Software patents

I only heard about this case recently, via my fab lecturer, Erik Dean. I don't know how I missed it at the time.

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. 

Certainly, if you’re a smaller publisher, the likelihood of receiving a demand letter is lower, but if codec licensing goes through Patel’s “inflection point,” it’s going to affect a broad swath. After Apple lost and paid Nokia $2 billion, how many companies of any size would opt to challenge Nokia in court?

What to do? Clearly, you can’t assume that what’s happened in the past will keep happening in the future. In this regard, my initial article provided bad advice.

You should keep your ear to the ground and pay attention to any patent-related lawsuits or agreements. Now might be a good time to consult with a patent attorney to identify your risk and formulate mitigation strategies.

As stated in Patel’s article:

"Whether you’re a patent owner, a product/service provider or an IP services company, the acceleration of video licensing will affect your business. The companies that best prepare for this transition are most likely to avoid significant liabilities and capture a significant share of the value that will flow into the video IP marketplace. The video epoch is entering a new phase. Are you prepared?"