikes Down Patent Claims Directed to Computerized Method of “Intermediated Settlement”

If business method patents are not dead, after this month’s decision in Alice Corp. v. CLS Bank International, they are at least on life support. For a copy of the opinion, click here.

In Alice Corp., the Supreme Court affirmed an en banc Federal Circuit holding that patent claims directed to a computerized method of “intermediated settlement” are not eligible for patent protection because they impermissibly seek to patent an “abstract idea.”

This decision is similar to the Supreme Court’s decision in Bilski v. Kappos, 561 U.S. 593 (2010). In Bilski the Supreme Court held that patent claims directed to a method for hedging against the financial risk of price fluctuations were invalid because they were not eligible for patent protection. Bilski was decided before the Supreme Court decided Mayo Collaborative Services v. Prometheus Laboratories, Inc., and in Alice Corp. the Supreme Court used a two-step test from Mayo for determining whether claims improperly cover “laws of nature, natural phenomena, and abstract ideas” or instead cover patent eligible “applications of those concepts.” Applying the first step of the test, the Supreme Court held that the Alice Corp. claims were directed to one of those patent ineligible concepts, i.e., the abstract idea of intermediated settlement. Applying the second step of the Mayo test, the Court held that the claims at issue did nothing more than recite the implementation of the abstract idea with a “generic computer,” and that generic computer limitations could not transform an abstract idea into patent-eligible subject matter.

Contrary to what the opinion says, the claims at issue did not merely recite the “idea” of intermediated settlement. Instead, they recited specific steps for performing intermediated settlement. In addition, the decision does not suggest that the Patent Office improperly concluded that the specific combination of steps in the claims were novel and non-obvious over the prior art. However, the Mayo test allowed the Supreme Court to reductively characterize the claims as merely covering “intermediated settlement” in the abstract.

In the Patent Statute, the requirement that patent claims must be novel and non-obvious is separate from the requirement that the claims must recite patent-eligible subject matter. However, in Alice Corp., the Supreme Court again conflates the novelty/non-obviousness analysis with the patent-eligibility analysis and appears to base its decision, at least in part, on the conclusion that “intermediated settlement” has been “long prevalent in our system of commerce.” Slip Op. at 5.

After Bilski and Alice Corp. it is difficult to see what business methods would ever be considered patentable. Even if such claims recite unique sequences of steps, they can be reductively characterized as covering “abstract ideas” under the test set forth in Mayo. In that case, unless the claims recite some unique computer functionality, it appears that business method claims will fail the Mayo test.

The Alice Corp. opinion does suggest that claims which “purport to improve the functioning of the computer itself” or which “effect an improvement in any other technology or technical field’ may be eligible for patent protection. Slip Op. at 15. However, it seems strained to describe those types of patent claims as “business methods” because they rely on something other than a method of doing business to support patentability. Notably, three of the Supreme Court justices (Sotomayor, Ginsburg, and Breyer) issued a concurring opinion in which they held that any “claim that merely describes a method of doing business does not qualify” as a patent eligible process under the Patent Statute.