US Supreme Court Decision in Alice v. CLS and Exclusions from Patentability

Powell Gilbert’s Tim Whitfield and Adam Gamsa comment on the US Supreme Court’s judgement in the case of Alice Corp v. CLS Bank International and its implications for the European Software Patents and the UPC.

This article was first published in the World Intellectual Property report, Volume 28, Issue 3.

US Supreme Court Decision in Alice v. CLS and Exclusions from Patentability

The US Supreme Court has handed down its judgment in the case of Alice Corp v. CLS Bank International (see ‘‘Mere Implementation of Abstract Idea With Computer Not Patent-Eligible’’ [28 WIPR 20, 7/1/14]). The case was well publicised following the hearing in March 2014, at least in part because it presented an opportunity for the US Supreme Court to rule on the patentability of software generally, if it wished to do so. Forty-two amicus briefs were filed on behalf of companies and organisations active in the software field, including the Institute of Electrical and Electronics Engineers. In the end, the Supreme Court did not lay down a general rule regarding the validity of software patents, but delivered a narrower ruling based upon the existing exclusions from patentability. As a result, industry concerns regarding a wholesale change in the attitude to software implemented inventions appear to have been mollified. This appears to be reflected in new guidance issued to USPTO examiners following the decision.

Case Background

The patents-in-suit described a computer-implemented escrow service for multinational financial transactions. They were challenged on the basis that they did not meet the fundamental conditions for patentability under US law, as set out in 35 USC § 101. There are no European equivalents to the patents-in-suit. However, in Europe, claims to such subject matter are open to challenge under both the ‘‘programs for computers’’ and ‘‘methods for doing business’’ exclusions to patentability under Article 52 of the European Patent Convention. No such equivalent exclusions exist in US legislation. Instead, in drafting 35 USC § 101, Congress’ aim was that ‘‘anything under the sun that is made by man’’ should be patentable.1 The language of § 101 reflects this, where it states that ‘‘any new and useful process, machine, manufacture, or composition of matter’’ is patentable and the well-known exclusions — ‘‘laws of nature, physical phenomena and abstract ideas’’ — are derived from the case law.2

In Alice, the Solicitor General argued that the US Supreme Court should address uncertainty in the patentability of software by requiring that a software patent must improve the functioning of the computer technology or the functioning of another technological process. However, the Solicitor General admitted that it was not necessary for the court to rule on this to decide the Alice case, and indeed it chose not to.

Rather, the Supreme Court followed another of its recent cases, Bilski v. Kappos, 3 in which a method of hedging losses by making investments in other segments of the same industry was held to be an abstract idea and therefore unpatentable (see ‘‘No Precise Boundaries in Bilski — Implications of Supreme Court Decision on Method Inventions’’ [24 WIPR 29, 8/1/10]). The Supreme Court ruled that the step of performing an abstract idea on a computer does not elevate that idea to a concrete one and so is insufficient to confer patent eligibility. Alice Corp had argued that the scope of its claims was narrower than the abstract idea of ‘‘solvency’’, partly because its invention could only be implemented on a computer. However, the US Supreme Court was not swayed by the necessity of computer implementation of the idea to confer patentability.

Had the Supreme Court decided the case by developing more general principles excluding computer software or business methods from patentability, such a ruling would likely have rendered hundreds of thousands of patents invalid and have had ‘‘utterly unknowable consequences’’, according to Alice’s pleadings. This no doubt contributed to the media interest in the case and led to the numerous amicus briefs. Some commentators observed that any decision to exclude computer software or business methods from patentability per se should be a step for Congress rather than the result of judge-made law. However, the court had not shied away from taking such a step previously; the three current exclusions from patentability were themselves judge-made in Diamond, in contrast to the position in Europe where the exclusions are statutory.

