The U.S. Supreme Court could wipe out a whole swath of software and business-method patents if justices invalidate four electronic-trading patents, an attorney for patent-owner Alice said.
Reviewing an appeals court ruling invalidating electronic marketplace Alice’s patents related to a computerized trading platform for currencies, the Supreme Court could, “in one fell swoop” invalidate hundreds of thousands of patents, Carter Phillips, representing Alice, told justices Monday.
Attorneys for CLS Bank, a company that sued Alice to challenge the patents back in 2007, and the U.S. Department of Justice disagreed with Phillips, saying this patent challenge relates specifically to an abstract idea running over a computer. The Supreme Court agreed to take the case after a split U.S. Court of Appeals for the Federal Circuit ruled in May 2013 that an abstract idea is not patentable simply because it is tied to a computer system.
A simple idea, with much at stake
The Alice patents cover the simple idea of reconciling accounts at the end of a trading day, or operating a hedge fund, but other software patents bringing new functionality could still be patentable, said Mark Perry, representing CLS Bank.
Judges and patent examiners will have to use judgment to decide what software can be patented, despite the fractured the Federal Circuit wanting firm guidance, Perry said. “It isn’t going to be a bright-line rule,” he said. “This isn’t the death of software patents.”
A small percentage of software patents wind up in court, he added. This case, Perry said, is about a group of controversial patents that should have never been issued.
Phillips defended the Alice patents, saying they describe a complex set of instructions used to operate an international trading platform, including shadow accounts used to reconcile trades. The patents cover a “specific way of dealing with a problem,” he said.
Justices seemed skeptical of the patents, with Justice Stephen Breyer comparing the Alice process to a money-counter using an abacus in ancient Egypt or his mother taking away his checkbook when he ran out of money.
Skeptics among the high court
“What we have different here is the computer stops [trading] rather than the abacus man stopping,” Breyer said. “There is an abstract idea here. It’s called solvency.”
But Breyer also said he was struggling with how to rule because the court’s decision could have broad implications on some types of patents or on innovation.
Justice Anthony Kennedy suggested that a small group of engineers in Silicon Valley could write software covering the Alice processes over a weekend. Phillips agreed that may be possible, but suggested that didn’t diminish the uniqueness of the invention.
Chief Justice John Roberts countered that the Alice patents appear to describe a complex process, judging by a flow chart that accompanied the patent materials. “There are a lot of arrows … in different directions,” Roberts said.
Perry, echoing the Federal Circuit decision, suggested that if a person can complete a process with a pencil and paper, that process shouldn’t be patentable just because it is tied to a computer. But Roberts questioned that argument, suggesting that software can often make a process much simpler.
“What if you can do it without a computer but it’s going to take 20 people 100 years?” he said.
Some critics of software patents were encouraged by justices’ questions. Based on the questions, it appears likely that the court will invalidate the Alice patents, said Julie Samuels, executive director of Engine Advocacy, a trade group for tech startups.
“I’d be really surprised at the end of the day if these patents are left standing,” she said after the hearing.