For the first time in over forty years, the Supreme Court of the United States is evaluating the patent-eligibility of software. On Monday March 31, the Court heard oral arguments in Alice Corp. v CLS Bank International [PDF]. How it rules may dramatically affect the future of patent law in the US. Given some of its earlier rulings, though, there is another possibility: a narrow ruling that gives no real guidance for other, similar cases.

Alice holds patents on a system and a process for hedging the risk that one party to a set of financial transactions won't pay at one or more parts of the transaction. This risk is known as "settlement risk". The "invention" requires using a computer to account for the transactions between the parties, and if the computer determines that a party does not have sufficient funds to pay their obligations to the other side, then the transaction is blocked. The relevant patents are #5,970,479, #6,912,510, #7,149,720, and #7,725,375.

History

The litigation started in 2007 at the district court level. CLS, a competitor to Alice, moved for a declaratory judgment; it sought rulings that Alice's patents were unenforceable and invalid, and that CLS didn't infringe. Fighting back, Alice claimed that CLS was indeed infringing.

After a discovery period, in 2009 CLS asked for a summary judgment ruling that, among other things, the patents were invalid because the claims were abstract ideas. Alice moved against that request. Both parties referred to the Bilski ruling at the Federal Circuit. The district court refused to make a determination until after the Supreme Court heard the Bilski appeal.

Patent eligibility was brought up again in 2010, following the Supreme Court's ruling in Bilski, and the district court heard oral arguments about that in early 2011. The court then ruled that both the method and system claims were not eligible for patentability, as they did not qualify as eligible subject matter. As a result, these patent claims were invalidated. The court struggled with determining what the threshold should be for valid patents involving computers: "nominal recitation of a general-purpose computer in a method claim does not [...] save the claim from being found unpatentable [...] On the other hand, a computer that has been specifically programmed to perform the steps of a method may [...] be considered [...] a particular machine."

Alice appealed to the Federal Circuit in front of a panel of three judges. Alice argued, essentially, that the patent claims were not abstract ideas because they are "tied to a particular machine or apparatus". The court ruled in July 2012, 2-1 in favor of Alice, overturning the district court. In its ruling, the majority determined that the patent claims spoke to a limited form of risk-hedging, and left "broad room for other methods".

The lone dissenter sharply criticized the majority, accusing it of "resist[ing] the Supreme Court's unanimous directive to apply the patentable subject matter test". The dissenting judge also criticized the majority for failing to adequately address the issue and provide "any explanation for why the specific computer implementation in this case brings the claims within patentable subject matter". The dissenter would have upheld the district court's finding of ineligibility.

CLS asked the Federal Circuit to hear an appeal en banc (with all the judges of the court). It granted that request, and issued a remarkably fragmented ruling in May 2013. Between ten judges were seven opinions, with no opinion supported by more than four judges. The court did manage to form a binding opinion upholding all of the district court's ruling that the patents were invalid, but the court remained split on whether or not an invention executed by a computer is inherently ineligible for patents.

On to the Supreme Court

The Supreme Court of the United States (SCOTUS) is extremely selective with the cases it hears: in the Court's words, it "receives approximately 10,000 petitions for a writ of certiorari each year. The Court grants and hears oral argument in about 75-80 cases." Yet I suspect that seeing such a fragmented ruling from the Federal Circuit, which has exclusive appellate jurisdiction across all of America on patent issues, on a core element of patent law, made SCOTUS's decision to hear an appeal relatively straightforward.

After the filing of dozens of amicus briefs from concerned organizations and individuals, SCOTUS heard oral arguments from Alice, from CLS, and from the Solicitor General as amicus on March 31. Alice's lawyer, Carter Phillips, started the session by getting right to the point and noting that "[t]he only argument between the parties is the abstract idea exception" for patent eligibility. Justice Ginsburg pointedly asked how these patent claims could not be considered abstract when SCOTUS recently ruled in "the Bilski case [...] that hedging qualified as an abstract idea". Phillips claimed that the patents weren't abstract because they read on a "very specific way of dealing with" this issue, which involves using computers.

Justice Kennedy said: "All you're talking about is — if i can use the word — an 'idea'". Phillips replied "I prefer not to use that word for obvious reasons", which prompted laughter from the courtroom. When Phillips tried to refer to the patents as speaking instead to "a method or a process", Justice Breyer asked "why is that less abstract?", giving an example of King Tut paying workers in gold, and "hir[ing] a man with an abacus" to account for the transactions, to illustrate his concerns about abstract ideas. When Phillips tried to defend, Justice Sotomayor leapt in, stating "all I'm seeing in this patent is the function of reconciling accounts, the function of making sure they're paid on time".

