Renewing its recent fascination with the kinds of inventions that can be patented, the Supreme Court on Friday agreed to clarify when an analytical method implemented by a computer or by a link on the Internet is eligible for monopoly protection. This was the only new case granted. The Court will be reviewing a widely splintered decision by the U.S. Court of Appeals for the Federal Circuit, in the case of Alice Corporation Pty. Ltd. v. CLS Bank International (docket 13-298). The en banc Federal Circuit found the method at issue ineligible for a patent, but a majority could not agree on a standard for making such decisions.
The case will provide a new test of the Patent Act’s most basic provision — Section 101, which broadly outlines what kinds of inventions are patentable. One of the long-standing exceptions to the types of inventions mentioned in that section is that an abstract idea can never be patented. That issue arises frequently these days, especially with rapidly developing technology in computer software. The Justices have dealt with that issue several times in recent years.
Alice International, an Australian company that is half-owned by the National Australia Bank Ltd., obtained patent protection on a method invented by its founder, Ian Shepherd, for exchanging financial instruments, with the aim of assuring that, when two parties have agreed to an exchange of currency or other financial goods, they actually deliver on the deal. Because such agreements are often delayed at least a few days in implementation, there is a risk that one side won’t live up to the agreement. The invented program works out a settlement arrangement to determine which side is obliged to deliver. It generates instructions to the institutions involved to carry out their agreement.
In May 2007, Alice was sued by CLS Bank International and an affiliated firm, claiming that the patent on this system was invalid and unenforceable. Alice answered with a lawsuit of its own, claiming infringement of its patent rights. A federal district judge nullified the patent, finding that none of its claims satisfied the Patent Act criteria.
When the case went to the specialized federal appeals court that handles patent cases, the Federal Circuit, a panel reversed the judge, finding that the computer implementation steps for that method were sufficient to justify granting a patent. The full court of appeals granted review at CLS Bank’s request, and assigned itself the task of issuing clarifying standards on computer-implemented inventions — the task at which it ultimately failed because it could not assemble a majority for a single approach. The controlling opinion, though, did rule that Alice’s patent was not valid.