Alice Corp. Pty. Ltd. v.

CLS Bank International

134 S. Ct. 2347 (2014)

Rule of Law

A claim that involves an abstract idea is patentable only if the balance of the claim adds something of
significance to the idea, in that it transforms the idea to a new and useful end.

Facts

Alice Corporation (Alice) (defendant) was assigned several patents that utilize a third-party computer
scheme to mitigate settlement risk in a transaction (i.e., the risk that one party will not satisfy its
obligation). The process of using an intermediary to mitigate settlement risk is known as
intermediated settlement, which is a well-known practice in the business world. CLS Bank
International (CLS) (plaintiff) brought suit in the United States District Court for the District of
Columbia, seeking a declaratory judgment that the claims were invalid. Alice filed a countersuit for
patent infringement. The district court found in favor of CLS. Alice appealed, and the United States
Court of Appeals for the Federal Circuit affirmed on rehearing. Alice then petitioned the United States
Supreme Court, which granted certiorari.

Issue

Is a claim that involves an abstract idea patentable if the balance of the claim does not add something
of significance to the idea or transform the idea to a new and useful end?

Holding and Reasoning (Thomas, J.)

No. An abstract idea is not patentable. However, a claim that involves an abstract idea is patentable,
provided the balance of the claim adds something of significance to the idea. In other words, the
balance of the claim must transform the idea to a new and useful end. In conducting such an analysis,
the question is whether the concept is “sufficient to ensure that the patent in practice amounts to
significantly more than a patent upon the [abstract idea] itself.” If a claim does not sufficiently
transform an abstract idea, it is not patentable. Simply adding words to an abstract idea to apply the
idea to something is not sufficient. Here, as an initial matter, Alice’s claims are directed to a patent-
ineligible concept—the abstract idea of intermediated settlement. Like the abstract idea of risk
hedging analyzed in Bilski v. Kappos, 561 U.S. 593 (2010), the idea of intermediated settlement is “a
fundamental economic practice long prevalent in our system of commerce.” Givlen this, the issue that
must be determined is if the claims have sufficiently transformed the abstract idea. They have not.
The claims at issue simply add a computer-generated aspect to the time-honoured practice of
mitigating settlement risk. This addition is not significant and is insufficient to transform the abstract
idea of intermediated settlement mitigation into a patentable invention. Additionally, the claims’
limiting of the use of intermediated settlement to a particular technology, namely computers, does not
make the claims patentable either. Because computers are used universally, the addition of a computer
program to an abstract idea, without more, does not add anything of significance that would make an
abstract idea patentable. Alice’s claims are not patentable. The court of appeals is affirmed.

Concurrence (Sotomayor, J.)

A claim that simply describes a method of doing business does not reach the level of a patentable
process.

Key Terms

35 U.S.C. § 101

Definition

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of
matter, or any new and useful improvement thereof, may obtain a patent.

Machine-Or-Transformation Test

Definition

Provides that an invention is a patentable process if it is tied to a machine, or transforms an article into
some other thing.