Feb. 8 (Bloomberg) -- A U.S. appeals court specializing in patent law grappled today with questions about when computer programs should be eligible for legal protection in a case that’s divided the judges and the software industry.
Ten judges at the U.S. Court of Appeals for the Federal Circuit in Washington heard arguments about how to distinguish software innovations from programs that computerize unpatentable ideas, seeking what Circuit Judge Pauline Newman called “the point where one moves from the abstract to the concrete.”
Google Inc., Facebook Inc. and JPMorgan Chase & Co. are among companies that say patent standards for software are too lax and lead to expensive litigation. Stricter rules about what types of software can be patented could make it cheaper and quicker to weed out lawsuits over patents that cover the use of a computer to implement a concept.
The broad use of computer software in every industry has generated interest and debate about the case, with Internet retailers and financial institutions generally seeking tighter standards. Technology companies are divided, depending on the nature of their businesses.
“An idea can be done entirely by the human mind or with a pen and paper,” Mark Perry, a lawyer with Gibson Dunn in Washington, told the court. Perry represents CLS Bank International, which is appealing a ruling that it must face a lawsuit over software patents. It’s not enough, he said, “to take an abstract idea while adding the word computer to it.”
Based on their questions and their past rulings, the judges seemed divided, said Brad Wright, a patent lawyer with Banner & Witcoff in Washington who attended the hearing.
“The court appears fractured and a split decision is likely,” Wright said.
The patents in the Federal Circuit case concern a computerized method for using an intermediary to make sure buyers and sellers meet their obligations in stock and currency trading. CLS, which settles about $4.5 billion of foreign-exchange transactions daily, was accused of infringement in 2007 by patent owner Alice Corp., a Melbourne-based company jointly owned by National Australia Bank Ltd. and Alice Ventures Pty.
Wright said a decision probably won’t be released for several months, predicting at least some aspects of the Alice patents probably will be upheld.
A federal judge in Washington ruled in 2011 that the idea of using a third party to settle trades isn’t eligible for a patent, and computerizing the notion didn’t make it patentable.
In a 2-1 decision in July, the appeals court reversed that decision, ruling Alice’s suit should proceed because the patents cover “practical applications of the invention.” Today’s arguments were before all nine active judges plus Circuit Judge Richard Linn, who wrote the original opinion and is now a senior judge.
“We’ve not claimed the idea of reducing risk” in the patent, said Alice’s lawyer, Adam Perlman of Williams & Connolly in Washington. “We’ve patented a specific method of doing it.”
Circuit judges Timothy Dyk and Jimmie Reyna questioned whether Alice incorporated use of a computer into a standard way of doing business.
“A human being could do these steps, even if more inefficiently,” Dyk said.
Circuit Judge Kimberly Moore said the claims of the Alice patents cover specific systems and physical components needed to implement the system.
“This is so far from just a computer doing an abstract idea,” Moore said.
The U.S. Patent and Trademark Office said the court should set up a flexible test that looks at whether the computer is added to the description of an idea to obtain a patent.
“At what step does the hardware or computer become an inseparable part of the whole?” said PTO lawyer Nathan Kelly. “If the computer system is just there to make the idea patentable, that’s not enough.”
Critics say software patents too often reward those who try to cover any way of performing a computer function, instead of those who make the products after experimentation and research.
“I can have a great idea for a self-driving car,” Perry said. “But Google is spending billions of dollars on it and should get the patent. The person who wrote down the idea and brought it to the patent office shouldn’t.”
Google, along with a group that includes British Airways, Intuit Inc., Twitter Inc., Yelp Inc. and SAP AG, said the court’s July ruling may keep judges from quickly resolving cases about patents that shouldn’t have been issued under standards set in recent Supreme Court cases.
International Business Machines Corp., which has received the most U.S. patents for the past 20 years, and a lobbying group whose members include Microsoft Corp. and Apple Inc., said software needs legal protection because it contributes to the nation’s economy.
The case is CLS Bank v. Alice Corporation, 11-1301, U.S. Court of Appeals for the Federal Circuit (Washington). The lower-court case is CLS Bank International v. Alice Corp., 07cv974, U.S. District Court for the District of Columbia (Washington).
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