New York Times
Justices Leery of Software Patent Case
March 31, 2014
By Adam Liptak
WASHINGTON — In a case with the potential to reshape the software industry,
theSupreme
Courton Mondayseemed
poisedto issue fresh limits on patents for computer-based business
methods.
Though the case originated far from Silicon Valley, it has been closely
watched as an indicator of how specific or abstract technical ideas can be
to become eligible for patent protection. Patent claims over the way such
ideas are incorporated into computers, cellphones and other devices have
become a challenge for many high-tech companies.
Those companies often have interests that tug in opposite directions. They
tend to hold large portfolios of valuable patents and want to protect them.
But they must also contend with “patent trolls,” companies that have
obtained patents on sometimes vague concepts and which are more active in
the courthouse than on the production line.
Most of the justices seemed skeptical about extending patent protection to
the claimed invention at issue, a sort of computerized escrow mechanism that
helps ensure that both sides in a transaction do what they have promised to
do.
But given the importance of the software industry in the information
economy, the court also appeared wary of a misstep in announcing a general
legal principle. The court’s task, Justice Stephen G. Breyer said, was “to
go between Scylla and Charybdis.”
On the one hand, Justice Breyer said, the court should not allow the patent
system to stifle innovation. “There is a risk,” he said, that “instead of
having competition on price, service and better production methods, we’ll
have competition on who has the best patent lawyer.
“And if you go the other way and say never” allow software patents, he went
on, “then what you do is you rule out real inventions with computers.”
The patents in question, owned by the Alice Corporation, outlined steps for
mitigating settlement risks among multiple parties. The company’s lawyer,
Carter G. Phillips, pointed the justices to a flow chart in one of the
briefs to explain how the method worked.
Chief Justice John G. Roberts Jr. inspected it. “Just looking at it,” he
said, “it looks pretty complicated. There are a lot of arrows.”
But Justice Anthony M. Kennedy asked whether “a second-year college class in
engineering” or “any computer group of people sitting around a coffee shop
in Silicon Valley” could convert the idea into computer code “over a
weekend.” Mr. Phillips said yes, adding “that’s true of almost any
software.”
The patents were challenged by CLS Bank International, which says it clears
$5 trillion in foreign exchange transactions a day using methods to ensure
that both sides performed. The Alice Corporation’s patents, the bank said,
merely recited “the fundamental economic concept of intermediated settlement
of escrow.”
Several justices appeared to agree. Justice Breyer said the method had been
around since the abacus and was used by his mother to keep him from
overdrawing his checking account.“There is an abstract idea here,” he said.
“It’s called solvency.”
The justices considered only the threshold question of whether the Alice
Corporation’s ideas were eligible to be patented. The court has said that
laws of nature, natural phenomena and abstract ideas do not qualify.
Were Alice’s ideas to make it over that hurdle, they would still be subject
to challenges for obviousness, lack of novelty or indefiniteness. The
initial step of patent eligibility, Mr. Phillips said, should be “a very
coarse filter.”
In recent decisions, the court has been skeptical of protecting discoveries
and ideas even at that threshold stage if doing so would hamper innovation.
In 2010, the
court ruled that a method of
hedging risk was not eligible to be patented. In 2012, it
said the same thing about
correlations between drug dosages and treatment.
Mark A. Perry, a lawyer for the bank, said Monday’s case, the Alice
Corporation v. CLS Bank International, No. 13-298, was similar to the 2010
case, Bilski v. Kappos. “It is hedging against credit default rather than
price fluctuation, but it is simply hedging,” he said.
A trial court invalidated
the Alice Corporation’s patents, saying they recited only abstract
concepts. That decision was effectively
affirmedby the United States Court of Appeals for the Federal Circuit, a
specialized court in Washington that hears patent disputes. But the decision
was badly fractured, with seven opinions, none of which commanded a
majority.
The Supreme
Court also seemed likely to
rule for the bank, though it was not clear how broadly. The justices did not
seem inclined to adopt the aggressive approach urged by Solicitor General
Donald B. Verrilli Jr., who argued in support of the bank and said that only
a limited number of software patents should be recognized.
Mr. Phillips said the government’s approach would declare “in one fell swoop
hundreds of thousands of patents invalid.”
Mr. Perry said the court needed only to apply its earlier decisions to find
in his client’s favor.
“This is not the death of software patents,” he said, citing supportive
briefs filed in the case from prominent companies. “The software industry is
all before this court saying, ‘This is fine with us.’ Every company in the
United States practically, except for IBM, is saying go ahead. This will not
affect software patents.”
Justice Kennedy asked Mr. Perry what sorts of business processes would
remain eligible for patents under his theory. He rattled off a few: data
compression, streaming video, encryption.
Mr. Verrilli had a harder time providing an example, though he said “a
process for additional security point-of-sale credit card transactions using
particular encryption technology — that might well be patent-eligible.”