In June 2014, the Supreme Court issued its opinion in Alice Corp. Pty. Ltd. v. CLS Bank Int’l, 134 S. Ct. 2347 (2014) (available here). At issue was whether the patents-in-suit—which disclosed a computer-implemented scheme for mitigating “settlement risk” (the risk that only one party to a transaction will pay what it owes)—were patent eligible under 35 U.S.C. § 101 or whether they were instead “drawn to a patent-ineligible abstract idea.” The Supreme Court held that “the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.” As I note below, Alice has led to the demise of numerous patents, and is fundamentally changing patent infringement litigation.
More specifically, since Alice, of the 76 decisions dealing with Alice challenges, 57 have invalidated patents; only 16 have upheld them on the merits (3 additional decisions rejected Alice challenges for procedural reasons). Excluding the procedural decisions, that is a 78% win rate for defendants challenging patents under Alice in court. (Of course, numerous patents have also fallen victim to Alice challenges before the Patent Trial and Appeal Board.)
In Alice, a representative claim of the patents-in-suit was as follows:
A method of exchanging obligations as between parties, each party holding a credit record and a debit record with an exchange institution, the credit records and debit records for exchange of predetermined obligations, the method comprising the steps of:
(a) creating a shadow credit record and a shadow debit record for each stakeholder party to be held independently by a supervisory institution from the exchange institutions;
(b) obtaining from each exchange institution a start-of-day balance for each shadow credit record and shadow debit record;
(c) for every transaction resulting in an exchange obligation, the supervisory institution adjusting each respective party’s shadow credit record or shadow debit record, allowing only these transactions that do not result in the value of the shadow debit record being less than the value of the shadow credit record at any time, each said adjustment taking place in chronological order, and
(d) at the end-of-day, the supervisory institution instructing on[e] of the exchange institutions to exchange credits or debits to the credit record and debit record of the respective parties in accordance with the adjustments of the said permitted transactions, the credits and debits being irrevocable, time invariant obligations placed on the exchange institutions.
As described by the Supreme Court: “In sum, the patents in suit claim (1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims). All of the claims are implemented using a computer; the system and media claims expressly recite a computer, and the parties have stipulated that the method claims require a computer as well.”
Section 101 reads: “Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.” 35 U.S.C. § 101. However, the Supreme Court has held that Section 101 excludes laws of nature, natural phenomena, and abstract ideas—these are not patentable.
The Supreme Court has developed a two-step test to determine whether an invention is an unpatentable abstract idea:
First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts. If so, we then ask, “[w]hat else is there in the claims before us?” To answer that question, we consider the elements of each claim both individually and “as an ordered combination” to determine whether the additional elements “transform the nature of the claim” into a patent-eligible application. We have described step two of this analysis as a search for an “‘inventive concept’”—i.e., an element or combination of elements that is “sufficient to ensure that the patent in practice amounts to significantly more than a patent upon the [ineligible concept] itself.”
In Alice, the Supreme Court held that the claims at issue were directed to a patent-ineligible concept:
Petitioner’s claims involve a method of exchanging financial obligations between two parties using a third-party intermediary to mitigate settlement risk. The intermediary creates and updates “shadow” records to reflect the value of each party’s actual accounts held at “exchange institutions,” thereby permitting only those transactions for which the parties have sufficient resources. At the end of each day, the intermediary issues irrevocable instructions to the exchange institutions to carry out the permitted transactions.
On their face, the claims before us are drawn to the concept of intermediated settlement, i.e., the use of a third party to mitigate settlement risk. . . .[T]he concept of intermediated settlement is “‘a fundamental economic practice long prevalent in our system of commerce.’” The use of a third-party intermediary (or “clearing house”) is also a building block of the modern economy. Thus, intermediated settlement, like hedging, is an “abstract idea” beyond the scope of § 101.
