What the Supreme Court’s patent ruling means — and doesn’t mean

Today the Supreme Court handed down a unanimous ruling in Alice Corporation Pty. Ltd. vs. CLS Bank International, a much-watched patent case.  There was much hope in certain corners that the Court would make a broad ruling related to the validity of software patents and/or business method patents. Many people also hoped that they would, at the very least, articulate stricter guidelines on patent validity to try to curb overly broad or too high-level patents that can be used by patent trolls to extract large sums of money from businesses both large and small.

The full ruling, linked to above, is mercifully only 21 pages and a fairly easy read, so I would encourage you to take a few moments to look it over (even if you decide not to give it a close read).

The Court begins by reminding us what the written law, and the case law, tell us cannot be patented:  abstract ideas, laws of nature, and natural phenomena. This particular case deals with an abstract idea: settling a two-party transaction by using a trusted third party intermediary. This is not a new idea; in fact it is a bedrock economic principle that has been in practice for quite a long time. The patent was issued for a specific implementation of this abstract idea using computers, and therein lies the legal issue. For while the patent law clearly states that a “naked” abstract idea can’t be patented, the specific claims that discuss how it’s implemented and applied may “transform” it into something that is eligible to be patented.

Let’s take a moment to walk through this with a parallel example, to get it out of the heated context of software and business methods.  The notion of “slicing bread” is an abstract idea that would not ever be patentable, for the obvious reasons. But the notion of “slicing bread in a specific mathematically predefined curve that maximized the structural strength of the slice,”  so it doesn’t bend or break when you’re holding it, might possibly be a patentable idea, given that you need to work out not only what that optimal curved-slice is, but the mechanism for how to slice it that way.  So that’s one dimension of our problem space here: trying to determine the difference between an abstract idea that’s unpatentable, and a more specific, focused idea that is. And The Court’s ruling discusses this a bit, noting that an underlying principle at play here — that laws of nature, natural phenomena, and abstract ideas are the building blocks of human ingenuity — is a sword that cuts both ways. On one hand, allowing someone to have a monopoly on an abstract idea takes away a fundamental building block. On the other hand, since all invention is built on top of abstract ideas, we need to find some way to distinguish what is enough “added value” on top of the abstract idea to make it worthy of protection.

The second dimension is where the added value comes from the way that it’s implemented: returning to our example of slicing bread, you could potentially get a patent on a machine that slices bread faster than any existing machine because of its design. That’s a clear value-add beyond the abstract idea of “slicing bread” and so transforms an ineligible abstract idea into an eligible specific one. As an aside, in order to be patentable, an idea also needs to be “novel” and “not obvious to someone skilled in the art.” But since those aren’t at issue in this case, I’m not going to speak to them (and neither did the Court in its ruling today).

To deal with these two dimensions, the Court had established in a prior case a two-step process for analyzing these kinds of patent claims:

1. Is the patent application claiming laws of nature, natural phenomena, or abstract ideas?

2. If yes, “what else is there in the claims before us?” Is there an “inventive concept” that transforms the claim into something eligible for patenting?

In this particular case, there was agreement among all parties that the answer to question #1 was “yes.” Settlement through a third-party is an abstract idea that alone is not eligible for patenting.  So then attention turns to what else was in the claims, and in this case what remained was a very generic description of using a generic computer system to implement the well-known steps involved in this process. The Court said that if the implementation somehow involved innovative steps that you could only do through a computer, it might be patentable. Or, if it required some new kind of computing technology that needed to be invented in order to implement the process, it also might be patentable. But the application claimed neither of these, and thus was clearly not eligible for patenting. The function performed by the computer at every step is “purely conventional” and represents a “generic implementation on generic computers” which doesn’t meet the standard. Thus it affirmed the Appeals Court’s ruling that the patent is invalid.

So for those of you wishing that the Court would provide useful clarification on what is patentable, and in the process tighten up the kinds of things that patent troll are trying to get through the PTO, your wish came true.

On the other hand, if you were hoping that the Court would invalidate software patents altogether, you’re going to be very disappointed. In fact, in the entire ruling the word “software” doesn’t appear even once. The most you could read into this ruling is that it will be much more difficult to obtain a patent for a generic abstract idea implemented in software. But a specific, non-obvious algorithm implemented in software, or a generic abstract idea implemented in a particular way in software that adds value, are both still fair game.

If you were hoping that business-method patents would be invalidated, then you received some hopeful news today. In a concurring opinion, three of the judges (Sotomayor, Ginsburg, and Breyer) stated unequivocally their belief that business methods are not a “process” and are therefore ineligible for patenting. They went even further, saying that they believed any “process for organizing human activity” is ineligible for patenting. We don’t know to what extent the full nine judges discussed this, and there is no statement about what the other six judges believe, which makes this all very curious. A concurring opinion by only three judges does not become a legal precedent that lower judges must follow, so for now, it’s simply three judges speaking their minds. Frequently the Supreme Court prefers to decide cases on the most narrow grounds possible, and in this one it’s likely that the others were happy to apply the existing standard to invalidate the patent rather than making a broad ruling on business method patents. Or perhaps for some reason they didn’t think that this was the best case to use as the definitive test-case on the topic. And you could interpret the concurring opinion as the Supreme Court (or at least a third of it) asking for good test cases on business-method patents — clearly three judges want to talk about it, and there may be more if the right case comes along.

In the end, today’s ruling was bad for patent trolls, bad for the crowd that wants software patents invalidated altogether, an ominous though not fatal sign for advocates of business-method patents, and neutral to good news for companies that have portfolios of software patents.

Next week is the last official week of the Supreme Court’s term, and they still have several headline cases to issue rulings on, including the Hobby Lobby case regarding whether a company can claim an exemption from a healthcare law based upon religious grounds; and a case determining the extent to which the President of the United States can make recess appointments. So expect lots of news next week.

Kudos to SCOTUSblog for continuing their excellent coverage of all the happenings at the Supreme Court.



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