And The Software Patent Saga Continues

(Originally Published in Los Angeles Daily Journal (4/03/2014))

On Monday, the Supreme Court heard oral argument in CLS Bank International v. Alice Corp., No. 13298, a case that could decide the extent to which software can be patented. The court reviewed the case after an en banc panel of the U.S. Court of Appeals for the Federal Circuit delivered seven diverging views, with no single opinion commanding a majority.

The district court in CLS Bank invalidated Alice Corporation’s software patent, which described an escrow system that banks can use to track accounts of two parties who have agreed to carry out a transaction. The software checks both parties’ accounts to make sure they have the funds or other value they are supposed to exchange at the agreed upon time. The Supreme Court must now decide whether such software can be patented.

The Supreme Court decided a similar case only four years ago. In Bilski v. Kappos, 130 S. Ct. 3218, 3255 (2010), the court invalidated a computerized method for hedging commodities risk under 35 U.S.C. Section 101. But the Bilski court rejected a chorus of requests from the software community to announce clear rules on when software can be patented. It held instead that the patent at issue in Bilski fit within the judicially created exception to Section 101 because it claimed “an abstract idea” – namely the idea of hedging risk.

The problem for courts ever since has been how to know whether a patent impermissibly claims an “abstract idea.” Judge Kimberly Moore wrote in her CLS Bank opinion that the patent system is in a “free fall” because of overly broad applications of recent Supreme Court precedent. She noted that unlike the claims in Bilski, many of the claims inCLS Bank require concrete hardware and processor components to carry out the invention. Striking down all of these claims as too “abstract,” she warned, means “the death of hundreds of thousands of patents, including all business method, financial system, and software patents.”

Moore’s concerns are shared by some companies, including software giant IBM, but not by the majority in the software community, or by the Obama administration. Solicitor General Donald Verrilli argued Monday that the Supreme Court should, in fact, hold all “business method” patents ineligible for patenting. This view was shared by Google Inc., which urged the court in an amicus brief to “instruct the Federal Circuit that, because this court’s Section 101 precedents mean what they say, computer-related patents do not deserve a free pass from Section 101’s important screening function.” Counsel for CLS Bank, Mark Perry, echoed this strident tone, arguing that the judges of the Federal Circuit had engaged in “intransigence, difficulty, refusal to adhere to what are clear precedents” that make abstract ideas ineligible for patenting.

But the justices were more sympathetic to the Federal Circuit. Justice Ruth Bader Ginsburg disagreed with the suggestion that this should have been an “easy case” for the Federal Circuit based on existing Supreme Court precedent.

The feeling that the court must provide greater clarity was shared by Justice Stephen Breyer, who had penned the Supreme Court’s recent decision in Mayo Collaborative Services v. Prometheus Laboratories, 132 S. Ct. 1289 (2012). He confessed, “I couldn’t figure out much in Prometheus to go beyond what I thought was an obvious case, leaving it up to you and your colleagues to figure out how to go further.” Prometheus held that a company could not patent its discovery of a “basic principle” under Section 101 without adding “significantly more” to the discovery. The “basic principle” at issue in Prometheus was the relationship between how much a drug had metabolized in a patient’s blood stream and its therapeutic effectiveness. The Supreme Court invalidated the Prometheus patent because it merely instructed doctors to apply that basic principle using “routine, conventional” steps of drug administration and taking blood tests. Prometheus thus instructed courts to disregard “conventional” steps of a patent claim in deciding whether it impermissibly tries to cover a basic principle. By analogy, CLS Bank argued, the Federal Circuit should have disregarded Alice’s conventional use of a computer in patenting the basic principle of providing banks a two-way escrow service.

Breyer agreed with this approach and looked past the conventional, computerized aspects of Alice’s invention. During oral argument, Breyer pressed Alice’s counsel, Carter Phillips, to explain why his client’s escrow system was any different than the method Breyer’s own mother had used to keep tabs on her son’s spending habits. He explained, “my mother, who used to look at my checkbook, when she saw that, in fact, I had written more checks than I had in the account, she would grab it [and say] Stop….So what is it here that’s less abstract that the computer says, stop?” When Phillips complained that Breyer’s analogies were a “caricature” of his client’s patent claims, Breyer agreed. “It’s a caricature designed to suggest that there is an abstract idea here. It’s called solvency.” Breyer said that he is concerned that allowing companies to patent abstract ideas simply because they are implemented by a computer could eventually force competition based on “who has the best patent lawyer,” not who has the best product.

Justice Elena Kagan sounded a similar concern, wondering whether “the founders of the Internet” could have patented the idea of offering a mail-order catalog service through the Internet.

Still, Breyer and the other justices were mindful of the risk that their decision could have far-reaching and undesirable consequences. As Breyer put it, he did not want to “rule out real inventions with computers.” Perry argued that a decision in favor of CLS Bank would not do that. Truly worthy patents, he argued, would still be patentable because they offer a “technological solution” to a business problem.

But Justice Sonia Sotomayor was not convinced. She asked whether exempting “technological solutions” would allow patents on systems using email and word processing. Perry conceded that it would not because email and word processing are now conventional, though “at a point in time in the past” they would have been “technological.”

This approach did not persuade Justice Antonin Scalia, who asked, “was the cotton gin not an invention because … you’re doing through a machine what people used to do by hand?” The question of whether a computer is now so commonplace that an idea implemented by computer shouldn’t be patented, Scalia argued, isn’t about subject matter eligibility under Section 101. It concerns “novelty” of an invention under 35 U.S.C. Sections 102 and 103.

Searching for a way to provide clarity, Ginsburg asked the solicitor general how he would define “an abstract concept.” Verrilli’s definition was circular. An abstract claim, he said, is one “that is not directed to a concrete innovation in technology, science or the industrial arts [s]o … it’s abstract in the sense that it’s not a concrete innovation in the traditional realm of patent law.” As Chief Justice John Roberts noted, the solicitor general’s position actually requires considering a long, non-exhaustive list of factors, which Roberts dryly noted would not “bring about greater clarity and certainty.”

In the end, the Supreme Court may well decide to issue an incremental decision in CLS Bank. Sotomayor favored this approach as she challenged the solicitor general to explain why the court needs to announce any “general rule with respect to software.” Verrilli conceded that no general rule needs to be announced. The court could decide the case narrowly and simply invalidate the Alice escrow patent as too “abstract,” just as it invalidated the hedging patent in Bilski. Verrilli noted, however, that a narrow decision would fail to provide any clearer standards to apply in this area than prior decisions. That may be. But the Supreme Court may prefer to tread carefully and avoid stating a general rule on the fate of all software patents.