Alice v. CLS Bank: From the Fractured En Banc Federal Circuit to the Supreme Court

Alice Corp. v. CLS Bank International (2014) is the Supreme Court decision that still governs whether software and business-method claims are eligible for patenting under 35 U.S.C. § 101. Its path to the Court is a useful piece of history. The Federal Circuit, sitting en banc, could not agree on why the claims failed, and the Supreme Court took the case to supply the missing rule.

This page traces that path. For how the resulting test is applied in USPTO post-grant proceedings, see the Alice two-step test in post-grant proceedings.

The patents and the dispute

Alice Corporation owned patents on a computerized scheme for mitigating “settlement risk,” the risk that only one party to a financial exchange will perform. The claims used a computer acting as a third-party intermediary that tracked the parties’ accounts and allowed transactions only when both sides could meet their obligations. The patents included method claims, computer system claims and computer-readable medium claims.

CLS Bank sought a declaration that the patents were invalid, unenforceable or not infringed, and the district court held the claims ineligible under § 101. A Federal Circuit panel reversed, and the full court then reheard the case.

The fractured en banc decision (2013)

In May 2013 the en banc Federal Circuit affirmed the district court in a short per curiam order. Behind that result was deep division. The judges filed a series of separate opinions proposing different approaches to abstract ideas, and no single rationale commanded a majority. The court was also divided on the system claims, splitting evenly on whether they stood or fell with the method claims.

The practical effect was uncertainty. Patent owners, challengers, district courts and the USPTO had an outcome but no governing test for computer-implemented inventions.

Certiorari and the Supreme Court’s decision

The Supreme Court granted certiorari in December 2013 and decided the case on June 19, 2014. The decision was unanimous, and it held all of the claims ineligible.

The Court applied the framework it had set out two years earlier in Mayo Collaborative Services v. Prometheus Laboratories, Inc. (2012) for laws of nature, and confirmed that it applies to abstract ideas as well:

1. Step one. Determine whether the claims are directed to a patent-ineligible concept, such as an abstract idea. The Court held that the claims were drawn to intermediated settlement, a fundamental economic practice like the risk hedging held abstract in Bilski v. Kappos (2010).
2. Step two. Examine the claim elements, individually and as an ordered combination, for an “inventive concept” that transforms the claim into a patent-eligible application. Implementing the idea on a generic computer performing routine functions was not enough.

The Court treated the system and medium claims the same way as the method claims, because they added nothing of substance beyond generic hardware.

Why it still matters

Alice quickly became one of the most frequently applied patent decisions. Courts used it to resolve eligibility at the pleadings stage, and the USPTO revised its examination guidance, now collected in MPEP § 2106. The Federal Circuit has since developed a large body of law applying both steps, including decisions holding that claims to specific improvements in computer functionality are not directed to abstract ideas.

The decision also shaped Board practice. Eligibility challenges became a central feature of covered business method review and remain available in post-grant review, although not in inter partes review. See the Supreme Court decisions page for related cases.

Key takeaways

• The en banc Federal Circuit in CLS Bank (2013) affirmed ineligibility without a majority rationale.
• The Supreme Court granted certiorari in December 2013 and decided Alice on June 19, 2014.
• The Court unanimously held the claims ineligible and applied the Mayo two-step framework to abstract ideas.
• Generic computer implementation of an abstract idea does not supply an inventive concept.