Patentability of Computer Software – Upheaval in US Courts

The patentability of computer software is a hot topic in Australian courts at the moment. However, we aren’t alone in struggling with this controversial issue. On 10 May 2013, the United States Federal Circuit issued an en banc decision in CLS Bank International v Alice Corporation Pty Ltd that rendered the claims of four ‘software patents’ invalid, for not defining any patentable subject matter. However, the court was heavily divided – the 10 judges were split 7:3 on the patentability of the “method” and “computer readable medium” claims, and 5:5 on the patentability of “computer system” claims. One of the judges stated, in her dissenting judgement, that “this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents,” and “there has never been a case which could do more damage to the patent system than this one.” Hyperbole? Maybe, but it will be a while before that is clear.

The Patents

The patents in suit, owned by the Australian company Alice Corporation Pty Ltd, related to the management of “settlement” risk in financial transactions – the risk that one party to a transaction will perform its obligations, whereas the other party won’t, thereby leaving the paying party at a significant disadvantage. Alice’s patents used a trusted third party to avoid this potential disadvantage. The claims were categorised into three groups:

  • ‘Method claims’, reciting various methods for managing and exchanging obligations and/or financial data.
  • ‘Computer readable medium claims’, which essentially covered computer storage media (such as disks or other computer storage devices) having computer programs stored on them, which could perform the above methods; and
  • ‘Computer system claims’, which claimed computer systems having various (conventional) hardware components, configured to perform the above methods.

The Decision

The method claims did not specifically recite the use of a computer, but both parties agreed that these claims did require a computer implementation. Nonetheless, despite significant dissent, a majority of the court found that this computer involvement was not enough to save the method claims – they were all found to essentially still be directed to ‘abstract ideas’. The inclusion of a computer was held to be generic and no more than “insignificant post-solution activity”. Therefore, these method claims were held not to cover patentable subject matter. Similar reasoning was applied to the computer readable medium claims, with a similar split in the court.

The computer system claims proved an even more difficult matter – the court was evenly split as to their patentability. One half found that “merely adding existing computer technology to abstract ideas – mental steps – does not as a matter of substance convert an abstract idea into a machine.” They warned “clever claim drafting” could not turn an essentially abstract idea into patentable subject matter.

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The other half of the court held that it was nonsensical to consider that a claim directed to a “computer system” could ever be a mere abstract idea – Chief Judge Rader stated that to label these claims as an abstract idea “wrenches all meaning from those words.”

Appeal to come?

The decision starts out by stating, “What is needed is a consistent, cohesive, and accessible approach to the § 101 analysis—a framework that will provide guidance and predictability for patent applicants and examiners, litigants, and the courts”. On that ground, with no fewer than seven separate opinions, the decision was an abject failure– so much so that Chief Judge Rader (generally considered a pro-patent judge) was sufficiently disheartened to insert a separate, melancholic reflection on the state of US patent law. If ever a case was primed to go on appeal to the Supreme Court, this one is!

In the meantime, in Australia, we wait on our own decisions on this issue, with Research Affiliates v Commissioner of Patents, Dynamite Games v Aruze Gaming Australia, and RPL Central v Myall Australia all at various stages of appeal in our court system. There are certainly interesting times ahead in the patent world, for computer-implemented inventions.