Retrospective - Software Patents in the US

With the Alice Corporation v CLS Bank Supreme Court decision looming in the horizon, and the patentability of software in the US faces its most recent judicial challenge, this writer thought it was best to look at the origins of the current stance of such patents in the United States. Software patents are incredibly lucrative, generating an estimated 20 billion dollars yearly to tech giants such as Google and IBM. Regardless of this their patentability can be questioned, and an answer that still stands today was provided by the US Supreme Court 4 years ago, which is now effectively being challenged by Alice v CLS.

The case in question is Bilski v Kappos, decided in mid-2010. It dealt with Bernard Bilski and Rand Warsaw's application for a patent (found on page 79) for a method which hedged risks in the selling of commodities over time. The method, roughly explained, would have a third party selling the commodities in question to parties at a fixed price, mitigating any spikes in price should a single entity buy those commodities in large quantities at once. This also ensures that the providers of the commodities would not suffer either, as the third party purchaser would safeguard them from a lull in demand after a big buyer would take their share, ensuring that the price of the commodities would not dip below the third party's fixed price. The patent application for this method, more specifically described under Claim 1 and Claim 4 (both under contention), the latter of which puts the former in a mathematical equation, were initially rejected by the patent examiner. The decision was subsequently appealed, and through an en banc decision of the Court of Appeals, finally ended in the US Supreme Court.

What the Court was faced was an assessment of whether the patent contravened 35 USC § 101, under which one cannot patent fundamental principles, abstract ideas, laws of nature or natural phenomena. Could a process such as Bilski's one be patented as a process under section 101, or would it be merely patenting an abstract idea? The Supreme Court would have to assess Bilski's method under the machine-or-transformation test to determine if it is a process or not: "...(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing". What this could be is the method's usage through a computer for example, making the method a more specific one as opposed to just a pure idea, being a process and thus patentable. The machine-to-transformation is not, according to the US Supreme Court, the only definitive test, but more of "...a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101".

Gavin always thought in the abstract

The majority's decision hinged heavily on its previous decisions of Gottschalk v Benson, Parker v Flook and Diamond v Diehr. The three decisions quite heavily dismiss the possibility of patenting processes very similar to the one which Bilski was attempting to patent, as the Court saw in each case that those processes would merely be patenting abstract ideas, leaving them outside the remit of patentability. Although Benson and Flook failed, Diehr succeeded as the process which was attempted to be patented was an actual process, unlike in the former two which attempted to patent formulas rather than real processes, leaving the door open for such attempts should they sufficiently fall within the Diehr precedent's line.

In the end the majority rejected Bilski's appeal, stating that "The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea". This can be said to be right based on the precedents used by the Court in their decision. Bilski attempted to patent an idea of how to hedge risks, lacking a secondary component which would make the method a process aside from just a principle under which a business would operate, clearly making it just an idea, not a process.

What the Bilski case establishes does have an impact on software patents, but can be argued to be distinguishable from the forthcoming Alice case to an extent. What Bilski attempted to patent was just an idea of a process; however should a software patent sufficiently establish a process akin to what was seen in Diehr, it could very well be patentable. On the face of it the Alice patent would seemingly fall under the Benson and Flook precedent, potentially causing it to be not eligible for patentability; however this remains to be seen once the Supreme Court presents its decision on the case.

US Supreme Court to Take on Software Patents

Software patents have been a somewhat controversial topic within the IP community for some time now, especially due to their heavy association with patent trolls. These Non-Practicing Entities (NPEs) or otherwise known as Patent Assertion Entities (PAEs) exist for the sole or primary reason of enforcing patents which they own with no actual intention to ever use them themselves for the development of goods or services. As such these practices are highly questionable, at least on an ethical standpoint. The Goodlatte Innovation Act is attempting to curb these practices; however has yet to pass through the legislature and become law in the United States, following a similar approach to their Kiwi brothers in New Zealand who have since, potentially at least, ended software patents in late 2013. Software patents have been disputed in the long-going case of Alice Corporation v CLS Bank, which is being heard in the US Supreme Court, and will undoubtedly address the current state of software patents and their use in the US.

The case concerns several patents owned by Alice Corporation relating to the facilitation of securities trading, and more specifically, the reduction of risks for parties not fulfilling their part in their contractual obligations such as patent number 7725375. Independently from Alice CLS Bank developed their own software which fulfilled a similar function, potentially infringing Alice's patents. Due to this CLS sought a declaratory judgment from the courts intending for Alice's patents to be invalidated, as per their argument, the patents would not be patent eligible due to them being merely abstract ideas, not falling under the requirements of 35 USC section 101. CLS' argument asserts that what Alice have patented merely covers basic economic concepts; however Alice argue that abstract ideas should only be interpreted narrowly, including things such as facts of nature. Ultimately the Supreme Court face the dilemma of deciding how far the abstract patent doctrine extends, potentially impacting a large industry of software patents.

Soft wares can be quite nice during Winter

Abstract ideas, although expressly prohibited by the Supreme Court in their decision in Diamond v Chakrabarty, are still assessed on a case-by-case basis, still leaving ideas which seem abstract potentially within the remit of section 101. As such the Supreme Court has stated that "...Congress took this permissive approach to patent eligibility to ensure that ingenuity should receive a liberal encouragement", allowing for a wide margin of flexibility within this scope. The rationale behind the rejection of abstract ideas is because "...abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work".

In the District Court of the District Columbia Justice Collyer saw that Alice's patents were not eligible as they sought to patent, in her Honor's mind, fundamental concepts and were therefore abstract ideas. Subsequently in the Court of Appeals the decision of the District Court was reversed, deciding that "[t]he asserted claims appear to cover the practical application of a business concept in a specific way", noting their extensive implementation through computers. The limitations the patents' implementations faced was, in the Court's view, integral to their patentability, therefore not merely encompassing abstract ideas which could be implemented quite easily. CLS sought an en banc (all of the judges of a particular court reside as opposed to only a select few) rehearing of the decision. With the Court of Appeals rehearing the case en banc, the majority of the Court of Appeals' judges saw that the patents were not patentable due to their abstract nature, concurring with the initial District Court decision.

As one can very well see the case is very complex and while this article aimed to set out the basics of the case as an informative starting-point prior to the Supreme Court decision, some specifics had to be omitted. This writer would welcome any and all interested in this case to read the included source material thoroughly if you want a more nuanced understanding of the case as a whole.

The case ultimately boils down to how the Supreme Court balances a much narrower definition, preventing partly or mostly the definition of more general ideas in software, against a broad-ended, much vague definition of an abstract idea, potentially inhibiting future innovation as a result. Justice Breyer touched on this, preferring a much narrower allowance of abstractivity: "...instead of having competition on price, service and better production methods [if software patents are not allowed or restricted], we'll have competition on who has the best patent lawyer". Arguably Justice Breyer does have a point, and the backlash against software patents in the past several years would only indicate such a direction as well. But again, the issue is not that simple, and this writer for one awaits the Supreme Court's decision with interest.

Source: The Guardian