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Patent Court Torn on Whether Software Deserve Patents

Google Inc., Facebook Inc. and JPMorgan Chase & Co. are among the companies that argued that patent standards for software are too lax. Photographer: Peter Foley/Bloomberg
Google Inc., Facebook Inc. and JPMorgan Chase & Co. are among the companies that argued that patent standards for software are too lax. Photographer: Peter Foley/Bloomberg

May 10 (Bloomberg) -- The nation’s top patent court issued a deeply divided opinion today on how to determine if software is eligible for legal protection, reflecting the broader debate that has split the computer industry.

The U.S. Court of Appeals for the Federal Circuit in Washington, which handles all patent appeals, issued a 135-page decision by 10 circuit judges that included five viewpoints and “additional reflections” from Chief Judge Randall Rader.

“We have propounded at least three incompatible standards, devoid of consensus, serving simply to add to the unreliability and cost of the system of patents as an incentive for innovation,” Circuit Judge Pauline Newman wrote.

Google Inc., Facebook Inc. and JPMorgan Chase & Co. are among the companies that argued that patent standards for software are too lax. A group whose members include software makers Microsoft Corp. and Oracle Corp. warned the appeals court that limiting protection for software could hurt the nation’s economy.

The case centered on patents owned by Melbourne-based Alice Corp. over ways to minimize risk in certain computerized-trading platforms. The court ruled CLS Bank International won’t have to face patent-infringement claims by Alice, which is owned by National Australia Bank Ltd. and Alice Ventures Pty.

A majority of the 10 judges said aspects of Alice’s patents covering a method of performing the idea weren’t eligible for protection, while the court was evenly split regarding systems to implement that idea. Five of the judges said they would send all or part of the case back to the trial judge for further review.

Help Cry

The U.S. Supreme Court also has struggled to determine what types of innovations qualify for patent protection. In 2010, the court issued a 5-4 decision on patents for methods of conducting business, and last year limited patents for diagnostic medical tests. With such a fractured ruling on software, the issue probably is headed to the high court again.

A petition “could simply attach the decision with a one word argument -- ‘Help!’ -- and have a good chance for Supreme Court review and guidance,” said David Long, a patent lawyer with Dow Lohnes in Washington.

Circuit Judge Alan Lourie, writing for five of the judges, said courts should consider “whether steps combined with a natural law or abstract idea are so insignificant, conventional, or routine as to yield a claim that effectively covers the natural law or abstract idea itself.”

Circuit Judge Kimberly Moore, writing for four judges, said the decision by Lourie would cause “a free fall in the patent system.”

Non-Precedent Precedent

“Let’s be clear: if all of these claims, including the system claims, are not patent-eligible, 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,” Moore wrote.

Judge Richard Linn, in another opinion, said companies concerned that there is a proliferation of software patents should turn to Congress.

Although the court issued the full ruling as a precedential opinion, Rader said the decisions were so split that “nothing said today beyond our judgment has the weight of precedent.”

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).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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