573 U.S. 208, 216 (2014)
Alice Corporation Pty. Ltd. is the assignee of United States Patent Nos. 5,970,479, 6,912,510, 7,149,720, and 7,725,375.1 These patents disclose schemes to manage financial risk.2 The invention enables the management of risk relating to specified yet unknown future events.3 It relates to methods and apparatus, including electrical computers and data processing systems applied to financial matters and risk management.4
The claims relate to a computerized scheme for mitigating settlement risk.5 Settlement risk is the risk that only one party to an agreed-upon financial exchange will satisfy its obligation.6 The patents claim a method for exchanging financial obligations between two parties by using a computer system as a third-party intermediary.7 The intermediary creates shadow credit and debit records that mirror the balances in the parties' real-world accounts at exchange institutions.8 The intermediary updates the shadow records in real time as transactions are entered.9 This allows only those transactions for which the parties' updated shadow records indicate sufficient resources to satisfy their mutual obligations.10 At the end of the day, the intermediary instructs the exchange institutions to carry out the permitted transactions.11
In 2007, CLS Bank International and CLS Services Ltd. filed suit against Alice Corporation in the United States District Court for the District of Columbia.12 CLS Bank operates a global network that facilitates currency transactions.13 CLS Bank sought a declaratory judgment that the claims at issue are invalid, unenforceable, or not infringed.14 Alice Corporation counterclaimed, alleging infringement of the patents.15
Following the Supreme Court's decision in Bilski v. Kappos, the parties filed cross-motions for summary judgment on whether the asserted claims are eligible for patent protection under 35 U.S.C. § 101.16 The District Court held that all of the claims are patent ineligible.17 A divided panel of the Federal Circuit reversed.18 Upon rehearing en banc, the Federal Circuit affirmed the District Court's judgment.19 The Supreme Court granted certiorari.20
Whether the claims at issue are patent eligible under 35 U.S.C. § 101?21
Section 101 of the Patent Act defines the subject matter eligible for patent protection as any new and useful process, machine, manufacture, or composition of matter.22 The Court has long held that this provision contains an implicit exception for laws of nature, natural phenomena, and abstract ideas.23
No. The claims are drawn to the abstract idea of intermediated settlement because they describe using a third-party intermediary to mitigate settlement risk through the creation and updating of shadow accounts.24 The generic computer implementation does not transform the idea into a patent-eligible invention since it performs only conventional functions such as electronic recordkeeping and issuing instructions.25 Alice Corporation's patents were held ineligible by the District Court after Bilski, the Federal Circuit affirmed en banc, and the Supreme Court granted certiorari to affirm that result.26
The claims at issue are not patent eligible under 35 U.S.C. § 101.27
Related opinions on this issue
Joined by Ginsburg And Breyer, Jj.
Justice Sotomayor joined the Court's opinion but wrote separately to adhere to the view that any claim that merely describes a method of doing business does not qualify as a process under § 101.28 She observed that there is no suggestion in any of the early English consideration of process patents that processes for organizing human activity were or ever had been patentable.29 Nevertheless, she further believed that the method claims at issue are drawn to an abstract idea, consistent with the majority's conclusion.30
Accordingly, she joined the opinion of the Court.31
Whether the claims are directed to an abstract idea?32
The abstract ideas category embodies the longstanding rule that an idea of itself is not patentable.33 Precedents rejected claims involving algorithms for converting binary-coded decimal numerals into pure binary form, mathematical formulas for computing alarm limits in a catalytic conversion process, and methods for hedging against the financial risk of price fluctuations as fundamental economic practices long prevalent in commerce.34
Yes. The claims are drawn to the concept of intermediated settlement, which is the use of a third party to mitigate settlement risk.35 This concept is a fundamental economic practice long prevalent in commerce just like the risk hedging in Bilski.36 The patents describe creating shadow credit and debit records that mirror real-world accounts, updating them in real time as transactions occur, and issuing end-of-day instructions to carry out permitted transactions.37
All of these steps on their face implement the abstract idea of using an intermediary to reduce settlement risk between parties.38
The claims are directed to an abstract idea.39
Whether generic computer implementation transforms the claims into patent-eligible subject matter?40
The introduction of a computer into the claims does not alter the analysis at the second step of the Mayo framework.41 Simply appending conventional steps specified at a high level of generality to a method already well known in the art is not enough to supply the inventive concept.42 Stating an abstract idea while adding the words apply it with a computer is not sufficient, nor is limiting the use of an abstract idea to a particular technological environment.43
No. The method claims merely require generic computer implementation that performs purely conventional functions such as electronic recordkeeping, obtaining data, adjusting account balances, and issuing automated instructions.44 The system claims recite a handful of generic computer components including a data processing system with a communications controller and data storage unit configured to implement the same idea.45 This adds nothing of substance beyond what the method claims already recite.46 The media claims rise or fall with the method claims as conceded below.47
Generic computer implementation does not transform the claims into patent-eligible subject matter.48