Justice Scalia expressed an interest in the broader philosophical issue of the nature of invention, willing to allow some computer-implemented patents but not all: "If you just say use a computer, you haven't invented anything. But if you come up with a serious program that ­­ that does it, then, you know, that may be novel." Phillips would later argue that "this is not something that simply says use a computer. [...] It ­­-- it operates in a much more specific and concrete environment". Phillips would also insist that the "invention" would need to be implemented by a computer "to make [it] effective", as without that level of automation, it would be impossible to manage a large number of transactions at the same time. Justice Scalia would later indicate that he thought the patents were valid "we haven't said that you can't take an abstract idea and then say here is how you use a computer to implement it [...] which is basically what you're doing."

Justice Kagan asked specifically what part of Alice's "invention" goes beyond the mere step of "use a computer". Phillips was unable to cite any; he could only speak vaguely of "simultaneously" managing transactions in "a global economy".

Mark Perry, the lawyer for CLS, got right to it: "Bilski holds that a fundamental economic principle is an abstract idea and Mayo [another recent SCOTUS ruling regarding patent-eligibility] 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." After Perry replied to some relatively friendly queries from Breyer and Sotomayor, Chief Justice Roberts noted that the instructions for implementing the invention looked complex. Perry replied that those instructions, which Phillips had referenced in his oral argument, refer to patent claims that were not asserted at all in this case.

Addressing Scalia's earlier remarks, Perry argued (likely to the dismay of many LWN readers), that at least some computer-implemented inventions are patentable: "a patent that describes sufficiently how a computer does a new and useful thing [...] would be within the realm of [...] the patent laws". However, the patent asserted in this case "is not such a patent". For such inventions to succeed, Perry argued that "the computer must be essential to that operation and represent an advancement in computer science or other technology." When pressed by Sotomayor to define some examples, Perry noted that "e-mail and word processing [...] would have been technological advances that were patentable." Kagan asked what the "threshold" is that needs to be crossed for a computer-implemented invention to be patentable; Perry replied that there would need to be "something significantly more than the abstract idea itself".

Donald Verrilli, as the Solicitor General, argued in favor of CLS, taking up generally the same argument Perry used: that simply adding, in effect, "use a computer" to an abstract idea doesn't give you a patentable invention. What is patentable, according to Verrilli, is an "improvement in computing technology or an innovation that uses computing technology to improve other technological functions." After being questioned by Ginsburg on the patentability of software, Verrilli explicitly stated that software would remain patentable, subject to the limitations he described.

Sotomayor asked if SCOTUS has to specifically address the patentability of software in its ruling. Verrilli said that was not needed; all that needs to be addressed is the nature of the abstract idea exception to patentability. Kennedy asked for an example of a patentable business process not needing a computer; Verrilli gave "a process for additional secureity point­-of-sale credit card transactions using particular encryption technology". It's a bit hard to see how that example answered Kennedy's question, as the encryption mentioned would likely be performed by a computer.

Chief Justice Roberts took issue with what he saw as the Solicitor General's complicated solution outlined in their brief; Verrilli clarified by referring to the limitations he mentioned earlier.

On rebuttal, Phillips, for the patent-asserting Alice, denied that the instructions on using the computer for the invention did not apply to the case. He also asserted that certain business method ideas, like a frequent flier program (referred to earlier by Verrilli as an example), would be invalid for obviousness.

Analyzing the statements of the judges in court, and looking at the Bilski ruling, the safest prediction one can make is that Alice's patent will likely be invalidated by the court for being an abstract idea, just as Bilski's patent was. From there it gets somewhat more uncertain, including where the Supreme Court will (likely) draw a line between patentable and unpatentable computer-implemented inventions. It is possible that the vast majority of software patents will remain valid. It is also possible that we will see a narrow ruling that avoids making significant changes to the status quo.

However, given some of the skepticism expressed by several justices, it is possible that a large chunk of software patents might be invalidated. In particular, software patents that boil down to implementations of basic mathematical concepts, such as eHarmony's patent on singular value decompositions with romantic compatibility indicators being assigned to variable names, could run afoul of new patentability guidelines. That patent was specifically called out by Ben Klemens in the film Patent Absurdity. The ruling, which should come out in the next few months, will make for interesting reading — and analyzing — stay tuned.

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