Supreme Court’s Latest Patent Decision Reins-in Federal Circuit, Again


Today, the Supreme Court issued its latest  9-0 opinion, once again reining in the Federal Circuit’s consistently overbroad interpretations of patent law. The ruling, in Alice v. CLS Bank, deals with the question of what can and cannot be patented. Put simply, the Court held that unpatentable “abstract ideas” do not miraculously become patentable when they are merely tied to general purpose computers or generic hardware. Our patent laws already do not allow the government to issue patents on laws of nature, natural phemonen, and these so-called abstract ideas because we do not want to grant monopolies on things that belong to everyone. This concept is incredibly important because it deals directly with whether or not software is an unpatentable “abstract idea”. Is software an abstract mathematical algorithm? Or is it more?

Traditionally, software was always unpatentable. But that changed in the mid-1990s when the Federal Circuit issued a string of rulings allowing for software patents. In this 20-year experiment, we’ve seen serious abuses of the patent system, starting with poor quality patents, leading directly to the patent troll problem. Armed with these low-quality software patents, trolls have been able to wage a war on small businesses and individuals, costing our economy billions of dollars a year.

Despite this, the Federal Circuit (the appellate court that has jurisdiction of all patent cases), has been unwilling and unable to fix the quality problem with software patents. Which brings us to today’s ruling. Alice v. CLS Bank involved patents covering a computer system that helps with closing financial transactions by avoiding settlement risk (the risk that comes with any financial transaction if one party cannot uphold its end of the bargain). During the case’s tortured history, the Federal Circuit upheld those patents, and then later invalidated them. The last Federal Circuit opinion was 135 pages long, and the judges could only agree on 55 words.

So the Supreme Court took the case (along with five other patent cases this term -- an unprecedented number), and today, all nine justices invalidated the patents. Invalidating them wasn’t a surprise -- these patents were of particularly poor quality -- but the Court did make some important statements about patents and abstract ideas that should reign in the worst software patents.

First, it unequivocally stated that if you have an idea so abstract that it cannot be patented, simply tying it to a “generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention."

Second, it stated that tying an abstract idea to “purely functional and generic” hardware similarly will not make the idea patentable.

This legalese is important. Most of the worst software patents do exactly what the Court said they can’t: present a general idea (e.g., hedging risk, one-click shopping, etc.) and say, because this idea is done on a computer, or a generic piece of hardware, it is not just an idea anymore. As computers play an ever-growing part in our everyday lives, you can understand the flaws in this logic. Today, the Supreme Court stopped it in its tracks.

Now, it’s true that the Court didn’t comment directly on “software” patents. But it did say that if you’re going to patent a software invention, it must be tied to something more specific than a general purpose computer or a generic piece of hardware. You can’t just run a generic piece of software on a general purpose computer and then stop everyone else in the world from doing the same for 20 years. Because, as we said at the outset, these types of ideas belong to everyone. They are fundamental building blocks of today’s technology, and society benefits when everyone can use them.

So we applaud the Court’s decision today, along with five others this term, for reminding the Federal Circuit Court that owning a patent monopoly is not an inherent right. Instead, patent law must be a delicate balance between granting patent owners limited and worthy monopolies, while leaving the rest of us with a vibrant public domain of ideas and technology on which to build.