By Brent T. Yonehara
Alice Corporation v. CLS Bank International was recently decided by the U.S. Supreme Court in the closing days of its 2013-2014 term. In Alice, the Supreme Court found that patent claims that do not “transform” from patent-ineligible subject matter to a patent-eligible invention were abstract ideas outside the scope of 35 U.S.C. §101. News has been mostly favorable of the Alice decision. However, it has not been unanimous. Critics’ comments of the Alice ruling range from indignant to excoriating. This paper examines the Alice decision by analyzing its new test to determine whether software claims are patent-eligible subject matter.
Software patents, and business methods, may occupy a demilitarized zone of questionable claims construction. The Supreme Court has long held that “laws of nature, natural phenomena, and abstracts ideas are not patentable.” In Alice, The Supreme Court begins its analysis by reviewing its previous ruling in Mayo v. Prometheus.  In Mayo, patents involving therapeutic drugs were at issue. Independent claim 1, a method claim, was directed toward the drug and dosage administration and the process in which the thiopurine compounds metabolize to produce the therapeutic result. The Court held that this process was nothing more than a law of nature, and thus not patentable. The Mayo Court further enunciated a two-step test to determine patentability. This test was then applied by the Alice Court to determine whether software patent claims are patentable.
The first question is whether the claims at issue are directed toward an unpatentable subject matter. If the answer is “yes,” then the second question is whether taking the claim individually and “as an ordered combination” produce any other elements to transform the claim into a patentable subject matter.
The Alice method claims in U.S. Patent No. 5,970,479 (‘479) at issue were directed toward intermediated settlement. The Court found that the Alice’s claims were only abstract ideas. Additionally, the Court found that these claims failed to transform the mere idea into something patentable. The claims merely required rudimentary computer implementation, which was not enough “transformation” to a patent-eligible invention. The Court noted that the introduction of a computer did not make the invention “substantial and meaningful.” Furthermore, the Court observed that the functions performed by a computer during each step of the method claim’s process were only “conventional,” and taken “as an ordered combination” did not add anything that “[was] already present when the steps [were] considered separately.”  As such, the Court invalidated the Alice method claims.
Analyzing the Alice Aftermath
So, what is the practical effect of Alice? Certainly, the standard for what is patentable software and what is unpatentable ideas has gotten higher. The software industry has been mostly exuberant, if not cautious, about the result from Alice. One commentator sees the Alice patents invalidation as necessary to “ridding the American patents of poor software, business process, and genetic patents.” Another commentator seemed effusive since rendering some software patent claims as non-patentable ideas would be an additional weapon in the industry’s battle against patent trolls. (I note, however, an errata in this commentator’s article – he noted that some in the industry want to move toward having software trademarked. Software, of course, cannot be trademarked, per se, although the trade name could be. The source code has long been protected as copyrightable media of expression.)
Legal experts and commentators have been less than complimentary to the high court’s decision-rendering. One commentator labels the decision as “intellectually bankrupt,” since it makes issuing software patent claims (method, system, or computer-readable medium) more difficult. A former United States Patent and Trademark Office (USPTO) director expressed disappointment because Alice did not provide needed clarity in determining patent-eligible software claims. A law professor commentator, though, had the exact opposite reaction, noting that Alice provided a clearer path than the Bilski case enunciated with business methods.
One thing of interest to note is the reaction from Australia’s high-tech community, and the intellectual property office, in particular. Since the now invalidated ‘479 patent claims priority to Australian patents, and which also provide priorities for European, Japanese, Chinese, Canadian, and New Zealand patents, the Supreme Court’s invalidation could spur cancellation or invalidation proceedings in these respective jurisdictions.
Alice brought some finality, and for some, a little more certainty, for software patents after the Federal Circuit’s mess in the appellate ruling from over a year ago. Like the fictional Alice, who fell into a world of amazement and wonder, the Alice ruling has dropped upon the high tech world a bit of both, as well. Some may be amazed (or, for others, dazed) by what is now plausible – a test which can determine what software claims are patentable and what are not. Still others will wonder about the day when software can be deemed patentable at all, or not. Until that day arrives, it keeps the rest of us in the IP world occupied with our day jobs.
By Brent Yonehara. Originally published at http://yonaxis.blogspot.com/2014/06/alice-in-wonderland-software-patents-in.html (June 26, 2014).
 See Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 573 U.S.___ (2014) (slip op.), available at http://www.supremecourt.gov/opinions/13pdf/13-298_7lh8.pdf.
 Id. at___ (slip op. at 5-6).
