US Court says no to patent on computer-implemented business method

Article  \  20 Jun 2014

The United States Supreme Court has handed down a decision that appears to align with the approach we are taking in Australia and New Zealand. In Alice Corporation Pty. Ltd. v CLS Bank International et al the Court held that use of a generic computer does not transform an abstract idea into a patent-eligible invention. This is an important decision for all patent applicants as it gives guidance on what is no longer patentable in the field of computer-implemented inventions.

Alice Corporation owns several patents covering a business method for mitigating settlement risk, the risk that only one party to an agreed-upon financial exchange will satisfy its obligation. The claimed invention facilitated the exchange of financial obligations between two parties by using a computer system as a third-party intermediary.

The Mayo test

The Court affirmed a test already set out in Mayo Collaborative Services v Prometheus Laboratories, Inc. The test is designed to distinguish patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts. The test involves:

  1. determining whether the claims are directed to a concept that is not patent eligible; and
  2. if so, determining whether any additional elements in the claims 'transform' the nature of the claim into a patent-eligible invention.

A concept not patent-eligible

The Court held that the claims were drawn to the abstract idea of intermediated settlement, the use of a third-party to mitigate settlement risk. The Court referred to Bilski v Kapposin which the Supreme Court rejected a method for hedging against the financial risk of price fluctuations.

Like the risk hedging in Bilski, the Court held that the concept of intermediated settlement is a fundamental economic practice long prevalent in the United States system of commerce.

The transformation

Having determined that the claims were directed to the abstract idea of intermediated settlement, the Court then considered whether there was anything else in the claims to transform them into a patent-eligible application.

The Court observed that the method claims merely required generic computer implementation and therefore failed to transform the abstract idea into a patent-eligible invention.

So what exactly does an applicant need to transform a claim? The judgement does not give clear guidance on this point. This is left to the Federal Circuit Courts. The decision does however note that the method claims do not purport to improve the functioning of the computer itself. Nor do they effect an improvement in any other technology or technical field.

The draughtsman's art

There were three sets of claims before the Court. The first set was to a method for exchanging financial obligations. The second set was to a computer system configured to carry out the method for exchanging obligations. The third set was to a computer-readable medium containing program code for performing the method of exchanging obligations.

Having determined that the method claims were not eligible for patent protection, the Court then rejected the other claims as well. The system and media claims were held to add nothing of substance to the underlying abstract idea and were therefore held to be patent ineligible.

The Court reaffirmed several times that patent eligibility does not depend simply on the draughtsman's art. Putting this another way, the law of patentable subject matter is not 'like a nose of wax which may be turned and twisted in any direction'.

The Australian perspective

One of the requirements a patentable invention must satisfy in Australia is that it must be a 'manner of manufacture'. Mere ideas, schemes, and plans are considered to lie outside the definition of 'manner of manufacture'.

There is some uncertainty involving method claims and the extent to which mere computer implementation 'transforms' a mere scheme or plan into patentable subject matter.

The Full Court of the Federal Court of Australia is about to hand down its decision in Research Affiliates. The invention involves securities investing, particularly the construction and use of passive portfolios and indexes.

It is anticipated that the Australian Court will look for, and fail to find, a technical effect in the claims that transforms a mere scheme or plan into a patentable invention.

The New Zealand perspective

The current law in New Zealand has a similar statutory definition of invention to that of Australia. An invention is 'any manner of new manufacture'. Like Australia, mere ideas, schemes or plans are generally excluded from the definition of 'manner of manufacture'.

The Patents Act 2013 is due to come into force on or before 13 September 2014. The new law will retain the 'manner of manufacture' definition. However, it will also exclude computer programs 'as such'.

Under the new law an invention will need a technical effect that 'transforms' a mere idea, scheme or plan into a patentable invention. The presence of a technical effect will most likely satisfy both the 'manner of manufacture' threshold and avoid the computer program 'as such' exclusion.


It is clear that computer-implemented inventions based on abstract ideas are not patentable in the United States. It is equally clear that mere generic computer implementation is not a cure. Australia and New Zealand also appear to be moving that way, if we are not there already.