Following the Supreme Court’s Bilski and Prometheus decisions, courts continue to struggle with what constitutes patent-eligible subject matter.

As illustrated by the opinions in CLS Bank International v. Alice Corporation Pty. Ltd. and Bancorp Servs. LLC. v. Sun Life Assurance Co. of Canada, uncertainty remains in the determination of an abstract idea, especially with respect to financial inventions.

Patent-Eligible Subject Matter in the Supreme Court

According to the Patent Act at 35 U.S.C. § 101, "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 therefor." While holding that Congress intended patent-eligible subject matter to "include anything under the sun that is made by man," the Supreme Court has consistently identified three exceptions: laws of nature, physical phenomena and abstract ideas.

In 2010, the Supreme Court analyzed patent-eligible subject matter for an abstract idea in Bilski v. Kappos, considering claims covering a process for hedging risks associated with price changes. Holding that the U.S. Court of Appeals for the Federal Circuit's machine-or-transformation test for patent eligibility was too rigid, all nine members of the Supreme Court nonetheless agreed with the lower courts and the U.S. Patent and Trademark Office that the claims at issue in Bilski were directed to an unpatentable abstract idea of hedging.

In 2012, the Supreme Court analyzed patent-eligible subject matter for a law of nature in Mayo Collaborative Servs. v. Prometheus Labs. Inc., rejecting patent claims covering administering thiopurine drugs in the treatment of patients.

While Bilski and Prometheus illustrate willingness, or even a duty, for courts to invalidate patents for failure to claim patent-eligible subject matter, the Supreme Court has yet to provide clear guidance. In fact, while disapproving of the machine-or-transformation test, the Supreme Court invited the Court of Appeals to develop other limiting criteria consistent with the Patent Act.

In CLS Bank International v. Alice Corporation Pty. Ltd., decided on July 9, 2012, a divided panel of the Court of Appeals addressed "the problem … that no one understands what makes an abstract idea ‘abstract.'" Alice had sued CLS Bank for infringement of patents covering a computerized trading platform for exchanging obligations in which a trusted third party settles obligations thereby eliminating "settlement risk." The district court concluded that Alice's claims were directed to an abstract idea of exchanging obligations to eliminate settlement risks. On appeal, the majority opinion reversed and warned that "[a]ny claim can be stripped down, or simplified … until at its core, something that could be characterized as an abstract idea is revealed." The majority further announced a "manifestly evident" standard for determining a patent ineligible abstract idea under § 101.

Evoking the Supreme Court's post-solution activity analysis in Bilski, Prometheus and others, the judge's dissent in the Alice appeal strips the claims of their jargon to find nothing in the claims themselves that brings the invention within patentable subject matter. The dissent further criticized the "manifestly evident" standard as "more of an escape hatch than a yardstick" for allowing a district court to punt the admittedly-difficult analysis of patent eligibility under § 101.

Shortly after CLS was decided, the Court of Appeals reached a different result in Bancorp Servs. LLC. v. Sun Life Assurance Co. of Canada. A unanimous panel reasoned that the claims  in question sought to cover an abstract idea of managing a stable value protected life insurance policy and were not directed to a "very specific application" of the inventive concept.

Due to the importance of Information Age technologies related to financial inventions, courts will continue wrestling with the issue. An en banc opinion by the Court of Appeals on the topic is likely, and ultimately, a Supreme Court review would not be unexpected.

Where Should You Start?

Given the abstractness of the "abstract ideas" exception to patent eligibility, we recommend performing an early evaluation of the patent for characteristics that would make it ineligible. This includes an analysis of the claim limitations as a whole to determine: whether a computer-aided limitation is being added to an abstract concept without more inventive detail, whether the computer is integral to the claimed invention, facilitating the process in a way that a person making calculations or computations could not and whether the invention has specific applications or improvements to available technologies because such inventions will generally not be so abstract as to be ineligible for patent protection.

Jonathan Spivey is a partner in Bracewell & Giuliani's litigation practice where he counsels and represents financial institutions in intellectual property litigation. He has experience as a patent examiner at the USPTO. Jay Yates is an associate in the firm's litigation practice with a focus on patent litigation, serving clients in the banking, energy, Internet and software industries.