 See, e.g., Julie Samuels, Patent Trolls Are Mortally Wounded, Slate, at http://www.slate.com/articles/technology/future_tense/2014/06/alice_v_cls_bank_supreme_court_gets_software_patent_ruling_right.html (June 20, 2014, 1:47 PM) (stating Alice Corp. furthers the goal of moving away from poorly-drafted software patents); Business Software Alliance, Supreme Court’s CLS Bank Decision Is a Victory for Innovation, Says BSA, at http://www.bsa.org/news-and-events/news/2014/june/06192014clsdecision (June 19, 2014) (noting the Court came to the right decision in Alice).
 See Free Software Foundation, US Supreme Court Makes Right Decision to Nix Alice Corp. Patent, but More Work Needed to End Software Patents for Good, at https://www.fsf.org/news/fsf-statement-on-alice-corp-v-cls-bank (June 19, 2014, 4:55 PM) (“Software patents are a noxious weed that needs to be ripped out by the roots.”).
 See Gene Quinn, SCOTUS Rules Alice Software Claims Patent Ineligible, IPWatchdog Blog, at http://www.ipwatchdog.com/2014/06/19/scotus-rules-alice-software-claims-patent-ineligible/id=50120/ (June 19, 2014, 6:44 PM) (commenting, unapologetically, that Alice was naively written and is an “asinine” decision.).
 See Daniel Fisher, Alice Corp. Patent Ruling Is Good For Software Firms, Bad News For Trolls, Forbes, at http://www.forbes.com/sites/danielfisher/2014/06/19/patent-lawyers-software-companies-like-alice-corp-ruling-trolls-not-so-much/ (June 19, 2014, 2:39 PM) (inferring, with some reluctance, that Alice was correct but currently business methods are tenuously patentable subject matter.).
 See Association for Molecular Pathology v. Myriad Genetics, Inc., 569 U.S.___ (2013) (slip op., 11).
 See Mayo Collaborative Services v. Prometheus Labs., Inc., 566 U.S.___ (2012) (slip op., 8-10), available at http://www.supremecourt.gov/opinions/11pdf/10-1150.pdf.
 Id. at ___ (slip op., 4-5).
 Id. at___ (slip op., 5-6).
 Id. at___ (slip op., 8).
 Id. at___ (slip op., 8-9).
 See Alice, supra note 1, at___ (slip op., 7).
 See CLS Bank Int’l v. Alice Corp. Pty. Ltd., 717 F.3d 1269, 1285, 106 U.S.P.Q.2D 1696 (Fed. Cir. 2013) (en banc). Method claim 33 of Patent No. 5,970,479 states: “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 each 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 ones of the exchange institutions to exchange credit 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. Id.
 See Alice, supra note 1, at___ (slip op., 7).
 Id. at___, (slip op., 10).
 Id. at ___, (slip op. 10-11).
 Id. at___, (slip op., 14).
 Id. at___, (slip op., 15).
 The system claims and computer-readable medium claims were also thrown out by the Alice Court. Id. at____, (slip op., 16).
 See Brian Fung , The Supreme Court’s Decision on Software Patents Still Doesn’t Settle the Bigger Question, The Washington Post, available at http://www.washingtonpost.com/blogs/the-switch/wp/2014/06/20/the-supreme-courts-decision-on-software-patents-still-doesnt-settle-the-bigger-question/ (June 20, 2014).
 See Steven J. Vaughan-Nichols, Software Patents Take a Hit, But They’re Far From Dead, ZDNet, at http://www.zdnet.com/software-patents-take-a-hit-but-theyre-far-from-dead-7000030745/ (June 19, 2014, 14:10 PDT).
 See Seth Rosenblatt, Supreme Court Raises Bar on Software Patent Claims, CNET, at http://www.cnet.com/news/despite-supreme-court-decision-software-still-eligible-for-patents/ (June 19, 2014, 1:36 PM PDT).
 In all fairness, however, I should give this commentator the benefit of the doubt; he does not have a legal background nuanced in the idiosyncrasy of intellectual property laws.
 See Quinn, supra note 5 (quoting Q. Todd Dickinson, Director of the USPTO under President Clinton, stating that the Court should have given more clarity to the issue of software patent claims).
 See Rob Preston, Supreme Court Toughens Business Process Patent Test, InformationWeek, at http://www.informationweek.com/software/enterprise-applications/supreme-court-toughens-business-process-patent-test/a/d-id/1278736 (June 20, 2014, 11:16 AM) (quoting Professor Robin Feldman of University of California, Hastings College of the Law in stating that “the Court sent a strong message with the Alice decision.”) See also Bilski v. Kappos, 561 U.S. 593, 599 (2010) (holding business method claims directed toward financial risk hedging was too abstract an idea to be patentable).
 See ESPACENET database search, conducted June 26, 2014, at http://worldwide.espacenet.com/publicationDetails/inpadocPatentFamily?CC=US&NR=5970479A&KC=A&FT=D&ND=3&date=19991019&DB=EPODOC&locale=en_EP (June 26, 2014).
 See CLS Bank Int’l, supra note 17.