If you’ve ever sat in a room with a patent attorney and mentioned the word "software," you’ve probably seen them wince. That’s the "Alice effect." It’s been years since the Supreme Court handed down its decision in Alice Corp v CLS Bank International, but the shockwaves are still rattling the doors of tech startups and law firms alike.
Honestly, it’s one of those cases that sounds incredibly boring on paper but basically nuked thousands of patents overnight.
Alice Corporation owned some patents. They weren't making anything, really—they were just holding onto intellectual property for a computerized system that managed "settlement risk." Basically, it was a way to make sure that if two people trade money, a third party (the computer) keeps track so nobody gets stiffed. CLS Bank looked at this and thought, "Wait, people have been doing this with ledger books for centuries. You can't own the concept of an escrow just because you put it on a motherboard."
They fought. It went all the way to the top. And in 2014, the Supreme Court basically told Alice, "Nice try, but no."
The "Two-Step" That Tripped Up an Entire Industry
The Court didn't just say Alice's patents were bad; they created a filter. They call it the Mayo/Alice framework, and it’s become the bogeyman of the USPTO.
It works like a funnel. First, the judge asks: Is this claim directed at an "abstract idea," a law of nature, or a natural phenomenon? If you’re just describing a way of doing business—like "hedging risk" or "organizing data"—you’re in trouble. Step one is usually where software patents go to die because, let’s be real, almost every piece of code is just a digital version of a logic puzzle.
If you fail step one, you get a second chance at "Step 2B." You have to prove there’s an inventive concept. You need something "significantly more" than just the abstract idea.
The problem? The Court never actually defined what "significantly more" means.
It’s like a teacher saying your essay is bad because it lacks "pizzazz" but refusing to explain what pizzazz looks like. Justice Clarence Thomas, writing for a unanimous court, argued that simply saying "do it on a computer" doesn't count. If the computer is just acting as a calculator for a well-known business practice, it’s not an invention. It's just a tool.
What Really Happened to Software Patents?
There was a lot of panic. People thought software patents were dead. For a few years, it certainly felt that way. The "invalidity rate" in courts for software-related patents spiked to over 70% in the wake of the decision.
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But here’s the nuance: Alice didn't kill software patents. It killed lazy software patents.
Before 2014, you could basically take any human activity, add the words "on the internet" or "using a digital processor," and get a patent. You could patent "buying a sandwich on a mobile device." Alice put a stop to that. It forced developers to prove that their software actually improved the computer itself or solved a technical problem in a new way.
The Winners and Losers
- Patent Trolls: They took a massive hit. These are the companies that don't build anything but sue everyone else using vague, broad patents. Alice gave defendants a way to get these lawsuits dismissed early, before they spent millions on discovery.
- Fintech Startups: This was a bit of a "good news, bad news" situation. On one hand, they didn't have to worry as much about being sued by Alice Corp. On the other, it became much harder for them to protect their own new financial algorithms.
- The Big Guys: Companies like Google and Amazon generally liked the ruling. They have enough money to innovate regardless of patents, and they hated being harassed by "abstract" claims.
Why We’re Still Talking About This in 2026
You’d think after a decade we’d have this figured out. Nope.
The legal landscape is still a bit of a mess. Lower courts are constantly contradicting each other. One judge in Delaware might look at a patent for an AI-driven data sorter and say, "That’s an abstract idea," while a judge in Texas looks at the same thing and says, "That’s a technical breakthrough."
Former Chief Judge of the Federal Circuit, Paul Michel, once described the post-Alice world as "incoherent and chaotic." He wasn't exaggerating. Because the Supreme Court was so vague, it’s left the door open for endless arguing.
The Practical "Alice" Reality for You
If you're building something today—especially if it involves AI or blockchain—you have to play by the Alice rules. You can't just patent the "what." You have to patent the "how."
Don't just say: "My app matches users with local dog walkers."
That’s an abstract idea. It's a directory. It's been around since the Yellow Pages.
Do say: "My app uses a specific, non-conventional load-balancing algorithm that reduces server latency by 40% when syncing GPS coordinates between two low-power devices."
Now you’re talking about a technical improvement. That has a chance.
Your Next Steps
- Audit Your IP: If you have existing patents from before 2014, they might be "Alice-vulnerable." Talk to a pro to see if they’d actually hold up in court today.
- Focus on the Tech, Not the Result: When drafting new claims, emphasize the bottlenecks you’re solving in the hardware or the specific way the data is transformed.
- Watch the Federal Circuit: Keep an eye on cases like Enfish, LLC v. Microsoft or McRO, Inc. v. Bandai Namco. These are the cases where the courts are finally starting to draw the lines that the Supreme Court left blurry.
The "Alice" era isn't about stopping innovation. It's about making sure that the things we call "inventions" are actually inventive, rather than just digital versions of things our grandparents were already doing. It’s a higher bar, sure, but it’s a bar that protects the public from monopolies on basic ideas.