Supreme Court delivers blow to “abstract” software patents, while stating that software still can be patent-eligible

In an opinion long-awaited by the software community, the U.S. Supreme Court has found a computer-implemented method and system for exchanging financial obligations ineligible for patenting.

In Alice Corporation Pty Ltd. v. CLS Bank Int’l, the Court considered the question of whether the claims of four patents covered patent-eligible subject matter. In its decision, the Court found all of the patents’ claims were “drawn to the abstract idea of intermediated settlement,” which is “a fundamental economic practice long prevalent in our system of commerce.” While acknowledging that “at some level, all inventions … embody, use, rest upon, or apply … abstract ideas,” the Court found this particular set of inventions to be patent-ineligible.

The Court declined to provide any general guidance on what other inventions might be considered to be “abstract ideas.” Instead, the Court focused on the particular patent claims in front of it and stated:

we need not labor to delimit the precise contours of the “abstract ideas” category in this case.  It is enough to recognize that there is no meaningful distinction between the concept of risk hedging in Bilski [v Kappos] and the concept of intermediated settlement at issue here.

In contrast to the highly fractured Federal Circuit decision, the Supreme Court’s decision was unanimous. However, by declining to provide any general guidance, the Court’s long-awaited opinion does not fully resolve the confusion about precisely when software is and is not patent-eligible.

However, the Court did provide some insight into its thought process by way of example. The Court discussed prior decisions involving: (1) methods of measuring metabolites in the bloodstream (Mayo v. Prometheus); (2) using a mathematical formula to adjust alarm limits for certain operating conditions in a catalytic conversion process (Parker v. Flook); and (3) a computer-implemented process for curing rubber (Diamond v. Diehr). Noting that the first two inventions were patent-ineligible while the third invention qualified for patenting, the Court explained that the rubber curing invention “improved an existing technological process” and was designed to “solve a technological problem.”

The Court explained that “[t]hese cases demonstrate that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.”  Applying those cases to a representative claim (claim 33 of U.S. Patent 5,970,479), the Court found discrete processing steps such as limitations requiring creating shadow records, using a computer to adjust and maintain those shadow records, and reconciling shadow records and corresponding exchange institution accounts through end-of-day transactions to be “purely conventional” steps in an intermediated settlement.  Adding a generic computer to those steps did not make them patent-eligible.

The Court’s decision suggests that software inventions that are tied to particular technologies (such as manufacturing processes) may fare better than those that are tied to non-technological methods (such financial transactions). However, time and future court interpretations of this decision will be required to determine the decision’s precise impact.

By focusing its analysis on a specific claim set rather than providing any general guidance, the Court seemed to be mindful of Federal Circuit Judge Moore’s warning that the result could mean “the death of hundreds of thousands of patents.” Instead, the Court specifically stated:  “There is no dispute that many computer-implemented claims are formally addressed to patent-eligible subject matter.”

So, while the Court’s decision places number of software patents into question, it does not quite deliver a knockout punch to software patents in general.

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