The U.S. Supreme Court will attempt to answer a question that has perplexed the technology industry for decades: When is a piece of software patentable?
On Friday, the high court agreed to hear an appeal of a case that has tied lower courts in knots. A May ruling in the case from a federal appeals court in Washington, D.C., yielded seven opinions, totaling more than 120 pages, and no clear answer to whether – and when – computer code should get patent protection.
The issue has created a curious split in the technology sector. On one side lie technology giants such as Google Inc., Facebook Inc.FB +3.27%, and Intuit Inc.INTU +1.40%, which largely believe the Patent & Trademark Office has issued too many software patents in recent years, and would like to see courts apply a more exacting standard when reviewing them.
On the other, lies a collection of big and small technology companies, includingInternational Business Machines Corp.IBM +0.96%, which worry that tighter standards on software patents could hurt innovation.
“This is the biggest patent case we’ve seen in years for the technology sector, and probably the biggest one we’ll see for the next decade,” said Matthew Moore, a patent lawyer at Latham & Watkins LLP in Washington, D.C., who is not involved in the case.
“Whether software is patentable is a hugely important issue that companies are craving some clarity on.”
The case concerns a computer program that helps foreign-exchange buyers and sellers settle their trades.
In 2007, CLS Bank International sued Alice Corp, an Australian company partly owned byNational Australia Bank Ltd.NAB.AU -1.96%, asking a court to invalidate several Alice patents on the idea.
CLS, which sells services to buyers and sellers on the foreign-exchange markets, argued that Alice’s patents described a process – using an intermediary to settle trades—that has been around for too long. In the parlance of patent law, the fundamental idea behind the software is too “abstract” to patent, CLS’s lawyers argued.
But Alice countered that the patents did more than just bring an old idea into the computer age.
The patents “require the use of a computer to serve as an electronic intermediary in a particular way—one of myriad ways in which two parties might exchange obligations using a computer as an electronic intermediary,” wrote Alice’s lawyers at Williams & Connolly LLP in a court filing from earlier in the year.
The “computer in all of Alice’s claims is far more than a ‘token’ addition . . . and the claims are not directed to abstract ideas.”
While players in the software industry are split on the precise amount of scrutiny a court should apply to a software patents, they agree that the area needs certainty.
The lack of clear rules can make it hard for a company developing a product, for instance, to know whether to it needs to license a patent from a competitor – or challenge it in court. The uncertainty has helped lead to a big jump in expensive and time-consuming patent court battles, they say.
But drafting clear rules on when software should be patentable isn’t going to be easy for the justices, say legal experts.
“You basically have a ‘you-know-an-innovation-when-you-see-it’ standard,” said Ed Reines, a patent lawyer at Weil, Gotshal & Manges in Silicon Valley. “Articulating a test that divides what’s patentable and what isn’t is extremely difficult.”