June 19, 2014 | By Daniel Nazer and Vera Ranieri

Bad Day for Bad Patents: Supreme Court Unanimously Strikes Down Abstract Software Patent

In a long-awaited decision, the Supreme Court issued its opinion in Alice Corp. v. CLS Bank today, striking down an abstract software patent. Essentially, the Court ruled that adding “on a computer” to an abstract idea does not make it patentable. Many thousands of software patents—particularly the vague and overbroad patents so beloved by patent trolls—should be struck down under this standard. Because the opinion leaves many details to be worked out (such as the scope of an “abstract idea”), it might be a few years until we understand its full impact.

Alice Corp.'s patent claimed a form of escrowing that was well known. Called an “intermediated settlement,” it allowed a third party to act as an intermediary by creating “shadow accounts” for parties, and only allowing transactions to go through if the “shadow account” showed the party had enough money. Oh—and it was done with a computer.

The Alice case has a long history in the courts. The case was originally filed in 2007.  In 2011, the district court held that all the patent's claims were invalid as abstract. In 2012, a divided panel at the Federal Circuit reversed. In 2013, the full Federal Circuit vacated the panel opinion and again found the claims too abstract in a decision that had 10 judges produce 7 different opinions. And now, in 2014, the Supreme Court has finally ended it: Alice’s claims are invalid.

In a concise 17-page opinion, the Supreme Court recognized that Alice claimed the abstract concept of “intermediated settlement,” something the Supreme Court recognized was “a fundamental economic practice long prevalent in our system of commerce.” Having done this, the Supreme Court reaffirmed that merely adding “a generic computer to perform generic computer functions” does not make an otherwise abstract idea patentable. This statement (and the opinion itself) makes clear that an abstract idea along with a computer doing what a computer normally does is not something our patent system was designed to protect.

Admittedly, the Supreme Court did not offer the clearest guidance on when a patent claims merely an abstract idea, but it did offer guidance that should help to invalidate some of the more egregious software patents out there. To take a typical example, a patent troll called DietGoal, armed with a stupid patent on “computerized” meal planning, sued a bunch of websites simply for providing online recipes or menus. Patents should never reach this kind of conventional use of computers and the Internet. Today’s Alice decision provides a tool for courts to throw these cases out.

We will work to ensure the Federal Circuit—the court that hears all patent appeals—diligently applies the new filter on patentability. Under the leadership of recently retired Chief Judge Rader, the lower appeals court has at times appeared reluctant to apply Supreme Court authority. (Today’s decision is affirmation for the five Federal Circuit judges who would have rejected all of Alice’s claims.) We will also urge trial courts to apply the new standard early in litigation. Defendants need cost-effective ways to defeat meritless cases quickly; otherwise, trolls will be able to use the threat of ruinous litigation expenses to extract settlements. Many battles remain to be fought, but today’s ruling is a big step in the right direction.

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