U.S. SC rules software patents, drawn to 'patent-ineligible abstract idea,' are invalid

By Jessica M. Karmasek | Jul 7, 2014

WASHINGTON (Legal Newsline) - The U.S. Supreme Court ruled last month that some software method and system patents are invalid.

The nation's high court, in its June 19 opinion, said the claims in Alice Corporation Pty. Ltd. v. CLS Bank International and CLS Services Ltd. were drawn to an abstract idea.

Implementing those claims on a computer was not enough to transform the idea to a patentable invention, the justices explained.

"Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer," Justice Clarence Thomas wrote for a unanimous court.

"Taking the claim elements separately, the function performed by the computer at each step -- creating and maintaining 'shadow' accounts, obtaining data, adjusting account balances, and issuing automated instructions -- is [p]urely 'conventional.'"

Thomas continued, "Considered 'as an ordered combination,' these computer components 'ad[d] nothing... that is not already present when the steps are considered separately.

"Viewed as a whole, these method claims simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field."

An instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer is "not enough" to transform the abstract idea into a patent-eligible invention, the justices said in their 17-page opinion.

The Supreme Court granted Alice's petition for writ of certiorari in December after the U.S. Court of Appeals for the Federal Circuit, sitting en banc, failed to reach an agreement in the case. Justices heard arguments in March.

CLS originally sued Alice in the U.S. District Court for the District of Columbia in 2007, seeking a declaratory judgment that Alice's patents were invalid and unenforceable and that the bank did not infringe them.

Alice, which countersued, claimed CLS started using their technology in 2002.

Alice asserted four patents -- U.S. Patent Nos. 5,970,479; 6,912,510; 7,149,720; and 7,725,375 -- against CLS, all on electronic methods and computer programs for financial-trading systems.

Last year, the Federal Circuit -- which handles all U.S. patent appeals -- ruled 7-3 against patent eligibility of the method claims and 5-5 on the system claims, leaving the lower court's ruling that the system claims were ineligible in place.

The Supreme Court's opinion affirms that ruling, again deeming all of Alice's claims ineligible.

Michael Meehan, spokesman for the Main Street Patent Coalition, a non-partisan group that is pushing for an end to patent trolling, said he is "encouraged" by the high court's decision.

"It signals that our highest courts recognize there is something wrong with the current law," he said. "These types of predatory business tactics should not be available in the first place, and we hope Congress does not expect the courts to continue to carry this load when it's all too clear legislation is needed.

"Overbroad and abstract patents like the one invalidated provide the ammunition for patent trolls to prey on businesses."

The coalition argues the ruling proves that patent reform is needed now, more than ever.

"Most American businesses do not have the time or money to fight these frivolous lawsuits that can take years and millions of dollars to resolve in the courts," Meehan said.

"Congress must act to pass comprehensive patent reform that will stop extortionist claims for all Main Street businesses."

In May, the U.S. Senate sidelined a piece of patent reform legislation because of lack of broad bipartisan support. Senators are hoping to take up the bill later this year.

But others contend the court's ruling won't have any broad impact.

Steve Borsand and Jay Knobloch of Trading Technologies -- the Chicago-based financial software firm that spearheaded a legal brief signed by 46 amici spanning a host of industries, patent law experts and academics and filed with the court in support of Alice -- noted that very few patent claims are even "arguably directed to a fundamental economic practice or to just applying such a practice on a computer."

"In fact, the court explicitly expressed caution in deciding eligibility because it did not want to 'swallow all of patent law.' Thankfully, this ruling will not do that," they said.

"The United States Supreme Court did not adopt suggestions to strike down software patents, and did not even touch the basic standard of patent eligibility for software inventions and innovations," Borsand and Knobloch said. "Rather, the court issued a narrow ruling in which it found that the particular patent claims in question are ineligible because they are directed to an 'abstract idea.'"

That doesn't mean the ruling couldn't create some problems.

"The decision still leaves some ambiguity about how an abstract idea is defined, which unfortunately will create confusion for some patent cases around the edges -- those that can arguably be characterized as directed to a fundamental economic practice," Borsand and Knobloch said.

From Legal Newsline: Reach Jessica Karmasek by email at patents@legalnewsline.com.

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