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On March 31, 2014 The Supreme Court heard oral arguments in the case of Alice Corporation Pty. Ltd. v. CLS Bank Int’l.

The issue before the Court is whether and when patents on software, or computer-implemented inventions, are patentable subject matter under 35 U.S.C. § 101.

“The Supreme Court has interpreted section 101 to prohibit patents on abstract ideas,” said Los Angeles patent attorney Pejman “PJ” Yedidsion. “The focus on this case is whether Alice’s patent in fact covers an abstract idea.”

Alice Corp.’s patent covers a computerized transaction settlement system and method for reducing settlement risk between counterparties to financial transactions. CLS Bank allegedly uses the system in settling transactions amounting to trillions of dollars per week.

In oral arguments, CLS Bank drew on recent Section 101 cases to argue that Alice’s patent is invalid — Bilski v. Kappos and Mayo v. Prometheus. In the former, the Court held that a principle of finance is an abstract idea but that the machine-or-transformation test is not the sole test for determining the patent eligibility of a process; in the latter, it held that merely using a computer to implement such a principle is not patentable. CLS argued that Alice’s patent simply uses a computer to implement the abstract business idea of escrow. If Bilski and Mayo stand, CLS said, then Alice’s patents must fall.

CLS also invoked Gottschalk v. Benson, a 1972 case in which a computer algorithm was held to be unpatentable. CLS reminded the Court that Benson instructs that if a process can be performed “by head and hand,” then adding a computer to the process does not make it patentable.

Alice argued that the claimed process is so complex as to make a computer a necessary tool in implementing it. Alice also warned that for the Court to put the validity of all business method patents in question would result in “utterly unknowable” consequences.

Considering the most recent ruling in Bilski, where The Court found that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101 attorney Yedidsion is skeptical that the Court will issue a sweeping ruling in the Alice case.

“Some observers are hoping for this case to bring some clarity to this long-standing question of whether computer software is patentable subject matter,” added Yedidsion. “But based on the arguments, this may not happen. The Court seems very wary of invalidating large numbers of software patents—and retroactively no less—and may be inclined to provide a narrower ruling than some may like. They may decide merely that this settlement method is an abstract idea and that applying it via a computer software is not patentable. It will be very interesting what The Court will decide and I believe a lot of people will be watching this outcome very closely.”