Supreme Court set for landmark decision — good or bad — on software patents

The U.S. Supreme Court has the chance to clarify — and possibly eliminate — software patents forever in its hearing of Alice Corporation v. CLS Bank. You may recall that the Federal Circuit had the chance to decide the case but failed to reach a conclusion. The case is now nearing the end of its legal voyage. Will we get certainty about software patents?

It’s never safe to second-guess the U.S. Supreme Court. The discussion that takes place during hearings is a fast-paced cross-examination that’s informed and insightful. Drawing conclusions from such an exchange is hazardous, but yesterday’s hearing deserves comment.

This case has dragged on for years. Alice Corporation of Australia claims a patent on using a computer to settle certain financial transactions, and it successfully sued CLS Bank for patent infringement. This happened before the Supreme Court gave its verdict on another significant software patent case, in regarding Bilski.

CLS successfully defeated Alice on appeal with the argument that the patent was invalid since it covers software. Alice asked the Federal Circuit to reconsider, and an en banc hearing was unable to reach a consensus, producing six different opinions (although the majority of those opinions upheld the view of the appeals court that the patent is invalid). Alice successfully appealed to SCOTUS with a portentous topic:

Whether claims to computer-implemented inventions — including claims to systems and machines, processes, and items of manufacture — are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

The appearance of software patents as an unambiguous and primary topic for the SCOTUS generated a flurry of amicus briefs from interested parties on both sides of the software patent issue, a total of 42 serious interventions. The list of the court’s friends is a who’s who of the software patent market — including IBM, Microsoft, and a raft of trade associations, as well as its opponents, such as the Electronic Frontier Foundation and a joint filing from the Software Freedom Law Center on behalf of the Open Source Initiative and the Free Software Foundation, which I endorsed in my role at OSI. Notably, the U.S. Solicitor General weighed in with arguments against Alice.

To Monday’s hearing: A look at the transcript reveals the usual erudite discussion by the Justices, exposing the three advocates appearing before them to the unforgiving heat of their enquiry and a good deal of apparent scepticism. Justice Breyer explained why the whole subject was so important:

There is a risk that you will take business in the United States or large segments and instead of having competition on price, service, and better production methods, we’ll have competition on who has the best patent lawyer.

Early in the hearing, Justice Ginsberg framed the question well:

You know that the Bilski case held that hedging qualified as an abstract idea. So how is intermediate settlement less abstract than hedging?

Responses from Alice’s counsel Carter Phillips did not seem to immediately satisfy the Justices, as the same question repeatedly arose in different form. Justice Kennedy said:

So the fact that the computer is involved, it seems to me, is necessary to make it work. But the innovative aspect is certainly not in the creation of the program to make that work. All you’re talking about is, if I can use the word, an “idea.”

And Justice Breyer:

What you do is you take the idea of solvency and you say apply it. And you say apply it through the computer. Is that enough to make it not just the abstract idea?

And Justice Sotomayor:

I’m sorry. But … it sounds like you’re trying to revive the patenting of a function. You used the word “function” earlier, and that’s all I’m seeing in this patent is the function of reconciling accounts, the function of making sure they’re paid on time.

On this point, Justice Scalia summarized the core problem especially well: “If you just say ‘use a computer,’ you haven’t invented anything.” Even by the end of this section, Justice Kagan was still asking the same question, using mail order as an example — why a common act in the real world suddenly became innovative and patentable when done with a computer.

At this point it would be easy to believe the Justices were siding with CLS. But then came their intervention, presented by the same Mark Perry who has long been navigating their case. His appeal to the SCOTUS precedent was clear:

That path between Scylla and Charybdis [as Justice Breyer asked earlier] was charted in Bilski and Mayo. Bilski holds that a fundamental economic principle is an abstract idea, and Mayo holds that running such a principle on a computer is, quote, “not a patentable application of that principle.” Those two propositions are sufficient to dispose of this case.

Perry’s argument was incisive, but more important, he spent time trying to equip the Court with the outcome it and we truly need: a clear test for what does and does not represent patentable subject matter in the field of software. Many opponents of software patents will find his endorsement of the patentability of algorithms for data compression and encryption worrying, but he did provide the raw material for the SCOTUS to devise a bright-line test for what is patentable. At the heart of his argument:

It is only where the method will not work without a computer, which is not these claims, and where the computer itself is doing something that the patent law is willing to protect.

The pure test of “where the method will not work without a computer” faced challenge from Justices Roberts and Breyer, who both wondered whether the simple fact that a task was of sufficient complexity to require a computer to make it practical justified patentability. Perry clearly thinks it is; his test for patentability involves whether the tasks the computer performs are documented:

It is equally fallacious to suggest, on the one hand, as Alice and IBM does, that simply reciting “a computer” is a magic key that gets you through 101 and you never have any other inquiry, and what some of the amici on the other side say, which is that computers or software are never eligible.

Justice Ginsberg felt that was far too simple, asking, “What is the instruction that escaped a good number of judges on the Federal Circuit?” Perry’s answer is stark; he feels that “there’s a significant element to the Federal Circuit that disagrees with [the Court’s finding in the case of] Mayo” and that “this Court’s precedents are clear. They are unanimous. They just need to be applied.”

The most surprising aspect of the whole case was the appearance of the U.S. Solicitor General in support of the case made by CLS Bank. Donald Verrilli and his staff filed an amicus brief late in the timeline of the case in which they asserted that “an abstract idea does not become patent-eligible merely by tacking on an instruction to use a computer to carry it out.” Justice Ginsberg reacted to the immediate consequence of such a clear statement: “How do you answer the argument that your view would extinguish business ­method patents and make all software ineligible for patent protection?”

Verrilli’s answer provides another useful component in building a patentability test: “Any software patent that improves the functioning of the computer technology is eligible.” That’s a very useful construct. It implies that the scope of software patents should be limited to algorithms that interact with a specific device, rather than just with the abstract concept of a Turing Machine — “just conventional use of computing technology.” Sadly, no one led the Court down that path.

The useful test for patentability in my view is not the complexity of the algorithm or the detail with which it is specified or even the specificity of the solution it addresses. The real question should be whether the software involved is intimately entwined with the hardware that executes it. If any of a class of devices could execute the code, it should not be patentable; if a specific device is required, then it seems less unreasonable to assert patents could be granted.

The Court is likely to return an opinion in the summer. There are some signs it is reluctant to provide the strong clarification the Solicitor General asked for and that the technology economy needs. Chief Justice Roberts expressed doubts whether such a ruling was “going to bring about greater clarity and certainty,” and Justice Sotomayor asked outright, “Do you think we have to reach the patentability of software to answer this case?”

It’s possible SCOTUS will once again give a narrow opinion and leave us all with the uncertainty on which patent trolls feed. Let’s hope they don’t.

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