Alice Corp. v. CLS Bank International is a unanimous Supreme Court decision from 2014 that codified the modern test for patent-eligible subject matter under 35 U.S.C. § 101. Alice is the bedrock § 101 case and the most-cited tool defendants have for invalidating software and business-method patents.
Decided June 19, 2014, 573 U.S. 208.
Background
Alice Corporation owned several patents covering a computerized scheme for mitigating settlement risk in financial transactions — essentially using a third-party intermediary (a computer) to ensure both parties to a trade actually have the funds before the trade clears. CLS Bank, a major institution that handled exactly this kind of settlement, sought a declaratory judgment that the patents were invalid.
The patents claimed methods, computer-readable media, and computer systems implementing the same idea. The claims required generic computers performing routine operations on financial data.
The two-step framework
The Supreme Court applied — and articulated more clearly than ever before — a two-step test for patent eligibility under § 101:
Step 1. Is the claim directed to a patent-ineligible concept (an abstract idea, law of nature, or natural phenomenon)?
Step 2. If yes, do the claim's elements, considered individually and as an ordered combination, contain an "inventive concept" sufficient to transform the abstract idea into a patent-eligible application?
The two-step framework had been foreshadowed in Mayo Collaborative Services v. Prometheus Laboratories (2012). Alice applied it to software and business-method patents and made it the universal § 101 test.
The holding
All nine justices agreed: the Alice patents were directed to the abstract idea of intermediated settlement (a "fundamental economic practice long prevalent in our system of commerce"), and the recitation of generic computer implementation didn't supply an inventive concept. Patents invalid under § 101.
The opinion (Justice Thomas) was clear about generic computer implementation:
Wholly generic computer implementation is not generally the sort of "additional featur[e]" that provides any "practical assurance that the process is more than a drafting effort designed to monopolize the abstract idea itself."
In plain English: bolting "on a computer" onto an abstract business process doesn't make it patentable.
Aftermath
In the decade since Alice, lower courts have invalidated thousands of software and business-method patents under § 101. The pattern is consistent:
- District-court motions. A § 101 challenge can succeed at the pleading stage (Rule 12(b)(6) or 12(c)) — sometimes in the first months of a lawsuit, before expensive discovery. Alice-based motions have killed plenty of patent assertions early. Cost to defendants: $50,000-$150,000 instead of multi-million-dollar trials.
- Patent prosecution. USPTO examiners now routinely reject software claims under § 101. The Office has issued multiple rounds of guidance to navigate the line between abstract ideas and inventive concepts.
- PTAB. Although IPR doesn't reach § 101, parallel district-court § 101 motions while an IPR is pending are common. (See the post-grant review system for how IPR/PGR fit alongside Alice motions.)
The murk
The big criticism of Alice: "abstract idea" has no precise definition. Different panels of the Federal Circuit have reached opposing conclusions on similar claims. District courts apply the framework with wide discretion. Patentees argue this leaves the patent system unworkably uncertain.
Defendants don't lose sleep over the criticism. The framework's flexibility is exactly what makes it powerful — courts can dispose of patents that are clearly junk without waiting for full prior-art discovery.
What it means for defendants
If you're sued on a software, business-method, or financial-process patent, Alice is your first move. The analysis:
- Identify the abstract idea. Distill the claim to its essence — read it carefully (this is how to read a patent claim). If the essence is a known economic practice, mathematical relationship, or mental process, you've got Step 1.
- Look for the missing inventive concept. Generic computer + routine operations + conventional steps = no inventive concept.
- File a § 101 motion. Often a Rule 12(c) motion on the pleadings, sometimes summary judgment.
For patents that survive § 101, fall back to § 102 prior-art and § 103 obviousness defenses.
Bottom line
Alice is the most important defendant tool of the modern patent era. For software and business-method patents in particular, a § 101 motion is often the cheapest, fastest, most decisive path to dismissal. Most patents that look like "doing X on a computer" don't survive when seriously challenged under Alice. (US Patent 8,069,073 — the running example on this site — was a pre-Alice § 101 invalidation that anticipated the framework the Supreme Court would codify seven months later.)
Read the opinion: Alice Corp. v. CLS Bank International, 573 U.S. 208 (2014).
This article is for general education and is not legal advice.