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King Tut’s Accountant and the Supreme Court Oral Argument Over Software as Patent-Eligible.

By Stephen B. Schott

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On Monday, the Supreme Court heard oral argumentin Alice Corporation Pty. Ltd. v. CLS Bank International. For those hoping that the Supreme Court would declare that software patents are invalid, the argument will not provide comfort: The Justices expressed support for software patents and asked the litigants to define the patentable area that exists between purely abstract business methods and software. The answer to this question is what most people expect the Supreme Court to shed light on when it issues its opinion.

Background

The Alice appeal focuses on a specific question:

Whether claims to computer-implemented inventions—including claims to systems and machines, processes, and items of manufacture—are directed to patent-eligible subject matter within the meaning of 35 USC Section 101 as interpreted by this Court?

The Section 101 law in question relates to patentable subject matter:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

That simple statute and the “useful process, machine” standard is what the Supreme Court will use in its review of US Patent 7,725,375 claim 1, one of the claims at issue:

1. A data processing system to enable the exchange of an obligation between parties, the system comprising:

a first party device,

a data storage unit having stored therein

(a) information about a first account for a first party, independent from a second account maintained by a first exchange institution, and

(b) information about a third account for a second party, independent from a fourth account maintained by a second exchange institution;

and a computer, coupled to said data storage unit, that is configured to

(a) receive a transaction from said first party device;

(b) electronically adjust said first account and said third account in order to effect an exchange obligation arising from said transaction between said first party and said second party after ensuring that said first party and/or said second party have adequate value in said first account and/or said third account, respectively; and

(c) generate an instruction to said first exchange institution and/or said second exchange institution to adjust said second account and/or said fourth account in accordance with the adjustment of said first account and/or said third account, wherein said instruction being an irrevocable, time invariant obligation placed on said first exchange institution and/or said second exchange institution.

When considering whether software is patentable, the Supreme Court will give the above lettered steps that relate to software the most scrutiny.

King Tut’s Accountant Hints at Patentability of Software

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Early in the oral argument, Justice Breyer introduced a hypothetical that resurfaced several times.

[I]magine King Tut sitting in front of the pyramid where all his gold is stored, and he has the habit of giving chits away. Good for the gold, which is given at the end of the day. And he hires a man with an abacus, and when the abacus keeping track sees that he’s given away more gold than he is in storage, he says, stop…So what is it here that’s less abstract that the computer says, stop?

Justice Breyer was simplifying the claim above that relates to intermediate settlement but his question goes to the heart of the issue: Does programming a set of method steps, in his example steps related to accounting, make software patentable? The patent owner never got a chance to respond but Justice Scalia answered the question and indicated an interest in protecting software patents.

Why isn’t … doing it through a computer not enough? I mean, was the cotton gin not an invention because… you’re doing through a machine what people used to do by hand?

Scalia’s point is a salient one: Computer software is a tool—the fact that it’s a tool that you can’t hold in your hand does not make it any less of a tool than the cotton gin.

Justice Roberts added a hypothetical that supported Scalia’s premise.

[W]hat if you can do it without a computer, but it’s going to take… 20 people a hundred years? In other words, theoretically, you can replicate what the computer does ­­but it’s impractical without looking to do it on the computer?

From this, it seems that Roberts also sees the value of the software as a useful—and that’s the key word in the subject matter statute—tool.

Scalia added more support for software as patent-eligible later in the oral argument when he summarized the patent law on abstract ideas.

By the way, ­we have said that you can’t take an abstract idea and then say use a computer to implement it. But we haven’t said that you can’t take an abstract idea and then say here is how you use a computer to implement it.

And it’s with this second sentence that Scalia hints at where the Court may be headed: Specifying how to implement method steps related to an abstract idea within software may be patentable.

Both parties and even the US Solicitor General agreed that some aspect of software is patent-eligible subject matter. The patent owner suggested the broadest approach—one that preserved the patents-in-suit, but even the other parties proposed tests that would permit software patents. The Solicitor General’s proposal was in his first moments of argument, a clear sign that the administration supports software patents.

A computer makes a difference under Section 101 when it imposes a meaningful limit on the patent claim. That occurs when the claim is directed at improvement in computing technology or an innovation that uses computing technology to improve other technological functions. That’s the test that we believe is most faithful to this Court’s precedents…. It keeps patents within their traditional and appropriate domain and it is capable of being administered consistently by courts and by PTO examiners.

At another point when discussing whether encryption technology would be patentable subject matter, the Solicitor General stated that it “might well be patent eligible. It’s a technology that makes conduct of business more efficient or effective.”

The Bogeymen and Other Distractions

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No discussion of the patentability of software would be complete without some discussion about whether earlier ideas were patentable subject matter and how that might have affected the world. Justice Kagan and Solicitor General Verrilli raised two common specters in the patentable subject matter discussion.

Justice Kagan: Let’s say… 30 years [ago] somebody took a look around the world and said, a lot of people seem to order products by mail. They get the catalogues in the mail and then they send back their return forms. And let’s say that one of the founders of the Internet said, wouldn’t this be an amazing system, we could actually do this by computer, and they had patented that.

General Verrilli: And the concern in a situation like this one is that if this is patent eligible, it’s hard to see why, for example, the first person who came up with a frequent flier program wouldn’t have been able to claim a patent there, because, after all, that’s a business method for improving customer loyalty implemented on a computer.

They give these two examples to make people imagine a “what if” world where someone got patents that protected those inventions. There are a few problems with these examples, however. First, exchanging miles flown for free tickets itself would be a pure business method and not patent eligible. Second, since these are hypotheticals, they come without detailed claims, so the scope of any patent monopoly is highly speculative. Third, people often design around patents and create new innovations and that’s often highlighted as a feature, not a disadvantage, of the patent system. For example, the iPhone has many patents for its touchscreen but it’s hardly the only touchscreen phone on the market. Finally, both examples imply a criticism that software-based solutions to existing problems are not new and should not be patentable.

It’s on this final point, whether merely performing a previously known act on a computer is new or novel, that the Court and parties spent considerable time during the argument. But as Justice Scalia and the patent owner’s attorney pointed out, those novelty questions must be answered under a different statute, that is, whether something is new (or non-obvious) is an inquiry under 35 USC Sections 102 and 103 and not relevant to the question of whether something is patentable subject matter. (Justice Ginsberg correctly pointed out that there is overlap between Sections 101 related to patentable subject matter and 102 related to novelty, as has arisen in earlier opinions like In re Bilski, but not enough to merit the time spent on it in oral argument.)

Reading the Tea Leaves

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Predicting what the Supreme Court will decide based on oral argument is a fool’s wager. But it’s clear that the Court is grappling with where to draw the line between purely abstract ideas, business methods, and software. And in showing how they are struggling with that, they seem to tip their hand that they will not uniformly strike down software as patent ineligible. Where I suspect they will land is somewhere along the lines of recognizing software as patent eligible where it solves a technological problem, and cautioning future litigants that the real problem with software patents lies in whether they are new or non-obvious.

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