ESP Wiki is looking for moderators and active contributors!

Alice v. CLS Bank ruling by US Supreme Court on 19 June 2014

Here it is: 13-298_7lh8.pdf (mirror 1) (mirror 2)

Page numbers are the numbers written in the opinion (so, page 1 is the 4th page of the PDF, page 2 is the 5th...)

Summary of Opinion of the Court

At a glance:

  • This software patent is invalid
  • The court gives a rule for why it is invalid
  • Not everything is defined, so this isn't the end of the story
  • There will be debate about how far this ruling goes, but the direction it goes in is clear: 100% in the direction of abolishing software patents

Contents of the court's document

It's a unanimous decision written by Justice Thomas with one very short concurring opinion by Justice Sotomayor. The PDF document is 21 pages. Pages 4 to 20 of the PDF are the opinion of the court - in the document they're numbered 1 to 17.

Numbers are the page numbers as printed in the document (not the PDF page):

  • Opinion of the Court - (1)
  • I - (1)
  • I-A - (1)
  • I-B - (3)
  • II - (5)
  • III - (7)
  • III-A - (7)
  • III-B - (10)
  • III-B-1 - (11)
  • III-B-2 - (14)
  • II-C - (16)

Opinion of the court - excerpts

The meatiest part is section III.

For background, here are the wiki pages for the other decisions they mention frequently:

Four of those cases invalidated a patent. Diehr upheld a patent on a machine that used software.


The very first paragraph provides a summary:

The patents at issue in this case disclose a computer-implemented scheme for mitigating “settlement risk” (i.e., the risk that only one party to a financial transaction will pay what it owes) by using a third-party intermediary. The question presented is whether these claims are patent eligible under 35 U. S. C. §101, or are instead drawn to a patent-ineligible abstract idea. We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention. We therefore affirm the judgment of the United States Court of Appeals for the Federal Circuit.

Background: The ruling by the Court of Appeals for the Federal Circuit, which heard the case en banc (all judges, not just a panel of 3), contained just two sentences. One to say the patent was invalid, and the other to say they couldn't agree on why.

Section III

In the first paragraph of section III, the Court explains that it will apply the two step analysis used in pages 8 and 9 of Mayo (2012) to distinguish between non-patentable concepts and patentable applications of these concepts:

  1. "First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts." such as "laws of nature, natural phenomena, and abstract ideas" (as opposed to a "patent-eligible applications of those concepts")
  2. "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." (Thomas calls this an "inventive concept" test)

Then footnote 3 is very interesting:

Because the approach we made explicit in Mayo considers all claim elements, both individually and in combination, it is consistent with the general rule that patent claims “must be considered as a whole.”

"Considered as a whole" is the part of the Diamond v. Diehr (1981) ruling that patent lawyers used as their argument for allowing software patents. These patent lawyers said you had to take the computer and the software as a whole. This footnote seems to destroy that reasoning. "as a whole" just means reading the claims in combination, not lumping the computer together with the software.


III-A goes on for three pages, but the first paragraph summarises quite curtly:

We must first determine whether the claims at issue are directed to a patent-ineligible concept. We conclude that they are[.]

The following paragraphs explain how coming to this conclusion is consistent with Benson, Flook, and Bilski.


All claims invalid

Section III-B (page "10", pdf page 13) discusses the method claims:

the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention

Section III-C (page "16", pdf page 19) discusses the system and media claims:

petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible

What's left undecided

Here's an excerpt the patent lawyers will focus on:

Viewed as a whole, petitioner’s method claims simply recite the concept of intermediated settlement as performed by a generic computer. ... The method claims do not, for example, purport to improve the functioning of the computer itself.

This leaves the door open for the Court to uphold a software patent next time if it improves the functioning of a computer. But that's all it does. It leaves the door open. It doesn't say that such a patent would be valid. The Court simply leaves that question for another day. (more discussion below)

Starting at the end of page 13, there's another line that many pro-patent blogs will highlight:

There is no dispute that a computer is a tangible system (in §101 terms, a “machine”), or that many computer-implemented claims are formally addressed to patent-eligible subject matter.

But this changes nothing. "Computer-implemented" just means there was a computer involved. Like the microchips in a better washing machine or Diehr's rubber-curing machine. Those inventions use computers, but they're not software.

Mixing up 101 with 102 and 103?

Pages 12 & 13. I highlight this part because this is what the critics of the opinion are referring to when they say the Court has "mixed up article 101 (subject matter) with 102 (prior art) and 103 (obviousness)". Patent lawyers that want exclusions to be narrow (i.e. don't exclude software) will say that computers being old or ubiquitous shouldn't be a factor in judging if a concept is abstract. Luckily, the Supreme Court rejects that narrow approach and sees use of a computer to be part of modern life.

the computer implementation did not supply the necessary inventive concept; the process could be “carried out in existing computers long in use.” ...

... Given the ubiquity of computers, ...wholly generic computer implementation is not generally the sort of “additional featur[e]” that provides any “practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.”

Sotomayor's concurring opinion

Sotomayor's opinion is just one paragraph:

I adhere to the view that any “claim that merely describes a method of doing business does not qualify as a ‘process’ under §101.” Bilski v. Kappos, 561 U. S. 593, 614 (2010) (Stevens, J., concurring in judgment); see also In re Bilski, 545 F. 3d 943, 972 (CA Fed. 2008) (Dyk, J., concurring) (“There is no suggestion in any of th[e] early [English] consideration of process patents that processes for organizing human activity were or ever had been patentable”). As in Bilski, however, I further believe that the method claims at issue are drawn to an abstract idea. Cf. 561 U. S., at 619 (opinion of Stevens, J.). I therefore join the opinion of the Court.

