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Supreme Court Wary of Missteps in Closely Watched Software Patent Case

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The Supreme Court faces the challenge of protecting innovation in the software industry while balancing the needs of the rest of the economy to do business without the threat of baseless patent lawsuits, reports the New York Times in the case of Alice Corporation (Alice) v. CLS Bank International (CLS). 

Alice’s patent appeal success appears in doubt. During oral arguments in March, most justices appeared skeptical of the validity of their software patent, a computerized escrow mechanism that helps ensure each side of a transaction does what it promises to do, according to The Times.

Court faces a balancing act

Despite these misgivings, and given how important the software industry is to the economy, the court also appeared to be reluctant to decide general legal issues such as broad limits on software patent prosecution. The court’s task, Justice Stephen G. Breyer is quoted by The Times as saying, was “to go between Scylla and Charybdis,” a classical reference to having to choose between two evils.

Justice Breyer said innovation should not be stifled by overly broad patent protection. “There is a risk,” he said, that “instead of having competition on price, service and better production methods, we (will) have competition on who has the best patent lawyer…And if you go the other way and say never [allow software patents],” he went on, “then what you do is you rule out real inventions with computers.”

Also hanging over the case is the specter of “patent trolls,” entities whose patent portfolio management is focused on generating income by suing those who arguably violate their patent rights. Many of these disputed patents cover vague concepts and potential defendants often settle these claims because it is less expensive than litigating them.

The patents at issue were challenged by CLS. It says it clears $5 trillion in foreign exchange transactions a day using methods to ensure that both sides performed. It claims Alice’s patents only recite the fundamental economic concept of intermediated settlement of escrow. According to The Times, several justices appeared to agree.

Court may narrow the issues to come up with a decision

The court is considering only the threshold question of whether Alice’s ideas are eligible to be patented. The laws of nature, natural phenomena and abstract ideas would not qualify. If the court agrees with the corporation, the patents could face challenges for obviousness, lack of novelty or indefiniteness.

The trial court invalidated the Alice’s patents, stating they recited abstract concepts. That decision was effectively affirmed by the United States Court of Appeals for the Federal Circuit in a split decision with no less than seven opinions, none of which received a majority.

The Justices seemed likely to rule for the bank, according to The Times. Like in so many past cases, the court may rule for CLS, but on narrow grounds that may only apply to this particular case, avoiding the Scylla and Charybdis of broad legal issues both sides present.

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