Supreme Court set for landmark decision -- good or bad -- on software patents

Alice Corp. v. CLS Bank reaches the Supreme Court, with expectations of long-awaited clarity on the legality of software patents

The U.S. Supreme Court has the chance to clarify -- and possibly eliminate -- software patents forever in its hearing of Alice Corporation v. CLS Bank. You may recall that the Federal Circuit had the chance to decide the case but failed to reach a conclusion. The case is now nearing the end of its legal voyage. Will we get certainty about software patents?

It's never safe to second-guess the U.S. Supreme Court. The discussion that takes place during hearings is a fast-paced cross-examination that's informed and insightful. Drawing conclusions from such an exchange is hazardous, but yesterday's hearing deserves comment.

This case has dragged on for years. Alice Corporation of Australia claims a patent on using a computer to settle certain financial transactions, and it successfully sued CLS Bank for patent infringement. This happened before the Supreme Court gave its verdict on another significant software patent case, in regarding Bilski.

CLS successfully defeated Alice on appeal with the argument that the patent was invalid since it covers software. Alice asked the Federal Circuit to reconsider, and an en banc hearing was unable to reach a consensus, producing six different opinions (although the majority of those opinions upheld the view of the appeals court that the patent is invalid). Alice successfully appealed to SCOTUS with a portentous topic:

Whether claims to computer-implemented inventions -- including claims to systems and machines, processes, and items of manufacture -- are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

The appearance of software patents as an unambiguous and primary topic for the SCOTUS generated a flurry of amicus briefs from interested parties on both sides of the software patent issue, a total of 42 serious interventions. The list of the court's friends is a who's who of the software patent market -- including IBM, Microsoft, and a raft of trade associations, as well as its opponents, such as the Electronic Frontier Foundation and a joint filing from the Software Freedom Law Center on behalf of the Open Source Initiative and the Free Software Foundation, which I endorsed in my role at OSI. Notably, the U.S. Solicitor General weighed in with arguments against Alice.

To Monday's hearing: A look at the transcript reveals the usual erudite discussion by the Justices, exposing the three advocates appearing before them to the unforgiving heat of their enquiry and a good deal of apparent scepticism. Justice Breyer explained why the whole subject was so important:

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.

Early in the hearing, Justice Ginsberg framed the question well:

You know that the Bilski case held that hedging qualified as an abstract idea. So how is intermediate settlement less abstract than hedging?

Responses from Alice's counsel Carter Phillips did not seem to immediately satisfy the Justices, as the same question repeatedly arose in different form. Justice Kennedy said:

So the fact that the computer is involved, it seems to me, is necessary to make it work. But the innovative aspect is certainly not in the creation of the program to make that work. All you're talking about is, if I can use the word, an "idea."

And Justice Breyer:

What you do is you take the idea of solvency and you say apply it. And you say apply it through the computer. Is that enough to make it not just the abstract idea?

And Justice Sotomayor:

I'm sorry. But ... it sounds like you're trying to revive the patenting of a function. You used the word "function" earlier, and that's all I'm seeing in this patent is the function of reconciling accounts, the function of making sure they're paid on time.

On this point, Justice Scalia summarized the core problem especially well: "If you just say 'use a computer,' you haven't invented anything." Even by the end of this section, Justice Kagan was still asking the same question, using mail order as an example -- why a common act in the real world suddenly became innovative and patentable when done with a computer.

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