The Court then analyzed Step 2 of the inquiry, concluding that “the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention”:
At  step two, we must examine the elements of the claim to determine whether it contains an inventive concept sufficient to transform the claimed abstract idea into a patent-eligible application. A claim that recites an abstract idea must include additional features to ensure that the [claim] is more than a drafting effort designed to monopolize the [abstract idea]. [T]ransformation into a patent-eligible application requires more than simply stat[ing] the [abstract idea] while adding the words “apply it.” . . .
The introduction of a computer into the claims does not alter the analysis at  step two. . . . [T]he mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention. Nor is limiting the use of an abstract idea to a particular technological environment. Stating an abstract idea while adding the words “apply it with a computer” simply combines those two steps, with the same deficient result. Thus, if a patent’s recitation of a computer amounts to a mere instruction to “implemen[t]” an abstract idea “on . . . a computer,” that addition cannot impart patent eligibility. This conclusion accords with the pre-emption concern that undergirds our § 101 jurisprudence. Given the ubiquity of computers, 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.” . . .
[T]he relevant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. They do not. . . .
The method claims do not, for example, purport to improve the functioning of the computer itself. Nor do they effect an improvement in any other technology or technical field. Instead, the claims at issue amount to “nothing significantly more” than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer. Under our precedents, that is not “enough” to transform an abstract idea into a patent-eligible invention.
(citations and quotations omitted).
All of the claims at issue were accordingly invalid, even those that claimed a system and computer-readable medium:
Petitioner’s claims to a computer system and a computer-readable medium fail for substantially the same reasons. Petitioner conceded below that its media claims rise or fall with its method claims. As to its system claims, petitioner emphasizes that those claims recite “specific hardware” configured to perform “specific computerized functions.” But what petitioner characterizes as specific hardware—a “data processing system” with a “communications controller” and “data storage unit,” for example—is purely functional and generic. Nearly every computer will include a “communications controller” and “data storage unit” capable of performing the basic calculation, storage, and transmission functions required by the method claims. As a result, none of the hardware recited by the system claims “offers a meaningful limitation beyond generally linking ‘the use of the [method] to a particular technological environment,’ that is, implementation via computers.”
Put another way, the system claims are no different from the method claims in substance. The method claims recite the abstract idea implemented on a generic computer; the system claims recite a handful of generic computer components configured to implement the same idea. This Court has long “warn[ed] . . . against” interpreting § 101 “in ways that make patent eligibility depend simply on the draftsman’s art.” Holding that the system claims are patent eligible would have exactly that result.
Because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under § 101.
(citations and quotations omitted).
Alice, despite not categorically precluding software patents, has spawned numerous lower court decisions invalidating patents. As of today, Alice has been cited 109 times by lower courts. I reviewed each of these cases, and classify the various cases by buckets below (e.g., invalidating patent on a Section 101 challenge on the pleadings, at summary judgment, etc.). But first I note two procedural issues. First, whether a burden of proof applies to a Section 101 challenge is unclear. See, e.g., Intellectual Ventures I LLC v. Symantec Corp., CV 10-1067-LPS, 2015 WL 1843528, at *5 (D. Del. Apr. 22, 2015); Messaging Gateway Solutions, LLC v. Amdocs, Inc., CV 14-732-RGA, 2015 WL 1744343, at *3 (D. Del. Apr. 15, 2015). Second, it is now well established that a court may invalidate a patent under Section 101 on the pleadings without first construing the claim terms. See, e.g., Wireless Media Innovations, LLC v. Maher Terminals, LLC, CIV.A. 14-7004, 2015 WL 1810378, at *4 (D.N.J. Apr. 20, 2015); Shortridge v. Found. Constr. Payroll Serv., LLC, 14-CV-04850-JCS, 2015 WL 1739256, at *6 (N.D. Cal. Apr. 14, 2015); OpenTV, Inc. v. Apple, Inc., 14-CV-01622-HSG, 2015 WL 1535328, at *2 (N.D. Cal. Apr. 6, 2015).
