US Supreme Court tosses 'abstract' software patent

Jun 19, 2014 by Sam Hananel
The US Supreme Court ruled that a computerized financial trading system cannot be patented because it is based on an "abstract" idea

The U.S. Supreme Court on Thursday tossed out an Australian company's patent for business software in a decision that clarifies standards for awarding patents, but not as much as some firms had hoped.

In a case closely watched by technology companies, justices ruled unanimously that the government should not have issued a patent to Alice Corp. in the 1990s because the company simply took an abstract idea that has been around for years and programmed it to run through a computer.

The decision makes clear that to obtain a patent, a company's idea must actually improve how a computer functions or make other technical advancements. It could also help technology firms mount a stronger defense against so-called patent trolls—companies that buy up patents and force businesses to pay license fees or face costly litigation.

The software at issue allows a neutral third party to make sure all parties to a financial trade have lived up to their obligations. New York-based CLS Bank International claimed the patent was invalid.

"We conclude that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention," said Justice Clarence Thomas, writing for the court.

Dozens of technology firms—including Google and Facebook—submitted friend of the court briefs in the case, asking the high court to restrict the free flow of software patents they say are often too vague and can block other companies from innovation. But other companies, such as IBM, warned that too many new restrictions could nullify thousands of existing patents and discourage companies from investing in research and development.

John L. Cuddihy, a patent attorney in the nation's capital, said the court's decision offers "clarity and helpful guideposts," but "wisely tried not to over-specify the standards for determining eligibility of computer-based patents."

He said the ruling makes it easier for companies fighting patent troll litigation to argue that flimsy patents should not have been granted in the first place.

But Jennifer Spaith, a Seattle patent attorney, said the court could have offered more guidance on how patent standards should apply to the latest innovations, such as wearable technology, cloud computing and social media that are changing how people communicate and work.

"The Supreme Court did not offer tools for identifying patentable subject matter in these other intangible areas, so patentees will continue to battle uncertainty in these spaces," Spaith said.

Patents give inventors legal protection to prevent others from making, using or selling a novel device, process or application. The Supreme Court has ruled in the past that abstract ideas, natural phenomena and laws of nature cannot be patented.

The U.S. Court of Appeals for the Federal Circuit had ruled that Alice Corp.'s patent was invalid, but only five of those on the 10-member panel of judges could agree on why.

The Obama administration had urged the court to invalidate the Alice patent and asked the justices offer more clarity to help lower courts decide what is and isn't valid. The administration said several factors should be considered, including whether the software improves how the computer functions or uses a computer to improve how another technological process works.

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