I had to read this a few times, but her point is that she would have used a different approach. Her first sentence says how she would have invalidated this patent (and that she would have also invalidated all business method patents). Her second sentence notes that she also agrees with the invalidity that the other Justices see, so she has no problem joining that opinion, even if she would have preferred it to be broader.

Text of Alice's patent

A long footnote on page 2 says:

The parties agree that claim 33 of the ’479 patent is representative of the method claims. Claim 33 recites:

A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:

“(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;

“(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;

“(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and

“(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.

Reviewing other people's analyses

Michael Borella and Rob Merges

Two separate articles but I'm mentioning them together to point out that they're the two most technical that I've seen so far.

Timothy B. Lee (Vox)

Two by Timothy. First is a good overview of this ruling, second is discussion of the more general problem that judges don't understand software.

Timothy's a great writer. He doesn't go into the technical legal aspects, the way Merges and Borella did, but he still gets to the substance, past the superficial layer.

Gene Quinn (IP Watchdog)

Gene Quinn loves software patents. He always says he can draft around any new limits. So when he's hopping mad, we know this ruling has destroyed a lot of software patents. Here're some of his comments:

an intellectually bankrupt opinion ... will render many hundreds of thousands of software patents completely useless ... On first read I don't see how any software patent claims written as method or systems claims can survive challenge.

Music to my ears. And in the comments section, Quinn further adds:

Am I overblowing this? I hope so, but I would bet just about anything that I’m not. The Patent Office will simply plow through their backlog in hundreds of thousands of applications by issuing an insurmountable rejection of all software claims written as methods and systems by saying “see Alice v. CLS Bank.”

Hip hip, hooray!

Joe Mullin (Ars Technica)

Joe writes some of the best articles on software patents, but I think his review of Alice v. CLS has a mistake that leads him to an overly pessimistic conclusion. He says:

Some advocates were hoping .... to eliminate software patents ... but it didn't. The court suggested software patents could still be allowed when they "improve the functioning of the computer itself," or "improve an existing technological process."

But by my reading, they never said (nor suggested) that any particular type of software patent could still be allowed. What the Court said was:

Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or...

As I understand it, in Supreme Court rulings, this type of wording concerns only the scope of the ruling. The court didn't say that improving the functioning of a computer is patentable. What they said is that they are answering in the context of abstract ideas on generic computers, and that the category of patents on improving the functioning of a computer is outside the scope. They're telling the reader: if you're looking for the answer to that question, you won't find it here.

Nothing more.

-- Sort of. They're saying that you could patent a better way of doing what a computer does. So they are saying that improving the functioning of a computer is patentable. But what they didn't say is that software that improves the functioning of a computer is patentable. You might invent a computer that uses light-based components, say, instead of electronic transistors. The court doesn't address very well whether a patent rationale based on saying software improves the computer's functioning would fly, but it sounds like the court would not be duped by that kind of argument. They seem to be, though not explicitly, distinguishing the nature of software from the kind of things that would constitute a patentable improvement in how a computer is implemented. I think Joe's saying there's still a vulnerability to that kind of argument. Which may be valid, though the way the court marshalled this distinction in their phrasing suggests to me they demarcate software as improvement from concrete new ways of making a computer do its thing.
But that's exactly the mistake. The Court didn't say "you could patent" anything. Nothing in this ruling says that any type of invention is patentable.
They give an example: "for example, purport to improve the functioning of the computer itself" That's contrasted to "method claims [that] simply recite the concept of intermediated settlement as performed by a generic computer." That's close enough for me to language saying you could patent something other than this kind of set of method claims. It's a reference to something that might be patentable as contrasted to non-patentability in this case.
In normal English, I'd also assume that an example of non-excluded stuff is thus included, but in court opinions if they want to include something, they say they're including it. When, instead, they say they're not excluding it, the contrast created is:
  • I'm saying whether A is patentable: no it isn't
  • I'm not saying whether B is patentable.
We might agree that both our interpretations are possible, but only one can be right. If Joe's reading was right, we would find pro-patent blogs claiming partial victory or even a consolation prize that a sub-category of software patents are for the first time validated by the Supreme Court, right? But the patent lawyers aren't saying that. So I'm guessing Joe's reading isn't right. (But I note again, I recommend his writings in general.)

Jason Rantanen (Patently-O)

A good collection of excerpts, but very little analysis. Patently-O's quality is generally very high, so I'd guess they're working on a more detailed follow-up.

Adam Liptak (New York Times)

Nothing interesting for understanding the ruling, but a good example of how the patent lawyers will spin this. Calls it "modest", highlights the line about "many computer-implemented claims are formally addressed to patent-eligible subject matter", and then presents the issue as being a balance between protecting innovation and fighting patent trolls.

(Public administration fights trolls by making litigation less lucrative, not by excluding whole domains. Excluding domains is the solution to people not being free to write software, but the patent lawyers don't want people to think about the issue in those terms.)

Related pages on ESP Wiki

External links

Third-party analyses: first day

The following are some of the more insightful initial reactions to the ruling:

Third-party analyses: July 2014 and later

The following is a selection of articles which added new information to the general discussion:

(newest first)

Case law applying the Alice ruling

Decisions by lower courts and by the US patent office.

(newest first)