Once More, US Supreme Court Will Review Software Patents

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When it comes to software-related inventions, US patent law is a confused mess. So it was no surprise that, in early December, the United States Supreme Court announced it would weigh in on the matter. The court granted certiorari in Alice Corporation v. CLS Bank in order to decide when software-related inventions are patentable subject matter. But given the complicated technology and the high court’s confusing precedents in this area, many experts fear that the ruling in Alice will bring little clarity to this area of the law.

There is an increasing consensus in the United States that something needs to be done about software patents. There are simply too many software-related patents, many of dubious quality, according to a growing chorus of academics, business executives, advocacy groups, legislators, and patent attorneys. Instead of encouraging innovation, these patents have become a worrisome drag on the nation’s economy and its patent system, critics assert.

There is, however, little consensus about how to solve this problem. Some have called for tougher application of existing legal standards. They want the US Patent and Trademark Office (USPTO) to review applications for these patents more carefully. They want the courts and the USPTO to throw out many existing software patents whose claims are vague, overbroad, or anticipated by prior art.

Other critics say the problem requires a more radical remedy. They have called for the complete elimination of software patents, asserting that software-related inventions should not be considered patentable subject matter.

That would produce in a huge change in US law. The USPTO has been granting patents on software-related inventions since the late 1960s. The agency has, to date, issued tens of thousands of such patents. They comprised almost 20 percent of all patents the USPTO issued in 2011, according to Federal Circuit Judge Kimberly A. Moore.

All these patents are now under a legal cloud, because the law in this area has become so confused. No one can say for certain whether a software-related invention is patentable subject matter. “No one knows what the legal standard is,” said Prof. Lee A. Hollaar of the University of Utah’s School of Computing.

State of Confusion

Congress created the Federal Circuit Court of Appeals to prevent this type of confusion. Often referred to as the nation’s “patent court,” the Federal Circuit was intended to be a court possessing special expertise in patent law and providing a uniform patent law for the nation.

On this issue, however, the Federal Circuit has added to the confusion. In its May 2013 decision, CLS Bank v. Alice Corp., the en banc court of 10 judges issued six different and often contradictory views on whether and when software-related inventions are patentable subject matter. That decision,, is the one that will be reviewed by the Supreme Court.

The patentee in that case, Alice Corp., obtained US patents covering an electronic escrow service that ensures both sides in online financial transactions satisfy their obligations. Basically, a deal is consummated only if the buyer first puts into electronic escrow the required payment and the seller puts into electronic escrow the securities to be sold. Once that occurs, the third party holding the escrowed items closes the transaction and settles the obligations between the buyer and seller.

Alice sued CLS for infringing these patents. CLS asserted the patents were invalid because they did not cover patent-eligible subject matter. The district court agreed with CLS and struck down the patents.

In May, a riven Federal Circuit upheld the district court decision. Seven judges ruled that Alice’s claimed escrow method was not patent-eligible because it was just an abstract idea.

Also patent-ineligible, these same judges found, was Alice’s claimed manufactured item – a computer-readable medium (such as a computer disk) containing software directing a computer to carry out Alice’s specified process. Because the physical item was claimed in sweeping terms and only the method contained in the item was specified, the judges found this to be a method claim in disguise – and this method was too abstract to be patent eligible.

Alice’s patents also claimed a machine, consisting of a computerized system configured to implement Alice’s claimed escrow process. Five Federal Circuit judges voted to strike down these claims because the machine was specifically described only in terms of the method to be implemented. “The system claims are … akin to stating the abstract idea of third-party intermediation and adding the words: ‘apply it’ on a computer.” Because the claimed method was too abstract to be patent-eligible, the claimed machine was also not patentable subject matter.

However, the Federal Circuit split evenly, five to five, on whether Alice’s claimed machine was patent-eligible. Because a majority did not vote to overrule the district court, Federal Circuit maintained the lower court ruling that struck down the patent on that machine.

This Federal Circuit decision has created widespread confusion among businesses and patent experts. “I don’t think anyone right now knows what the law is,” said Michael K. Mutter, a patent attorney in the Virginia law firm of Birch, Stewart, Kolasch & Birch. “You have a 50-50 divided Federal Circuit producing diametrically opposed opinions. I’ve been doing this for 34 years, and I’ve never seen anything like this before.”

“It is a mess,” said Jake M. Holdreith, a patent litigator in the Minneapolis office of Robins, Kaplan, Miller & Ciresi. “It is hard to determine how a software-related invention will be treated in any given court.”

Supreme Inconsistency

The Supreme Court has addressed this issue three times before. The first time was in 1972. The court declared in Gottschalk v. Benson that the computer-implemented method claims at issue were too abstract to be patent-eligible subject matter. However, the court left open the possibility that other software might be patent-eligible.

In 1978, the Supreme Court again struck down a software patent. The court found in Parker v. Flook that the only novel feature in the claimed computer-implemented method was a mathematical formula. Such a formula was merely an abstract idea that was not patent-eligible, the court declared.

In 1981, the court finally found a computer-implemented process to be patent-eligible. The court in Diamond v. Diehr upheld the patent on a computer-implemented process for curing rubber, finding it was not merely an abstract idea because the mathematical equation used in the software was just part of a larger specified process for transforming rubber. Rather than claiming exclusive rights to the equation, the patentee claimed only the exclusive right to “the use of that equation in conjunction with all of the other steps in their claimed process,” the court stated.

Unfortunately, many lower courts and patent experts have had trouble determining why the Supreme Court treated the invention in Diehr differently than the inventions in Benson and Flook. The result has been massive confusion about the patent-eligibility of software-related inventions.

“There is no clear distinction between this case [Diehr] and the prior two cases,” Hollaar said. “Practically everyone thinks this is a mess.”

Perhaps in Alice, the Supreme Court will finally lay out clear guidelines on when software-related inventions are patent-eligible subject matter. Many observers, however, are not optimistic.

“These are difficult and complex technologies that pose difficult and complex questions,” Holdreith said. Trying to provide simple answers, he added, would be “dangerous.”

The Supreme Court has not yet scheduled the case for oral argument.  Most experts anticipate that the court will hear oral arguments on Alice in the spring and issue its decision before its term ends in late June.

Steven Seidenberg is a freelance reporter and attorney who has been covering intellectual property developments in the US for more than 15 years. He is based in the greater New York City area and may be reached at info@ip-watch.ch.

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  1. R Saha says

    Historically patents have always been related to something physical which can be reworked. Each invention would have started as an abstract idea and would have remained an idea till the invention was actually materialized. A software is abstract in nature which does not fit into the concept of a physical identity. Without a proper definition of the corresponding hardware patenting of abstraction which the software represents looks quite illogical. It is very often seen in granted patents related to software that the inventive step and novelty are not explicitly defined or brought out. For example, how many times do you see patents quantitatively defining saving in memory or time by utilizing the software. The interpretation is left to the patent examiner. Since the element of abstraction is very high, determining novelty and inventiveness of a new software related invention becomes difficult and complex. One confusion leads to the next and it goes on! Who will compensate people who were made to pay to patent holders for infringement of not-correctly issued patents. Each country should carefully lay down its laws carefully in this regard.


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