The US Supreme Court will on Monday hear oral arguments in a landmark patent infringement case that could restrict the types of software and computer programs that are eligible for patent protection.
The case, between Alice Corp of Australia and CLS Bank of the UK, could send shockwaves through the technology and patent communities should the court drastically tighten eligibility standards or determine that software is too abstract for patent protection.
Alice, which holds a series of patents on computerised currency trading systems, alleges that CLS wrongfully infringed the patents by developing an electronic escrow program to reduce the settlement risk in foreign exchange transactions.
CLS, however, asserts that Alice’s patents are too vague and therefore invalid and unenforceable. The Federal Circuit Court, which hears patent appeals, agreed with CLS in 2012 that Alice’s patents were invalid, but was unable to agree on what grounds, prompting the Supreme Court to take the case.
The Supreme Court will now attempt to issue eligibility guidelines in a manner that balances concerns from tech companies which claim that excessive patent litigation is stifling innovation, with warnings from patent advocates that an overly broad ruling could have unintended consequences for a vital sector of the US economy.
“We think the patent in this case should not have been issued, and we hope the court finds it invalid,” said Victoria Espinel, chief executive of the Business Software Alliance. “We need the court to take the opportunity to provide clear guidance.”
The court has issued similar guidance in recent years on other types of abstract patentable subjects, including genes, business methods and medical diagnostic tests.
Many in the tech industry claim that overly vague patents are often acquired and wielded in infringement lawsuits brought by “troll” entities that hold patents primarily for licensing and assertion purposes. A higher standard for software patent eligibility would lead to fewer bad patents being issued and fewer resources being consumed in defensive litigation.
“I think the software industry comes out better in the end with a more robust test,” said Ching-Lee Fukuda, a partner with Ropes & Gray who has represented large tech companies in patent disputes.
But Robert Stoll, a former US Commissioner of Patents now with the law firm Drinker Biddle in Washington, argues that the court must recognise the importance of software to job creation and growth in the US economy. “We have to be very careful with how we tweak [software patentability] because this is where we are doing great things,” he said.
Mr Stoll and other patent system advocates contend that broad eligibility standards should be maintained and that patents should instead be evaluated on other required conditions such as obviousness, utility and novelty.
They also call for more resources to be devoted to the US Patent and Trademark Office for evaluating patent applications. The agency has been accused of lowering its standards to cope with a massive backlog.
“If we spent more time upfront examining, then there would not be as many improvidently issued patents,” said Mr Stoll.
The House passed its own patent reform bill last December, while President Barack Obama signed a series of executive orders last month to address troll litigation.
Get alerts on Business Software Alliance when a new story is published