Shutterstock_127074176Broad patents

You could get really rich if you had a patent on something like "a device that can make and receive wireless phone calls". That would cover every wireless phone, dumb and smart, that ever existed. It would include the satchel phone that Blawgletter's friend Darrell Gest carried around in his ratty pickup back in the 1980s. You could buy a Gulfstream for every day of the week with the royalties you would rake in.

That will never happen, of course. You aren't that lucky. Plus — for reasons the Supreme Court illuminated today — your patent would never survive a challenge to its validity.


Section 101 of the Patent Act allows patents on "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof". 35 U.S.C. 101. But, the Supreme Court has held, it does not make laws of nature, natural phenomena, or abstract ideas patentable. Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S. Ct. 2107, 2116 (2013). Those things "are the basic tools of scientific and technological work". Gottschalk v. Benson, 409 U.S. 63, 67 (1972).

Financial intermediation

The case that the Court decided today involved a patent on using a neutral third party to control the completion of a financial exchange, such as the purchase of a stock. The neutrality of the "intermediator" lessens the risk that one of the parties would default on its obligation to pay for the stock or to deliver it.

The patent holder, Alice Corporation, accused CLS Bank of infringing a patent on reducing risk in financial exchanges by having a third-party serve as intermediator. The district court held the patent invalid for involving unpatentable subject matter — to wit, the abstract idea of financial intermediation. The Federal Circuit affirmed. So did the unanimous Supreme Court.

"Inventive concept" plus "transformation"

The problem consisted in the fact that humans realized about two minutes after they started trading with each other that financial intermediation cuts the risk of default. The wooly mammoth-swapping people's insight was an abstract idea. The fact that Alice's patent went on to say "use a computer to do the intermediation" didn't, in the Court's view, add an "'inventive concept' sufficient to 'transform' the claimed abstract idea into a patent-eligible application." Alice Corp. Pty. Ltd. v. CLS Bank Int'l, No. 13-298, slip op. at 7 (U.S. June 19, 2014) (quoting Mayo Collaborative Services v. Prometheus Labs., Inc., 132 S. Ct. 1289, 1294 (2012)). That doomed Alice's patent.

Vote count

Justice Thomas wrote the majority opinion. Chief Justice Roberts and Justices Scalia, Kennedy, Alito, and Kagan joined it.

The three concurring justices would have gone further. They (Justice Sotomayor, who wrote the concurrence, and Justices Breyer and Ginsburg) would have declared all "business method" patents in eligible for patenting.


The ruling means that business method patents live to fight another day. But the fact that Alice's patent failed the test should give their owners pause.

The decision also continues the Court's effort to define patentable subject matter via the "inventive concept" plus "transformation" formula — as in the patent must reflect something "inventive" that somehow "transforms" the unpatentable subject matter into something other than a law of nature, natural phenomenon, or abstract idea. Which sounds to us a little abstract.