US justices struggle with software patentability

Listen to this article

The justices of the U.S. Supreme Court are facing the difficult task of determining whether computer-implemented software programs that draw on non-computerized principles — a category that could encompass countless types of programs that are in use by millions of people — are eligible for patents.

During arguments March 31 in Alice Corp. v. CLS Bank International, No. 13-298, the court seemed to struggle with the issue of whether such programs fall into the “abstract idea” exemption of the Patent Act. A 2010 ruling on patent eligibility standards that invalidated a business method patent claim as too abstract, Bilski v. Kappos, has similarly vexed lower courts, which have followed varying approaches that have perplexed inventors and patent attorneys alike.

“They certainly need to give some guidance,” said Linda Thayer, a partner in the Boston office of Finnegan, Henderson, Farabow, Garrett & Dunner LLP. “It’s is a very fact-specific thing. It is very hard to describe how something is abstract.”

The stakes are high for the court, with companies from small startups to major companies like Google, Amazon and Facebook chiming in on amicus briefs.

“The potential impact is going to be significant no matter how the court rules,” said John Cuddihy, a partner in the Washington office of Ballard Spahr Stillman & Friedman LLP.

Since the ruling in Bilski failed to shed meaningful light on when a patent is or isn’t abstract, courts have engaged in “the very messy task of trying to differentiate applications from ideas,” Cuddihy said. “I think you are going to see the court lay down some rule. It has to lay down some clear guidelines [for] the Federal Circuit, trial courts, the software community and the patent bar.”

Threshold requirement of patentability

The case involves four patents obtained in the 1990s by Australian company Alice Corp. The patents involve the methods and systems associated with a computer-assisted software system used in a foreign currency international marketplace operated by CLS Bank International.

In 2007 CLS filed an action in federal court seeking a declaratory judgment that the patents were invalid and that CLS had not infringed them. The patents, CLS argued, are ineligible for protection under §101 of the Patent Act, the provision that determines eligible patent subject matter. CLA argued that that Alice Corp.’s patents were “abstract ideas” and therefore ineligible under §101.

Alice Corp. filed a countersuit alleging infringement and both parties sought summary judgment. A federal district court ruled that the patents were invalid because they involved a general computer implementation of a “basic business financial concept.”

A panel of the Federal Circuit reversed, holding that the patents were valid. Acknowledging the confusion in the case law over what makes an idea abstract, the panel nonetheless found that the patents at issue “cover the practical application of a business concept in a specific way,” and therefore passed muster under §101’s threshold requirement.

But on en banc rehearing, a fractured court affirmed the district court’s ruling in a short per curiam decision annexed to six separate opinions. In one concurrence, a judge accused Alice Corp. of using “extravagant language to recite a basic function” of financial markets.

The Supreme Court granted Alice Corp.’s petition for certiorari to answer the question of whether computer software such as the program at issue is patent-eligible subject matter under §101.

Defining ‘abstract’

During arguments, Alice Corp.’s attorney Carter Phillips, a partner in the Washington office of Sidley Austin LLP, urged the court to rule that computer software programs are not too abstract to be patented. But explaining why was a challenge.

“I’ll be the first one to confess that trying to use language to describe these things is not all that easy,” Phillips said. “But the way you can meaningfully look at it is to say that this is not simply something that was a fundamental truth, this is not something that simply says, ‘use a computer.’”

Justice Stephen Breyer said that many computer software programs take ordinary tasks and do them in a fast or complex way. By allowing those programs to be patent eligible, “there is a risk that you will take business in the United States or large segments, and instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer.”

On the other hand, Breyer said, “if you go the other way and say never, you rule out real inventions with computers.”

Justice Antonin Scalia identified a possible path to victory for Alice Corp.

“We have said that you can’t take an abstract idea and then … use a computer to implement it,” Scalia said. “But we haven’t said that you can’t take an abstract idea and then say here is how you use a computer to implement it — which is basically what you are doing.”

“That’s the line we are asking the court to draw here,” Phillips agreed.

Precedent controls?

Mark Perry, a partner in the Washington office of Gibson, Dunn & Crutcher LLP arguing on behalf of CLS Bank, argued that the court’s rulings in Bilski and other cases end the inquiry.

“Bilski holds that a fundamental economic principle is an abstract idea, and Mayo [v. Prometheus Labs] holds that running such a principle on a computer is ‘not a patentable application of that principle,’” Perry said. “Those two propositions are sufficient to dispose of this case.”

But the justices continued to struggle with what kinds of programs could get past §101.

“How about email and word processing programs?” asked Justice Sonia Sotomayor.

“They certainly have functionality.”

“At a point in time in the past I think both of those would have been technological advances that were patentable,” Perry replied, noting that such inventions can lose their functionality over time, such as is the case with typewriters.

“It is only where the method will not work without a computer, which is not [Alice Corp.’s] claims, and where the computer itself is doing something that the patent law is willing to protect” that a program should pass under §101, he said.

U.S. Solicitor General Donald Verrilli Jr. arguing as amicus in support of CLS Bank, offered the court a slightly different test.

“A computer [program] makes a difference under §101 when it imposes a meaningful limit on the patent claim,” Verrilli said. “That occurs when the claim is directed at improvement in computing technology or an innovation that uses computing technology to improve other technological functions.”

Justice Ruth Bader Ginsburg asked whether such a test would “extinguish business method patents and make all software ineligible for patent protection?”

Verrilli said it wouldn’t. “Any software patent that improves the functioning of the computer technology is eligible.”

A decision is expected later this term. Follow @dcdicta