Federal Circuit Section 101 Decisions Post-Alice: One Patent Upheld, The Rest Rejected
The Federal Circuit, post-Alice, has only upheld the validity of one patent; the remaining patents subject to an Alice challenge were ruled invalid. See Content Extraction & Transmission LLC v. Wells Fargo Bank, Nat. Ass’n, 776 F.3d 1343, 1348 (Fed. Cir. 2014) (invalidating patent under Alice); In re BRCA1- & BRCA2-Based Hereditary Cancer Test Patent Litig., 774 F.3d 755, 757 (Fed. Cir. 2014) (claims directed to ineligible subject matter); DDR Holdings, LLC v. Hotels.com, L.P., 773 F.3d 1245, 1255 (Fed. Cir. 2014) (patent not invalid under Section 101); Ultramercial, Inc. v. Hulu, LLC, 772 F.3d 709, 712 (Fed. Cir. 2014) (invalidating patent); buySAFE, Inc. v. Google, Inc., 765 F.3d 1350, 1351 (Fed. Cir. 2014) (invalidating patent); Planet Bingo, LLC v. VKGS LLC, 576 Fed. App’x 1005, 1006 (Fed. Cir. 2014) (invalidating patents); Digitech Image Technologies, LLC v. Electronics for Imaging, Inc., 758 F.3d 1344, 1347 (Fed. Cir. 2014) (invalidating patents); DietGoal Innovations LLC v. Bravo Media LLC, 2014-1631, 2015 WL 1542817, at *1 (Fed. Cir. Apr. 8, 2015) (summarily affirming invalidity finding).
Numerous District Court Cases Have Invalidated Patents Under Alice at the Pleadings Stage
Twenty-eight district court decisions have invalidated patents under Alice at the pleading stage (either on a motion to dismiss for failure to state a claim or a motion for judgment on the pleadings). They are as follows: Wireless Media Innovations, LLC v. Maher Terminals, LLC, CIV.A. 14-7004, 2015 WL 1810378, at *1 (D.N.J. Apr. 20, 2015); Shortridge v. Found. Constr. Payroll Serv., LLC, 14-CV-04850-JCS, 2015 WL 1739256, at *1 (N.D. Cal. Apr. 14, 2015); OpenTV, Inc. v. Apple, Inc., 14-CV-01622-HSG, 2015 WL 1535328, at *8 (N.D. Cal. Apr. 6, 2015); Advanced Auctions LLC v. eBay Inc., 13CV1612 BEN JLB, 2015 WL 1415265, at *6 (S.D. Cal. Mar. 27, 2015); Tuxis Technologies, LLC v. Amazon.com, Inc., CV 13-1771-RGA, 2015 WL 1387815, at *5 (D. Del. Mar. 25, 2015); Priceplay.com, Inc., v. AOL Advertising, Inc., CIV. 14-92-RGA, 2015 WL 1246781, at *1 (D. Del. Mar. 18, 2015); Clear with Computers, LLC v. Altec Industries, Inc., CV-6:14-79, 2015 WL 993392, at *1 (E.D. Tex. Mar. 3, 2015); Essociate, Inc. v. Clickbooth.com, LLC, SACV 13-01886-JVS, 2015 WL 1428919, at *1 (C.D. Cal. Feb. 11, 2015); In re TLI Comm. Patent Litig., No. 1:14-md-2534, 2015 WL 627858, at *1 (E.D. Va. Feb. 6, 2015); Vehicle Intelligence & Safety LLC v. Mercedes-Benz USA, LLC, 13-CV-4417, 2015 WL 394273, at *1 (N.D. Ill. Jan. 29, 2015); Money Suite Co. v. 21st Century Ins. & Fin. Services, Inc., CV 13-1747-GMS, 2015 WL 436160, at *1 (D. Del. Jan. 27, 2015); CertusView Tech., LLC v. S&N Locating Services, LLC, 2:13-cv-346, 2015 WL 269427, at *1 (E.D. Va. Jan. 21, 2015); Open Text S.A. v. Box, Inc., 13-CV-04910-JD, 2015 WL 269036, at *1 (N.D. Cal. Jan. 20, 2015); Morales v. Square, Inc., No. 5:13-CV-1092-DAE, 2014 WL 7396568, at *9 (W.D. Tex. Dec. 30, 2014); Morsa v. Facebook, Inc., SACV 14-161-JLS JPRX, 2014 WL 7641155, at *1 (C.D. Cal. Dec. 23, 2014); MyMedicalRecords, Inc. v. Walgreen Co., 2:13-CV-00631-ODW SH, 2014 WL 7339201, at *1 (C.D. Cal. Dec. 23, 2014); Genetic Technologies Ltd. v. Bristol-Myers Squibb Co., CV 12-394-LPS, 2014 WL 5507637 (D. Del. Oct. 30, 2014); Wolf v. Capstone Photography, Inc., 2:13-CV-09573, 2014 WL 7639820, at *1 (C.D. Cal. Oct. 28, 2014); Amdocs (Israel) Ltd. v. Openet Telecom, Inc., 1:10CV910 LMB/TRJ, 2014 WL 5430956, at *1 (E.D. Va. Oct. 24, 2014); Cogent Med., Inc. v. Elsevier Inc., C-13-4479-RMW, 2014 WL 4966326, at *1 (N.D. Cal. Sept. 30, 2014); McRO, Inc. v. Atlus U.S.A., SACV 13-1870-GW FFMX, 2014 WL 4772196, at *13 (C.D. Cal. Sept. 22, 2014); Open Text S.A. v. Alfresco Software Ltd, 13-CV-04843-JD, 2014 WL 4684429, at *1 (N.D. Cal. Sept. 19, 2014); Eclipse IP LLC v. McKinley Equip. Corp., SACV 14-742-GW AJWX, 2014 WL 4407592, at *12 (C.D. Cal. Sept. 4, 2014); Genetic Technologies Ltd. v. Lab. Corp. of America Holdings, CV 12-1736-LPS-CJB, 2014 WL 4379587, at *1 (D. Del. Sept. 3, 2014); Loyalty Conversion Sys. Corp. v. Am. Airlines, Inc., 2:13-CV-655, 2014 WL 4364848, at *1 (E.D. Tex. Sept. 3, 2014); Tuxis Technologies, LLC v. Amazon.com, Inc., CV 13-1771-RGA, 2014 WL 4382446, at *1 (D. Del. Sept. 3, 2014); Intellectual Ventures I LLC v. Symantec Corp., CV 10-1067-LPS, 2015 WL 1843528, at *1 (D. Del. Apr. 22, 2015) (two patents invalidated, one patent not invalidated); Intellectual Ventures I LLC v. Manufacturers & Traders Trust Co., CV 13-1274-SLR, 2014 WL 7215193, at *9 (D. Del. Dec. 18, 2014) (two patents invalid, one patent directed to patent eligible subject matter).
