Supreme Court: 'Abstract' ideas cannot be patented

On Thursday the U.S. Supreme Court said software companies may not claim patent protection for abstract ideas transcribed into computer code. The court struck down software patents owned by Alice Corp., an Australian-based licensing company, for software algorithms used to govern global financial transactions.

Justice Clarence Thomas, writing for the court in the 9-0 decision, said Alice’s software was simply a computerized version of a risk management scheme. “[M]erely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention,” he said.

The decision in the case, Alice Corp v. CLS Bank, will have implications for software companies looking to patent new products: They’ll need to ensure their software truly represents a new, applied “invention,” as required by patent law.

Technology companies closely watched the case, and Google, Microsoft, Dell, and Hewlett-Packard sided with CLS Bank. They are concerned companies that merely file patents and collect license fees (instead of manufacturing their own products) are stifling innovation in the technology sector.

Alice Corp. charges licensing fees for use of its financial transaction software, and had argued that the banking conglomerate CLS Bank International, by using a similar system, violated its patents. CLS Bank handles transactions worth $5 trillion a day using software algorithms that clear deals and block transactions exceeding certain risk rules. But the Supreme Court said Thursday the basis for Alice’s patent claims—use of an intermediary system to govern transactions—was an abstract idea ineligible for protection.

Proponents of broad patents say they encourage innovation. But critics say they promote lawsuits from “patent trolls,” businesses that buy multiple patents then search for corporations that might be unwittingly infringing on them.

The San Francisco-based Electronic Frontier Foundation applauded the decision. “Many of the worst patents (especially vague software patents in the hands of patent trolls) apply abstract ideas on generic computers,” said staff attorney Daniel Nazer by email. “These patents should now be found invalid.” He added it may take several years to understand the full impact of Thursday’s ruling and to work out legal details such as the scope of an “abstract idea.” (Nazer holds the organization’s “Mark Cuban Chair to Eliminate Stupid Patents.”)

The ruling upholds that of a lower court, and is in line with the Supreme Court’s reluctance in recent years to grant broad patent protections. In 2012, the high court ruled against patents for medical tests it said used “well-understand, routine, conventional” methods for determining proper drug dosage. And last year the court struck down gene patents, ruling a “naturally occurring DNA segment is a product of nature and not patent eligible.”