Exclusions from Patentability in Europe

In Europe, patent legislation is harmonised under the European Patent Convention. Methods for doing business and programs for computers are specifically excluded from patentability,4 although only insofar as the invention relates to the excluded subject matter ‘‘as such’’.5 This two-word qualification has been at the heart of many exclusion from patentability arguments. There have been historic differences in the approaches taken by the European Patent Office and the English courts in assessing the scope of the exclusions.

There have been numerous twists and turns in the approach to software patents taken by the EPO, attracting considerable publicity and debate at each juncture. The original guidelines set by the EPO in 1978 required the contribution to the known art to extend beyond a computer program, but it subsequently allowed consideration of the invention as a whole. Two cases in the late 1990s, involving a recorded image data structure and a computer program for resource recovery, arguably represent the high water mark of software patentability in Europe.6 In 1998, a diplomatic conference was called to revise the EPC and, in particular, to remove the controversial ‘‘as such’’ provision. This attempt was unsuccessful as consensus could not be reached on the drafting. The European Commission subsequently proposed a Directive7 that would apply the EPO’s construction of the existing legislation to the whole of Europe. This prompted an unprecedented response from software engineers across Europe, particularly the open source movement, which saw the proposed legislation as a direct threat to the GNU General Public Licence (GPL) model.8 The European Parliament voted against the Directive and it was dropped.

The English Court of Appeal considered software patentability in Aerotel v. Telco Holding, 9 where Lord Justice Jacob set out a four-stage test:

Properly construe the claims;

Identify the actual contribution [of the patent];

Ask whether it falls solely within the excluded subject matter; and

Check whether the actual or alleged contribution is actually technical in nature.

Jacob LJ acknowledged that there is ‘‘pressure from would-be patentees on patent offices’’ and that because patents for business methods and computer programs had been granted in the US, ‘‘an arms race in which the weapons are patents has set in . . . Just as with arms, merely because people want them is not sufficient reason for giving them’’.

The actual contribution of the patent to the art is assessed when considering whether or not the claimed subject matter falls within the scope of an exclusion. The court necessarily makes this assessment in the context of the prior art rather than in isolation. Jacob LJ stated that the approaches taken in the EPO had been inconsistent (see above) and invited the Enlarged Board of Appeal of the EPO to consider a list of proposed clarificatory referral questions. The EPO considered such a referral unnecessary, but despite this, the Technical Boards criticised Aerotel and continued to adopt their own approach. Subsequently, in Symbian v. Comptroller General of Patents, 10 the English Court of Appeal held that the approaches of the English courts and the Technical Boards of Appeal were ‘‘on a fair analysis, capable of reconciliation’’ despite each being ‘‘rather deprecatory about the approach of the other’’. This view frustrated many commentators, who found it difficult to understand how the apparently differing approaches were capable of reconciliation.

Following Symbian, and in light of apparently inconsistent Technical Board of Appeal decisions, the matter was eventually referred to the Enlarged Board of Appeal.11 The referral attracted around a hundred amicus curiae briefs. The Enlarged Board clarified that the relevant test is that the invention should bring about a ‘‘technical effect which goes beyond the normal physical interactions between the program (software) and the computer (hardware) on which it is run’’12 in order to be patentable. The EPO’s test therefore considers the patent in isolation when determining exclusion from patentability, but nevertheless permits the patenting of software implemented inventions if a technical effect can be identified. The further technical effect need not be new.13 However, although it is legitimate for nontechnical features to form a major part of the claimed subject-matter in the context of assessing the issue of exclusion,14 the non-technical features are stripped out when going on to consider whether the claimed contribution over the prior art is obvious.15 Therefore, although features known in the prior art may be used to help overcome the exclusion from patentability hurdle at the EPO, the patent may remain vulnerable to an obviousness attack if it incorporates matter known from the prior art that fails to interact in a meaningful way with the purported invention. Recently, in Apple Inc v. HTC Corporation, 16 the English Court of Appeal has again endorsed the Aerotel approach, whilst indicating by reference to EPO case law that the EPO’s ‘‘technical effect’’ approach should lead to the same end result. These differing approaches suggest some of the options that might have been available to the US Supreme Court in Alice: it might have excluded the Alice patents from patentability as computer software or business methods with (or without) reference to the prior art. Although the question of inventive step was not before the US Supreme Court for consideration, it might nevertheless have indicated that they could lack inventive step, despite being allowable under Section 101.