Numerous District Court Cases Have Invalidated Patents Under Alice on Summary Judgment
Twenty-two district court decisions have invalidated patents under Alice on summary judgment. They are as follows: Genetic Veterinary Sciences, Inc. v. Canine EIC Genetics, LLC, CIV. 14-1598 JRT/JJK, 2015 WL 1505669, at *1 (D. Minn. Mar. 31, 2015); Celsis In Vitro, Inc. v. CellzDirect, Inc., 10 C 4053, 2015 WL 1523818, at *1 (N.D. Ill. Mar. 13, 2015); Tenon & Groove, LLC v. Plusgrade S.E.C., CV 12-1118-GMS-SRF, 2015 WL 1133213, at *1 (D. Del. Mar. 11, 2015); Hewlett Packard Co. v. ServiceNow, Inc., 14-CV-00570-BLF, 2015 WL 1133244, at *1 (N.D. Cal. Mar. 10, 2015); Enpat, Inc. v. Tenrox Inc., 6:13-CV-948-ORL-31, 2015 WL 541673, at *5 (M.D. Fla. Feb. 10, 2015); Synopsys, Inc. v. Mentor Graphics Corp., C 12-6467 MMC, 2015 WL 269116, at *1 (N.D. Cal. Jan. 20, 2015); E. Coast Sheet Metal Fabricating Corp. v. Autodesk, Inc., 12-CV-517-LM, 2015 WL 226084, at *10 (D.N.H. Jan. 15, 2015); Mortgage Grader, Inc. v. Costco Wholesale Corp., 2015 WL 778125, at *1 (C.D. Cal. Jan. 12, 2015); Tenon & Groove, LLC v. Plusgrade S.E.C., 2015 WL 82531, at *1 (D. Del. Jan. 6, 2015); Bascom Research, LLC v. LinkedIn, Inc., 12-CV-06293-SI, 2015 WL 149480, at *1 (N.D. Cal. Jan. 5, 2015); KomBea Corp. v. Noguar L.C., 2:13-CV-957 TS, 2014 WL 7359049, at *1 (D. Utah Dec. 23, 2014); Cloud Satchel, LLC v. Amazon.com, Inc., CV 13-941-SLR, 2014 WL 7227942, at *1 (D. Del. Dec. 18, 2014); IpLearn, LLC v. K12 Inc., CV 11-1026-RGA, 2014 WL 7206380, at *1 (D. Del. Dec. 17, 2014); Joao Bock Transaction Sys., LLC v. Jack Henry & Associates, Inc., CV 12-1138-SLR, 2014 WL 7149400, at *9 (D. Del. Dec. 15, 2014); Enfish, LLC v. Microsoft Corp., 2:12-CV-07360-MRP, 2014 WL 5661456, at *1 (C.D. Cal. Nov. 3, 2014); Every Penny Counts, Inc. v. Wells Fargo Bank, N.A., 8:11-CV-2826-T-23TBM, 2014 WL 4540319, at *6 (M.D. Fla. Sept. 11, 2014); Walker Digital, LLC v. Google, Inc., CV 11-318-LPS, 2014 WL 4365245, at *1 (D. Del. Sept. 3, 2014); CMG Fin. Services, Inc. v. Pac. Trust Bank, F.S.B., CV 11-10344 PSG MRWX, 2014 WL 4922349 (C.D. Cal. Aug. 29, 2014); Comcast IP Holdings I, LLC v. Sprint Communications Co. L.P., CV 12-205-RGA, 2014 WL 3542055, at *6 (D. Del. July 16, 2014); DietGoal Innovations LLC v. Bravo Media LLC, 13 CIV. 8391 PAE, 2014 WL 3582914 (S.D.N.Y. July 8, 2014); Intellectual Ventures I, LLC v. Motorola Mobility LLC, CV 11-908-SLR, 2015 WL 846532 (D. Del. Feb. 24, 2015) (one patent invalid, the other found to be patent eligible); OpenTV, Inc. v. Netflix Inc., 14-CV-01525-RS, 2014 WL 7185921, at *1 (N.D. Cal. Dec. 16, 2014) (invalidating two patents on summary judgment, and denying summary judgment of invalidity with respect to a third patent).
