1. What was the specific reason for the court’s determination that Alice’s business methods were not patentable?

2. What does the court mean when it states that Alice’s methods “simply recite the concept of inter-mediated settlement as performed by a generic computer”? Why is that relevant?

3. Are there any ways that Alice could modify its methods in order to make them patent-eligible?

Alice Corporation (Alice) holds several patents that disclose plans to man-age certain forms of financial risk. According to the specification largely shared by the patents, the invention “enables the management of risk relating to specified, yet unknown, future events.” The claims at issue relate to a computerized scheme for mitigating “settlement risk”—that is, the risk that only one party to an agreed-upon financial exchange will satisfy its obligation. In particular, the claims are designed to facilitate the exchange of financial obligations between two parties by using a computer system as a third-party intermediary. The intermediary creates “shadow” credit and debit records (i.e.,account ledgers) that mirror the balances in the par-ties’ real-world accounts at “exchange institutions” (e.g., banks). The intermediary updates the shadow records in real time as transactions are entered, allowing “only those transactions for which the parties’ updated shadow records indicate sufficient resources to satisfy their mutual obligations.” At the end of the day, the intermediary instructs the relevant financial institutions to carry out the permitted transactions in accordance with the updated shadow records, thus mitigating the risk that only one party will perform the agreed-upon exchange.

CLS  Bank  International (CLS)  operates a global network that facilitates currency transactions. CLS filed suit against Alice, seeking a declaratory judgment that the patents were invalid. The trial court ruled that the processes were ineligible for a patent because they are directed to the abstract idea of employing a neutral intermediary to facilitate simultaneous exchange of obligations in order to minimize risk. A divided panel of the United States Court of Appeals for the Federal Circuit reversed, holding that it was not “manifestly evident” that the petitioner’s claims were directed to an abstract idea. The parties appealed to the U.S. Supreme Court. 

The U.S. Supreme Court ruled in favor of CLS, holding that the patents were directed to an abstract idea and therefore were invalid because implementing those claims on a computer was insufficient to transform the idea into a patentable invention. The court applied a two-part test. First, do claims cover an abstract idea? For this case, the court answered yes, pointing to the concept of intermediated settlement used in Alice’s methods. Second, do claims contain an inventive concept sufficient to transform the idea into a patent-eligible application of the idea? On the second.