Symposium: Business methods as “abstract ideas” — explaining the opacity of Alice and Bilski

Rebecca S. Eisenberg is the Robert & Barbara Luciano Professor of Law at the University of Michigan Law School

Alice Corporation v. CLS Bank is the fourth in a new wave of opinions from the Supreme Court on the topic of patent-eligible subject matter that began with its 2010 opinion in In re Bilski, and the second of these opinions to consider the patent eligibility of computer-implemented business methods.  This new wave brought to an end a quiet period of almost thirty years in which the Court said very little on the topic, allowing patentable subject matter to expand under the supervision of the Federal Circuit.  Under this expansive approach, the Federal Circuit explicitly rejected a line of lower court decisions, never addressed by the Supreme Court, that categorically excluded business methods from patent protection.

The new opinions purport to revive the more restrictive approach from the Court’s own older decisions, without embracing any other non-statutory exclusions (such as the business methods exclusion).  Four Justices would have endorsed an exclusion of “business methods” from patentable subject matter in Bilski and three Justices would have done so in Alice, but such an exclusion has so far failed to get the support of a majority of the Court.  In both Bilski and Alice, the Justices nonetheless unanimously held that the business method claims before it were not patent eligible, but the only rationale that they could agree on for the exclusion was that the patents improperly claimed ”abstract ideas.” Without embracing a categorical exclusion for all business methods, the Court thus quietly shifted the meaning of the traditional exclusion for “abstract ideas” to provide a basis for invalidating the particular business method patents before it.

The new opinions use familiar language from the Court’s older decisions to affirm traditional exclusions of “laws of nature, natural phenomena, and abstract ideas.” The Court also turns to the older decisions to justify the subject matter limitations, explaining that they prevent patenting “basic tools of scientific and technological work” because patenting such discoveries “might tend to impede innovation more than it would tend to promote it.”  This looks like a mere affirmation of venerable precedent.

On a closer reading, however, the familiar language in the new opinions appears to mean something quite different from what it meant in the past.  Rather than preventing the patenting of basic tools because they are too important to leave to the exclusive control of a patent holder, the new decisions seem to prevent the patenting of modest variations on longstanding practices that are unworthy of patent protection because they add too little to what is already conventional.  As John Duffy explains in greater detail, patent law has other quality control mechanisms to do this work in a more disciplined fashion, including statutory provisions that define the prior art and standards for determining whether the invention represents a patentable advance from the perspective of others working in the same field.

The new opinions use a two-step test for patentable subject matter.  In the first step, the Court determines whether the claim is directed to a patent-ineligible law of nature, natural phenomena, or abstract idea.  If so, then in the second step the Court asks whether the claim adds enough additional elements (which the Court calls an “inventive concept”) to transform the ineligible subject matter into a patent-eligible invention.  In both steps, the new cases seem to use patentable subject matter doctrine to provide a redundant check on the patenting of prior art.  The Court’s determinations of what counts as an “abstract idea” in the first step have relied upon the prevalence of a practice in the prior art, while in its search for an “inventive concept” in the second step the Court has asked whether the claims add more than conventional activity to an otherwise ineligible law of nature, natural phenomena, or abstract idea.    Although the new cases consider the older precedents at some length in searching for a qualifying “inventive concept” in the second step of the patent eligibility analysis, they are charting new territory in determining what counts as an ineligible “abstract idea” in the first step. The Court’s decision on Thursday holds that “intermediated settlement” – i.e., settlement of a transaction through an intermediary – is an unpatentable abstract idea, relying primarily on the prior decision in Bilski v. Kappos, which held that “risk hedging” is an unpatentable abstract idea. Both decisions emphasize the longstanding prevalence of risk hedging and intermediated settlement to support this characterization, thereby conflating the issue of patent eligibility with the distinct issue of patent worthiness.

Other comments have noted (here and here) that the Court has declined to define the terms “laws of nature, natural phenomena, and abstract ideas.”  Nonetheless, the Court’s conclusions that the claims before it in Alice and Bilski recite abstract ideas clearly give that term a broader meaning than it had in the past.  The older decisions applied that term primarily to mathematical algorithms and broadly defined principles, while the new decisions apply it to conventional business practices.  This expansion, although unacknowledged, allowed the Court to disapprove of the claims in both Alice and Bilski under its own longstanding precedents, without adopting the non-statutory business methods exclusion.  (Professor Duffy explains why conservative Justices would hesitate to embrace such a non-statutory standard here.) But it stretched the meaning of “abstract ideas” so far beyond prior usage that the older cases provide little help in discerning what the Court now thinks it means.

Both Bilski  and Alice recite the familiar “basic tools” justification in support of the exclusion, but the justification makes little sense as applied in those cases.  In the older cases, the “basic tools” justification suggests a very different function than preventing the patenting of inventions that represent uninventive variations on longstanding practice.  Instead, the traditional exclusions would deny patents to fundamental breakthrough discoveries that open up new fields of technology.  To cite a favorite judicial example, many opinions have observed in dicta that Einstein could not have patented his celebrated insight that e=mc2.  The problem is not that the insight is trivial or conventional, but rather that it is too important to allow a patent holder to appropriate for exclusive use.

Actual patent claimants who have litigated the boundaries of patentable subject matter are, for the most part, no Einsteins, and their claimed inventions are less compelling examples of “basic tools of scientific and technological work” than a hypothetical claim to e=mc2.  Nonetheless, the Court has relied on the same “basic tools” rationale for excluding more modest advances from patentable subject matter.  In its 2012 decision in Mayo Collaborative Services v. Prometheus Laboratories, the Court concluded that the claims before it recited patent-ineligible “laws of nature,” although they were “narrow laws that may have limited applications.”  While recognizing that “[a] patent on a narrow law of nature may not inhibit future research as seriously as would a patent upon Einstein’s law of relativity,” the Court claimed a lack of institutional competence in refusing to distinguish among laws of nature according to their breadth, noting that prior cases have instead “endorsed a bright line prohibition against patenting laws of nature, mathematical formulas, and the like, which serves as a somewhat more easily administered proxy for the underlying ‘building-block’ concern.”

The “building-block” concern is harder to explain for patents on computer-implemented business methods, such as the patents in Bilski and Alice.  The lower court decisions that held business methods ineligible for patent protection did not attempt to shoehorn them into the Supreme Court’s exclusions for “laws of nature, physical phenomena, and abstract ideas,” and did not argue that they were “basic tools of scientific and technological work.”

The Court invokes the traditional concern with preempting “the basic tools of scientific and technological work” in Alice and Bilski, but it has adapted its articulation somewhat to broaden the justification to fit business method patents, for example, by substituting the more general phrases “building blocks of human ingenuity” and “building block of the modern economy.”  To explain why risk-hedging and settlement intermediation should count as basic building blocks, the Court stresses their important role in the prior art, noting that each is “a fundamental economic practice long prevalent in our system of commerce.”

While these decisions purport to return to the law established in prior cases, they are in fact making a new move that leaves lower courts and litigants struggling to figure out what the Court means by “abstract ideas.”  As long as this uncertainty continues, some litigants will inevitably seek Supreme Court review in the hope of a more favorable decision on patent eligibility than they got from the Federal Circuit.  Perhaps the Court will welcome this opportunity to police the subject matter boundaries of the patent system on a case-by-case basis, but if it would prefer to avoid that role, it needs to provide clearer guidance to allow others to discern where those boundaries lie.

Posted in: Merits Cases, Alice Corp. symposium