The Alice Corp case: What is it?

It’s hard to read an article about patents these days without a reference to Alice Corp. v. CLS Bank. When the Supreme Court’s opinion in the case came down it was not really surprising to anybody who had been paying attention, but it is important and (even though it’s several months old) not actually that well understood, so here is a short explanation.

What Alice Corp., the patent holder, had done was to patent a system in which an intermediary company, helps parties to a transaction manage their risks by holding up a transaction and not completing it until after confirming that each party has provided the resources that satisfy the obligations, using a computer to log the details of the transaction and compare the requirements to the resources provided by each party.

This is, in essence, escrow. It is a concept is nearly as old as banking itself, making it unpatentable for lack of novelty, and it is also unpatentable because it is a mere concept. The Court’s holding focuses on the second reason why escrow is unpatentable, but the point here is that if a party tried to patent escrow it should fail. What Alice did was to add a computer to the process. That actually worked at first, because it initially did result in a patent issuing, back in the good old days when you could patent toast and playing with cats with a laser pointer – the 1990s. But adding “use a computer” to otherwise unpatentable subject matter does not result in patentable subject matter, so in 2014 the Court ruled that the patents were invalid.

Somehow, this outcome seems to have surprised some observers. It should not have. The Alice case follows on Bilski v. Kappos, a 2010 case that did the same thing to a party that had patented investment hedging, plus a computer.

There are two takeaways here:

  1. You can’t patent an abstract concept. Escrow and hedging are too abstract to be considered “inventions”.
  2. You can’t transform ineligible subject matter into eligible subject matter by adding a computer.

Note: As usual, this is not legal advice, but merely education and commentary. If you have any questions on a matter related to patent eligibility, please consult an intellectual property attorney.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s