Supreme Court Narrowly Limits Business Method Software Patents

NEWS ANALYSIS: The decision that a company cannot patent business method software is not as groundbreaking as it may seem because the Supreme Court intentionally limited its application.

The U.S. Supreme Court's long-anticipated decision on an important software patent case turned out to be something less than many hoped, but it is still important.

The Supreme Court decided on June 19 that the patent for computer software designed to implement a settlement risk protection method was not patentable. As such, the case didn't strike down all software patents, nor did it eliminate business method patents.

However, the Supreme Court determined non-patentable methods didn't become patentable when they were turned into software. In this case, the Supreme Court found that the idea of protecting one's self from risk by using a third-party (for example, an escrow) was both an abstract idea and not a new idea. Patent law explicitly excludes patents for abstract ideas, and it excludes patenting things that existed before the patent was filed.

In this case (Alice Corp. v. CLS Bank), the bank was using a computerized escrow system to mitigate risk during money transfers. Alice Corp. sued the bank for infringement. The Supreme Court decided unanimously that the patent was not valid.

Justice Clarence Thomas was very clear in writing the court's opinion on the case. "We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention."

Three justices wrote concurring opinions, saying, in effect, that business process patents shouldn't be allowed at all.

But the justices made it clear that their decision did not mean that software couldn't be patented, nor that methods couldn't be patented.

"It's a good decision. It does positive things, but it's narrow," said Ed Black, president and CEO of the Computer and Communications Industry Association. The CCIA filed a brief in support of CLS Bank in this case. "It reaffirms some core principles but it doesn't reach out to expand with greater clarity some of the problems."

One major disappointment for many is that the Supreme Court did little to end the abuses of patent trolls, companies that hold patents for the primary purpose of suing alleged infringers. Many of the patents held by those companies are of poor quality, and in some cases, likely are already invalid.

While the decision may have invalidated some of the poor quality patents that the trolls are asserting, that's not likely to stop their extortion efforts. After all, the trolls depend on companies not wanting to challenge their patents because of the cost, not because of the quality of the patent. Right now, those costs are still very high.

Black said the June 19 decision will help curb some patent troll abuses if only because it will make fighting their patents easier.

Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...