Oral Argument Recount – Alice v. CLS Bank: The Rubber Hits the Road for Patentable Subject Matter
What is an abstract idea? That was the issue at the heart of Monday’s Supreme Court arguments in Alice v. CLS Bank. In order to understand the issue in Alice, its important to understand how the Supreme Court’s understanding of patentable subject matter has evolved over the past decade. Section 101 of the Patent Act specifies that inventors may receive a patent on any “process, machine, manufacture, or composition of matter” so long as it satisfies the other requirements of the Act. In 2010, the Supreme Court took up the question of whether “business methods” could be included in section 101’s requirements. In that case, Bilski v. Kappos, the court examined a patent for financial hedging. While the court ultimately found that patent to be an “abstract idea” and therefore not eligible for patent protection, the decision formally opened the door for other less abstract business method patents. Less than two years later, the Court heard arguments in Mayo v. Prometheus about whether adapting a “law of nature” to a diagnostic test fell within the realm of patentability. Holding that it did not, the Court criticized Prometheus, the patentee, for discovering a law of nature and then trying to acquire patentability by telling the reader to simply “apply” the law in a practical setting. Having addressed both financial innovation and diagnostic medicine, the court set the stage for litigation over the claims in Alice.
For those unfamiliar with the case, Alice, the petitioner, obtained patents on systems and methods for conducting two-way trades. As part of those systems and methods, the patent instructs the reader to use a computer to construct a “shadow ledger” for simulating a transaction before it’s made. By simulating the transaction, the program ensures that the parties are actually going to pay the agreed price before any money is transferred. If the simulated transaction fails then the computer orders a halt to the real-world transaction.
If this concept doesn’t sound particularly “inventive” then don’t worry, several of the justices weren’t impressed either. Carter Phillips, counsel for the petitioner and patentee, Alice Corp., went first and faced a flurry of opposition from the Justices. Within minutes of taking the podium, Justice Ginsberg asked how Alice’s patent claims differed from the claims in Bilski, suggesting that Alice’s “intermediate settlement” might not be any more inventive than Bilski’s “hedging.” Justice Kennedy followed up shortly thereafter, telling Mr. Phillips that a group of second year college students would find it “fairly easy to program” Alice’s underlying concept into a computer and that Alice’s patent seemed rather to cover an “idea” as opposed to a patentable invention. However, no justice was less amicable to Mr. Phillips than Justice Breyer. Following closely on the heels of Justice Kennedy’s remarks, Breyer suggested that Alice’s underlying concept was as old as the Egyptians and so simple that his mother employed it in his youth to prevent overspending. Pushing the issue even further, Justice Sotomayor asked what functional benefit derived from the use of a computer. Justice Sotomayor and several of the other justices failed to see how the patent innovated other than simply saying “use a computer” to perform the already understood concept. Throughout his time at the podium, Mr. Phillips did his best to highlight the complex nature of Alice’s patents but it wasn’t clear how convincing his arguments were to the justices.
For all their difficulties with Mr. Phillips’s arguments however, it wasn’t clear that the justices themselves knew what rule should apply here. At one point towards the middle of Mr. Phillips’s time, Justice Breyer candidly reflected that he struggled to formulate a rule that would curtail bad software patents without eviscerating the industry. Unfortunately, Mr. Phillips was unable to clearly answer the question and instead led the court down a debate, first arising in Bilski, over the legislative history surrounding business method patents.
During Mr. Phillips time at the podium the Court also struggled to apportion statutory importance between sections 101 (patentable subject matter), 102 (novelty), and 103 (non-obviousness). Justice Scalia, at one point, suggested that perhaps 102’s novelty analysis would prove to be the proper screening mechanisms for questionable software patents, but both Justice Breyer and Justice Ginsburg hesitated to join Scalia’s view. Ultimately, by the time Mr. Phillips sat down, his argument appeared bruised but not entirely beaten by the justices’ questioning.
In contrast, Mark Perry, counsel for the respondent, CLS Bank, had a much easier time at the podium. Unsurprisingly, Mr. Perry spent most of his time simplifying Alice’s patents. At one point Mr. Perry quoted the patent’s inventor as saying that the patent covered really only two steps, “debit and credit and then pay” and noted that Mr. Phillips’ many complexities were omitted from the patent claims.
However, Mr. Perry, for all his efforts, also struggled to articulate a workable standard by which “abstract ideas” could be distinguished from patentable inventions. Mr. Perry repeatedly harped on the notion of a “technological solution” requirement. Under Mr. Perry’s model, the only business method patents that would survive the abstract idea prohibition would be those employing a technological solution such as a method of encryption or the use of a data compression algorithm. But Justice Kennedy seemed particularly unhappy with this idea and pressed Mr. Perry several times for a business method patent that could stand independently from the technological form employed. Justice Sotomayor also voiced concerns about Mr. Perry’s proposal, asking whether email or word processors could withstand this test given their analogous nature to physical mail and typewriters. Mr. Perry addressed neither line of questioning particularly well and it was unclear how persuasive his proposal was to the justices.
Another interesting moment came when Mr. Perry was asked to explain why, if the case is so straightforward, did the Federal Circuit fail to arrive at a controlling opinion. To his credit, Mr. Perry, echoing many Federal Circuit scholars, argued that elements of the Federal Circuit have resisted Supreme Court review of its rulings and that this case in particular represented an attempt by the lower court to ignore precedent. On the whole, Mr. Perry’s argument appeared to carry the day even while the Court struggled to find articulate a manageable test for defining an abstract idea.
Following Mr. Perry’s argument, Solicitor General Donald Verilli took the podium to offer the government’s position. Prior to arguments, most observers agreed that the Solicitor General’s position favored Mr. Perry’s argument but the parties themselves disagreed as to what the Solicitor General’s argument would require the justices to do. In fact, within seconds of reaching the podium, Justice Sotomayor asked the Solicitor General why the Court needed to address software patents at all. Justice Ginsberg also grilled the Solicitor General about whether the government’s proposal would require the invalidity of all business method and software patents. The Solicitor General struggled to answer these questions and the others the justices posed. Over the course of the roughly 10 minutes the Solicitor General had to answer questions, relatively little was revealed and the justices did not seem aided by his advocacy.
At the end of the day, most observers seem to agree that Alice Corp. is going to lose, representing a relatively rare affirmance for the Federal Circuit. Talking with practitioners, students, and interested computer scientists in line for the arguments the prospect of a broad clarifying judgment seemed dim. For its fourth patentable subject matter case in as many years, the Supreme Court has waded into the fog of software patents and it doesn’t seem likely to clear the air anytime soon.
Miles Freeman is a J.D. candidate, ’14, at the NYU School of Law.