December 12, 2013
Last Friday, the Supreme Court agreed to review a case that will very likely become one of the most important rulings of its current term.
Despite the massive implications of the case, most people have likely never heard of it – due in part to the fact that the case has nothing to do with divisive social issues such as same-sex marriage, abortion, or immigration.
The case is Alice Corporation v. CLS Bank, and it deals with software patents. That’s right: this highly important case is all about software patents.
So why is it so significant? In short, because the Supreme Court may rule that computer software no longer qualifies for patent protection. Such a ruling would have profound impact not only on intellectual property law, but on the economy as a whole, although whether that change will be for the better or worse depends on your perspective. According to one appeals court judge, if all of the software patents at issue are found to be ineligible for protection, it would be “the death of hundreds of thousands of patents,” and this “would decimate the electronics and software industries.”
According to some, however, this is wholly inaccurate; they would argue by contrast, that software patents are, generally speaking, barriers to innovation and technological progress that only burden the economy.
Who are these parties?
If an amicus brief filed at the appeals court is any indication, Google, Dell, Facebook, Intuit, Rackspace Hosting, Red Hat, and Zynga are part of this group. Their amicus brief largely argued the above points against software patents, going so far as to label these types of patents as “a Plague in the High-Tech Sector” in one of the section headers in their brief. British Airways, Hewlett-Packard, eHarmony, Linkedin, Travelocity.Com, Twitter, and Yelp also filed amicus briefs taking similar stands against software patents.
The dragging effect on the tech industry referred to by these companies is likely lawsuits and licensing demands from “patent trolls” who obtain software patents, but don’t actually use them.
So the exact effect of software patents on the technology sector seems to depend in large part on who you ask.
In theory, however, the Supreme Court will only be deciding this case based on legal reasons, rather than economic or pragmatic ones.
So what’s the case about legally?
It’s actually interpreting the Patent Act’s principal provision, Section 101, which lays out which types of inventions are actually eligible for patents. 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.
For over 150 years, however, case law has maintained that abstract ideas alone could not be patented. In this case, Australian company Alice International was awarded a patent for a computer program that exchanges financial instruments with safety and security.
CLS Bank International sued Alice in 2007, claiming that the patent on this system was invalid and unenforceable, which Alice responded to with an infringement suit against CLS.
CLS argued that the patent was for the abstract idea itself (of the specific method of financial exchange), and that the computer programs implementing it did nothing but add speed and efficiency to the process. As such, the patents were invalid.
After numerous rulings and appeals, the full Federal Circuit Court of Appeals heard the case, but the only majority opinion that emerged was that Alice’s patents were invalid. However, there was no single opinion that explained why beyond the finding that patent protection is not available for “simply appending generic computer functionality to lend speed or efficiency to the performance of an otherwise abstract concept.”
In other words, the court gave no guidance on how the law applies to software patents – which is something that the tech industry has been sorely seeking for years.
How will the Supreme Court rule?
If 2012’s Mayo Collaborative Services v. Prometheus Laboratories can give any hints about the current Court’s leanings on patent law, I wouldn’t place any bets on software patents surviving an Alice Corp Supreme Court ruling (Mayo invalided a broad swath of patents that the Court ruled “effectively claimed the underlying laws of nature themselves”).
Oral arguments will give us a more detailed look into the Court’s direction on this case, but, in the meantime, if you’re curious about what the invalidation of software patents would do to the nation’s tech industry, look at New Zealand, which passed legislation earlier this year essentially removing patent protection for software.
If New Zealand’s tech industry is still standing at the time the Supreme Court is deciding Alice (which seems a distinct likelihood considering it was the nation’s tech industry that lined up in support of the law to begin with), the Court may find arguments portending the demise of the U.S. tech sector to hold no water.