Software patent case to get U.S. Supreme Court hearing

The U.S. Supreme Court agrees to hear a case that will decide whether software can be patented, a huge case that would have monumental impact on intellectual property laws.

Case involves financial software from Alice Corporation Pty and CLS Bank International

U.S. Supreme Court will hear a case that will set a precedent on whether software can be patented. (Ken Cedeno/Associated Press) (Associated Press)

The top court in the U.S. has agreed to hear a case that will decide whether software can be patented, a huge case that would have monumental impact on intellectual property laws.

A landmark case has made it all the way to the U.S. Supreme Court, with the Washington body saying in a one-line order on Friday it has agreed to hear the case of Alice Corporation Pty, a tiny software maker that's attempting to patent a particular type of software that processes financial transactions in the derivatives market.

Simplified, Alice's patent states that a certain type of transaction needs to be processed in an escrow account — a third party, outside of the two sides in any deal, which holds the funds while the transaction is made.

Alice's business was created in part to set up that escrow account. But another company, CLS Bank International, is challenging the validity of that patent.

Landmark case

Under U.S. law, concepts such as abstract ideas, laws of nature and other natural phenomena cannot be patented. 

"You can't patent mathematical formulas and other abstract ideas," says Daniel Nazer, staff attorney at the Electronic Frontier Foundation. "The idea of using an escrow agent in a financial transaction is an abstract idea but Alice's patent says 'do it on a computer' without a lot of the legwork being done," Nazer says.

The EFF isn't opposed to all patents on software, but the group hopes the court can provide some clarity on some of the ambiguity of a lot of the language in them. Nazer says copyright law is usually a better place for disputes about software, not patents. "Copyright law has longer terms so it's superfluous to have patents as well," he said.

"With patents, if you independently develop something similar to someone else's idea without having seen it, you're infringing. But in copyright, you are in the clear if you do it yourself," Nazer says.

New Zealand has already banned patents for software, and in Europe, software creators must demonstrate that their program "actually makes a contribution in a technical field" in order to qualify for a patent.

Many interested parties

The Supreme Court won't hear a similar case involving two other companies, WildTangent Inc, and Ultramercial Inc., but agreed to hear the Alice case.

The deep interest that the software industry and patent experts have in what is a threshold issue in patent litigation was underscored by the number of companies and industry groups that asked the court to decide the issue.

Companies including Google Inc Hewlett-Packard Co, Facebook Inc and Netflix Inc had already signaled their interest in the issue by asking the court to hear the WildTangent case. Many also filed briefs in lower courts.

Many in the industry want clarity in the law in large part because the U.S. Court of Appeals for the Federal Circuit, which has primary responsibility for interpreting patent law, has struggled to adopt a test that judges can use to review software patent claims, with various judges reaching different conclusions.

The court is likely to hear oral arguments in March and issue a ruling by the end of June.

With files from Associated Press


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