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Could Alice Corp. v. CLS Bank Intl. Reduce Software Patents?

In last week’s post, we discussed a recent U.S. Supreme Court decision, Limelight v. Akamai Technologies, that could affect patent litigation. In this week’s post, we will discuss another significant Supreme Court decision regarding patent law. In Alice Corporation v. CLS Bank International, the U.S. Supreme considered whether patent claims for inventions that are implemented by computer are eligible subject matter for patents. The court held unanimously on June 19 that Alice Corporation’s patents were ineligible for patent protection because they were abstract ideas.

Alice Corporation held several patents for a method of mitigating the risk that only one party in a financial exchange would pay what it owes. The method used a computer system as a third-party intermediary to ensure that both parties meet their ends of a financial agreement. Its patents covered the method of exchanging financial obligations, the computer system that carries out the method, and the program code for performing the method.

CLS Bank and other respondents in the lawsuit operate a global network that assists with currency transactions. They sued Alice Corporation, arguing that the patents were invalid. Alice, in turn, filed a counterclaim for patent infringement. The District Court held that the claims were ineligible for patent protection and the Federal Circuit court affirmed. The Supreme Court then agreed to hear the case.

It held that Alice Corporation’s claims for patents were ineligible for protection because the intermediated settlements the method was designed to carry out is an abstract idea. The court wrote the method the corporation created “add[s] nothing of substance to the underlying abstract idea.” Patents that claim the “’building blocks’ of human ingenuity” are ineligible for patent protection, the court wrote.

Supreme Court analysts and watchers have said this decision raises more questions than it answers about software patents. A dissenting judge in a lower court opinion predicted that the decision would kill “hundreds of thousands of patents.” Others, including the authors of a piece in Mondaq, said that the patent and trademark office and courts must now determine what to do with the “vague tests” that the court laid out in the opinion. Ultimately, time will tell what effect this opinion has on software patents.

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