The Supreme Court Gets Tech Right With This Software Patent Ruling

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June 20 2014 1:47 PM

Patent Trolls Are Mortally Wounded

The Supreme Court gets it right when it comes to software patents.

The Supreme Court.
Patent trolls beware.

Photo by Saul Loeb/AFP/Getty Images

The Supreme Court has issued its sixth and final patent law ruling this term. Each ruling was unanimous, and each was a clear rebuke to overbroad positions on patent law. Thursday’s opinion in Alice v. CLS Bank was the most important—or at least the most newsworthy—of the half-dozen patent cases this term. With this ruling, the Supreme Court sent a strong message about what is and is not patentable, moving us away from the problem of overbroad, poor-quality software patents.

A bit about Alice v. CLS Bank: Alice Corp. owned several patents covering a computer system that helps with closing financial transactions by avoiding settlement risk (the risk that comes with any financial transaction if one party cannot uphold its end of the bargain). CLS Bank claimed the patents were invalid because they were nothing more than an abstract idea, and U.S. patent law has long held that abstract ideas cannot be patented. The district court agreed, finding the invention—which “simply provides the formula, or manner, in which to use an electronic intermediary to exchange obligations as a way to hedge against the risk of loss”—abstract, and therefore unpatentable.

But the U.S. Court of Appeals for the Federal Circuit—the appellate court that has exclusive jurisdiction over patent appeals—reversed that ruling, holding that implementing this invention on a computer system made it somehow nonabstract. While the Federal Circuit was hearing this case, other courts heard many cases about what kind of ideas were too abstract to be patented, and decisions came out all over the place, leaving patentees, inventors, and litigators uncertain about what the law actually meant.

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So the full Federal Circuit agreed to take another look at the case—but still couldn’t agree on any kind of definition. The 10 judges handed down a 135-page decision invalidating the patents, but no single rationale enjoyed majority agreement. In fact, the decision contained seven separate opinions with at least three distinct approaches.

To be clear, there has never been doubt as to whether abstract ideas can be patented. They can’t. And for good reason: Allowing a patent on an abstract idea, or a law of nature, or a natural phenomenon, pre-empts the rest of the country from using and building on those basic truths that belong in the public domain. There have been questions, however, about how to define an abstract idea. And that matters because many believe the Federal Circuit has been getting it wrong in claiming that software is not an abstract idea and is therefore patentable.

Software patents are a fairly new experiment. They didn’t exist until the mid-1990s, when the Federal Circuit went rogue and decided they should. (You might start to notice a theme here about the Federal Circuit taking the law into its own hands. More on that in a minute.) Since then, these patents have been mostly disastrous.

Most software patents are both vague and overbroad, making it hard for anyone—lawyers, engineers, everyday inventors—to understand what they actually cover. And there are tons of them: The patent office issues approximately 40,000 every year. So entered the patent troll. These bad actors do not usually make or sell anything. Instead they take these meaningless, low-quality (but valuable) patents to troll the companies that are inventing and producing.

This problem costs our economy billions of dollars annually and should be taken seriously. But patent trolls are simply a product of our broken patent system. The root of the problem—and the troll’s weapon of choice—is the low-quality software patents that have flooded the system.

And this brings us back to the Alice v. CLS Bank ruling. The Supreme Court did not abolish software patents—something some advocates had hoped for but was by all accounts highly unlikely—but it did significantly tighten the standard for what is and what is not patentable. This will undoubtedly lead to fewer low-quality software patents. And that is excellent news.

Specifically, the court unequivocally stated that if you have an idea so abstract that it cannot be patented, simply tying it to a “generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention.” It also stated that tying an abstract idea to “purely functional and generic” hardware similarly would not make the idea patentable.

This legalese is important. Most of the worst software patents do exactly what the court said they couldn’t: present an idea (like hedging risk, one-click shopping, etc.) and say that, because it’s executed on a computer, or a generic piece of hardware, it is not just an idea anymore. As computers play an ever-growing part in our everyday lives, you can understand the flaws in this logic. This week, the Supreme Court stopped that logic in its tracks.

So now we’re living in a world where fewer bad software patents will be granted, and the patent troll arsenal will be a little lighter.

But there’s another important story here about specialty courts and industry capture. The Federal Circuit was founded in 1982, in “an effort to promote greater uniformity in certain areas of federal jurisdiction”—namely, patent law, which is notoriously complicated, both technically and legally. But over the past few decades, the court has apparently gone off the deep end, issuing ruling after ruling making patents (regardless of quality) and those who own them stronger, and weakening everyone else who should be considered in the process.

How did we get here? First, the Federal Circuit has jurisdiction over all patent appeals, so there is already a level of concentration here. Then, the patent lawyers that argue before the court become patent judges, and some become patent professors writing theory, and they all stay friends. Nothing is inherently wrong with this, of course, but what’s called “industry capture” begins to happen. While this usually refers to the capture of regulatory agencies, the same theory can be applied to courts, as Timothy B. Lee described in Ars Technica in 2012. The system, and the Federal Circuit, operates to protect the interests of a small subset of stakeholders: patent owners and their lawyers. Too often, they ignore the interests of small inventors and the public, failing to consider the broad impact of a one-sided patent system.

Until now. The havoc wrought by a dysfunctional system was the focus of major legislative efforts in both the House and Senate in the past year. The White House, too, joined the chorus for reform, along with the Federal Trade Commission, and states across the nation. The Supreme Court heard, and it went on to consider an unprecedented six patent cases this term. And it is encouraging that in its effort to understand tech, the court is having some success: Each ruling unanimously reins in the Federal Circuit’s dangerously expansive reading of our patent laws.

The Alice v. CLS Bank ruling is an important one for what it does: limit poor quality software patents. But it is arguably more important for what it signals: the end of a dangerous era at the Federal Circuit, where little to no regard was paid to small inventors, startups, and the public interest.

This article is part of Future Tense, a collaboration among Arizona State University, the New America Foundation, and Slate. Future Tense explores the ways emerging technologies affect society, policy, and culture. To read more, visit the Future Tense blog and the Future Tense home page. You can also follow us on Twitter.

Julie Samuels is the executive director of Engine, a research foundation and advocacy organization for tech entrepreneurs.

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