Some District Courts Decisions Have Rejected Alice Challenges
Fifteen district court decisions have rejected Alice challenges on the merits; another three decisions have rejected Alice challenge for procedural reasons (e.g., finding that the Alice motion was premature). These decisions include: Mobile-Plan-It LLC v. Facebook Inc., 14-CV-01709-RS, 2015 WL 1801425, at *4 (N.D. Cal. Apr. 20, 2015) (denying motion for judgment on the pleadings); Messaging Gateway Solutions, LLC v. Amdocs, Inc., CV 14-732-RGA, 2015 WL 1744343, at *1 (D. Del. Apr. 15, 2015) (granting plaintiff’s motion for judgment on the pleadings of validity); Certified Measurement, LLC v. CenterPoint Energy Houston Elec. LLC, 2:14-CV-627-RSP, 2015 WL 1432324, at *2 (E.D. Tex. Mar. 30, 2015) (finding that claim construction would be necessary to resolve defendant’s Section 101 challenge); Modern Telecom Sys. LLC v. Earthlink, Inc., SA CV 14-0347-DOC, 2015 WL 1239992, at *1 (C.D. Cal. Mar. 17, 2015) (on motion to dismiss, defendants failed to meet their burden to demonstrate patents-in-suit were patent ineligible); Trading Technologies Int’l, Inc. v. CQG, Inc., 05-CV-4811, 2015 WL 774655, at *1 (N.D. Ill. Feb. 24, 2015) (patents-in-suit were not directed to abstract ideas); Smartflash LLC v. Apple Inc., 6:13CV447-JRG-KNM, 2015 WL 661174, at *1 (E.D. Tex. Feb. 13, 2015) (patents-in-suit were patent eligible); StoneEagle Services, Inc. v. Pay-Plus Solutions, Inc., 8:13-CV-2240-T-33MAP, 2015 WL 518852, at *1 (M.D. Fla. Feb. 9, 2015) (denying motion for judgment on the pleadings as premature); Fairfield Indus., Inc. v. Wireless Seismic, Inc., 4:14-CV-2972, 2014 WL 7342525, at *5 (S.D. Tex. Dec. 23, 2014) (claims at issue were patentable because they included inventive concepts); Ameranth, Inc. v. Genesis Gaming Solutions, Inc., SACV 11-00189 AG, 2014 WL 7012391, at *6 (C.D. Cal. Nov. 12, 2014) (rejecting Section 101 challenge at summary judgment stage); California Inst. of Tech. v. Hughes Communications Inc., 2:13-CV-07245-MRP, 2014 WL 5661290, at *1 (C.D. Cal. Nov. 3, 2014) (finding asserted claims to be patentable and rejecting defendants’ summary judgment motion); Card Verification Solutions, LLC v. Citigroup Inc., 13 C 6339, 2014 WL 4922524, at *1 (N.D. Ill. Sept. 29, 2014) (rejecting Section 101 challenge on a motion to dismiss); Helios Software, LLC v. SpectorSoft Corp., CV 12-081-LPS, 2014 WL 4796111, at *17 (D. Del. Sept. 18, 2014) (finding asserted claims patentable); AutoForm Eng’g GMBH v. Eng’g Tech. Associates, Inc., 10-14141, 2014 WL 4385855, at *4 (E.D. Mich. Sept. 5, 2014) (rejecting Section 101 challenge); Data Distribution Technologies, LLC v. BRER Affiliates, Inc., CIV. 12-4878 JBS/KMW, 2014 WL 4162765, at *1 (D.N.J. Aug. 19, 2014) (denying motion to dismiss premised on Section 101 defense without prejudice to defense being asserted at later when more complete record would be available); Intellectual Ventures I, LLC v. Motorola Mobility LLC, CV 11-908-SLR, 2015 WL 846532 (D. Del. Feb. 24, 2015) (one patent invalid, the other found to be patent eligible); OpenTV, Inc. v. Netflix Inc., 14-CV-01525-RS, 2014 WL 7185921, at *1 (N.D. Cal. Dec. 16, 2014) (invalidating two patents on summary judgment, and denying summary judgment of invalidity with respect to a third patent); Intellectual Ventures I LLC v. Symantec Corp., CV 10-1067-LPS, 2015 WL 1843528, at *1 (D. Del. Apr. 22, 2015) (two patents invalidated, one patent not invalidated); Intellectual Ventures I LLC v. Manufacturers & Traders Trust Co., CV 13-1274-SLR, 2014 WL 7215193, at *9 (D. Del. Dec. 18, 2014) (two patents invalid, one patent directed to patent eligible subject matter).