Thoughts on the Alice Corp v CLS Bank Decision

Software is big business in the 21st century. With over 400 billion dollars worth of revenue having been created in 2013 alone, and arguably the market is growing by the year, you can't help but understand the vehement defense of those interests even if it often seems to be for nothing but profit, and not the defense of a legitimate product or competitive edge. What gives software, and subsequently software patents (discussed in more detail here), a bad name are so-called 'patent trolls', or more officially Non-Practicing Entities (sometimes also called Patent Assertion Entities). The companies rarely produce or use the patents they control, but merely use them as a means to recover licensing fees, potentially affecting the marketplace and software development quite negatively. In light of this whether software should be patentable or not, and if so what the limits are, has been highly contentious and of interest to many. Finally the matter arrived in the open arms of the United States Supreme Court, which issued is ruling on the question a bit over a month ago (discussion of the earlier decision can be found here).

The case of Alice Corporation v CLS Bank International dealt with Alice Corporation's patented method of mitigating 'settlement risk', which is the uncertainty of whether only one party will pay what it owes to another, by the use of a third-party. The software or computer process creates 'shadow records' of the parties' debits and credits, effectively mirroring their payment capabilities within their real world finances. It then allows or denies any transactions based on those records, should they fall within the payment capabilities of the owing party, finally issuing the payment order to the bank responsible for that transaction. This mitigates the risk of such transactions for both parties, leaving much less uncertainty as to the other party's payment capabilities. The patent's claims in question are as follows: "...(1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims)" - all of which are handled through a computer. CLS Bank handle currency exchanges internationally, and sought a declaratory judgment to invalidate Alice Corporation's patent under 35 USC 101.

What abstract truly looks like

In determining whether Alice Corporation's patent is invalid, the Supreme Court had to decide whether it would fall under a patent ineligible category such as laws of nature or an abstract idea. This assessment, as expressed by Justice Thompson in the unanimous judgment of the court, would entail: "First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts... If so, we then ask, '[w]hat else is there in the claims before us?'" The second step entails an assessment of whether the patent is an 'inventive concept', or in other words, brings something more to the table than just the idea itself.

The Supreme Court in their judgment draw heavily from the case of Bilski v Kappos (more extensively discussed on this very blog). They aligned Bilski's method of hedging risk to Alice Corporation's mitigation method, and determined the patent was indeed an abstract idea and therefore ineligible for the patent. This is because, referring to the Bilski decision: "...all of the claims at issue were abstract ideas in the understanding that risk hedging was a ‘fundamental economic practice.’". As, according to Justice Thompson, there is no meaningful distinction between Alice Corporation's patent and Bilski's patent, the former can be concluded to be an abstract idea in the same vein.

Although the court did determine that the patent was ineligible it could still contain a transformative element which turns it into an 'inventive concept'.  To put into better terms, referring to Mayo Collaborative v Prometheus Labs: "A claim that recites an abstract idea must include “additional features” to ensure “that the [claim] is more than a drafting effort designed to monopolize the [abstract idea]". The mere addition of a computer into the process, as evident from the extensive precedent in this area, will not make non-patentable inventions into patentable ones unless the implementation via the computer is more extensive.

Alice Corporation's patent largely relies on a computerized method which handled the risk mitigation, and on the face of it, seems to fall within precedent as unpatentable. The court outright rejected Alice Corporation's argument that the computer plays a substantial and meaningful role and determined that the patent is not an 'inventive concept'. Expressed better by Justice Thompson: "...the claims at issue amount to “nothing significantly more” than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer". The Supreme Court therefore rejected the appeal and Alice Corporation's patent was deemed invalid.

The decision is very important, however is not necessarily the axe to the head of software patents on the block. Although the Supreme Court rejected patents which merely give instructions to a computer, if applied more thoroughly and in such a way that it solves a problem such as in Diamond v Diehr. This distinction was expressed incredibly well by David Kappos for SCOTUSBlog: "[t]he distinction between patentable software in Diamond v. Diehr and unpatentable software in Bilski and CLS Bank is not about software at all; rather, the difference is the presence or absence of a definitive invention versus abstraction. Diehr's new and useful process for curing rubber was held to be innately patentable – the fact that it happened to be manifest in a software language was tributary". To put into different terms, software patents should be a nuanced application, a solution to a distinct problem rather than a blanket cover for a larger area, stifling progression and potentially causing issues in the technological developments of the future. The reception of the decision has been wildly mixed, and rightfully so, since the decision does both good and bad things to the patent sphere in the US. What impact it will have remains to be seen more down the line, but hopefully this will tackle patent trolls more than it does legitimate businesses - regardless of your definition of 'legitimate'.

Source: The Verge

Goodlatte Innovation Act - Patent Trolls Addressed?

Patent trolls (often referred to as Patent Assertion Entities), the creatures that live underneath the bridge of innovation and profit, attempting to benefit from those who wish to use their patents, all the while never actually using the patents they own. Even if their appearance rarely matches those of the fairy tale variety, patent trolls are a big problem in the modern sphere of innovation and creation. Currently patent trolls take up a whopping 62% of all patent infringement claims; having gone up from a still high figure of 29% only two years ago. This can be acknowledged is a problem, and calls have been made to address this issue. Finally the first step has been taken in doing so.

In the United States a Bill was recently introduced called the Goodlatte Innovation Act, which seeks to remedy the changes introduced in the America Invents Act in 2011. According to the Bill's creator, Bob Goodlatte, the Act "...is designed to eliminate the abuses of our patent system, discourage frivolous patent litigation and keep U.S. patent laws up to date. These important actions will help fuel the engine of American innovation and creativity, creating new jobs and growing our economy".

The CEO of Patent Trolls Inc.

The measures the new Act takes is the introduction of the requirement to present information very early on in litigation, essentially justifying the infringement action. The action would then be assessed and should it not be deemed "substantially justified", the alleged infringing party would not have to pay the award sought by the plaintiff. The Act also introduces more stringent disclosure requirements, making the plaintiff submit more detailed information as to the patent being infringed, which specific claim of that patent is infringed, and how it is being infringed by the defendant. This clearly opens up the process and makes it more transparent for both sides, potentially impacting on vague threats over infringement resulting in quick settlements out of fear; exactly what patent trolls are seeking in their mode of operation.

The Act also introduces joinder provisions which link any parties with a "financial interest" in the patent case, clearly targeting shell companies which are used for infringement claims in lieu of the controlling company. This would make the parent companies liable for any fees which would result in frivolous claims, preventing them from side-stepping them while still benefiting from any awards that could be won by the shell company in their claim. In addition it introduces an exception for any infringements that might occur in consumer use or through manufacturers' use of the patent. The court would have the ability to stay those proceedings until the matter between the main companies is settled.

The Innovation Act is clearly something which the patent sphere has been yearning for in the US for the last couple of years, and with the aforementioned figures proving a clear direction in the abuse of patents through infringement claims, those actions need to be curbed. Although the Bill is a bipartisan creation, due to the divide in the current US government the Bill's passing is still in the air; however one could argue its passage is in the interest of both sides and the industry as a whole. Whether the Bill passes or any changes are made will be monitored by this vigilant writer, and I argue this Bill is an incredibly welcome change to the grand scheme of things.

Source: Ars Technica