In a unanimous opinion, the U.S. Supreme Court ruled today that all claims at issue in the highly anticipated case of Alice Corp. v. CLS Bank Int’l. are invalid under §101 of the patent statutes.

The technology in question relates to a computerized scheme for mitigating the risk that only one party in an agreed-upon financial exchange will hold up its end of the bargain. By way of a “shadow account,” a computer system uses a virtual record to ensure, in real time, that no transaction is permitted if a party would be unable to satisfy its obligation. At the end of the day, the system issues instructions to financial institutions so that all the permitted transactions are carried out in the real world.

CLS Bank, which manages a transaction network estimated to settle $5 trillion worth of transactions daily, stood accused of infringing Alice’s patents.

In invalidating the patents, the Court applied a two-step test. First, the Court considered “whether the claims at issue are directed to a patent ineligible concept” such as a law of nature or abstract idea.

The Court then asked, “[W]hat else is there in the claims?” Describing this second step as a “search for an inventive concept,” the Court considered “elements of each claim both individually and as an ordered combination to determine whether the additional elements transform the nature of the claim into a patent-eligible application.”

In applying the test, the Court first found that Alice’s claims are drawn to the abstract idea of intermediated settlement.

“On their face, the claims before us are drawn to the concept of intermediated settlement, i.e. the use of a third party to mitigate settlement risk. Like the risk hedging in Bilski, the concept of intermediated settlement is a fundamental economic practice long prevalent in our system of commerce.”

Similarly, Alice’s claims failed the second part of test.

“[M]ere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Stating an abstract idea while adding the words ‘apply it’ is not enough for patent eligibility.”

The Court said, “Given the ubiquity of computers…wholly generic computer implementation is not generally the sort of ‘additional feature’ that provides any practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself.”

Importantly, the Court’s ruling applies to Alice’s method, system, and computer-readable medium claims.
Nonetheless, the Court wrote separately to further address Alice’s contentions that the system claims met the second part of the test because they recited “specific hardware” configured to perform “specific computerized functions.”

“[W]hat [Alice] characterizes as specific hardware—a ‘data processing system’ with a ‘communications controller’ and ‘data storage unit,’ for example,” the Court said, “is purely functional and generic. “

“Nearly every computer will include a ‘communications controller’ and ‘data storage unit’ capable of performing the basic calculation, storage, and transmission functions required by the method claims,” the Court said. “As a result, none of the hardware recited by the system claims offers a meaningful limitation beyond generally linking the use of the method to a particular technological environment, that is, implementation via computers.”

Justice Sotomayor, joined by Justices Ginsburg and Breyer, concurred.

The full opinion is available here.