The Future for European Software Patents and the UPC

The Agreement on a Unified Patent Court (UPC) was published by the Council of the European Union on January 11, 2013 (see ‘‘EU Members Sign Agreement on Unitary Patent Court’’ [27 WIPR 10, 3/1/13]). The UPC is currently anticipated to be operational from early 2016, subject to ratification. It will hear revocation and infringement actions involving new unitary patents and existing European patents (unless opted-out), with its decisions eventually reaching across the 25 participating states. After a transitional period, a granted European patent application will no longer result in a bundle of national patents but rather a unitary patent covering all participating countries. Therefore, a single Europe-wide judgment will avoid the need to litigate separately in multiple European national courts.

The availability of an EU-wide injunction resulting from a single judgment will have a significant impact for business in Europe. There is a concern that software patents may be prime targets for non-practising entities (often pejoratively known as patent trolls) to purchase and assert on the basis of a wide claim construction. The possible threat of an EU-wide injunction would likely strengthen the negotiating positions of these nonpractising entities, creating additional pressure on their targets. It is therefore unsurprising that electronics and software companies have been active in making representations in relation to the Rules of Procedure governing the operation of the UPC.

The current increase in both the number and importance of software patents shows no sign of abating. The UPC will surely be faced with the issue of exclusion from patentability for computer software and may need to address some of the legal arguments made in Alice. Key questions for the new court may include: what is meant by a technical solution or contribution; whether exclusion from patentability should be considered in isolation or in the context of the prior art; and how will the respective issues of exclusion and obviousness be balanced?

Europe’s system of statutory excluded subject matter may, if exclusions remain narrowly interpreted, converge towards a US-style patent system for software implemented inventions, although claims to business methods remain unpatentable. As already mentioned, the US Supreme Court in Alice decided not to address the fundamental issue of software patentability, preferring instead to deal with the case within the framework of the abstract idea exception. Another patent concerning software-implemented business ideas will very likely be before it in the near future. Will it continue to take a narrow view and leave the legislature to deal with the issue of software patentability, if it sees fit to do so, or will it take matters into its own hands as it has done previously and create a further judicial exclusion from patentability? That is the key question to which we all await the answer.

Tim Whitfield is a partner at Powell Gilbert LLP. Tim has a Masters degree in chemistry and is a patent litigation specialist. He has acted in several high-profile electronics/software related cases, including Nuance v. Vlingo and Microsoft v. Motorola.

Dr Adam Gamsa is an associate at Powell Gilbert LLP, and has a physics doctorate which gives him an ideal technical understanding of complex patent issues, in particular in the electronics, IT and telecommunications fields.


1 Diamond v. Chakrabarty, 447 US 303 (Supreme Court), at 309.

2 Ibid.

3 561 US (2010).

4 Article 52(2)(c) EPC.

5 Article 52(3) EPC.

6 T 1194/97 Data structure product/PHILIPS and T 1173/97 Computer program product.

7 Commission proposal COM(2002) 92, procedure number 2002/ 0047 (COD).

8 The GNU GPL licence is the most widely used free software licence. It guarantees end users the right to use and modify software provided that these rights are passed onto any distributed versions, including modified versions.

9 [2006] EWCA Civ 1371.

10 [2008] EWCA Civ 1066.

11 G 0003/08 Programs for computers, para 1.

12 Ibid, para 10.2.1.

13 Ibid, para 10.4.

14 EPO Guidelines for Examination, Part G, Chapter VII-5.4.

15 T 1173/97 Computer program product, para 8.

16 [2013] EWCA Civ 451.