If you're an inventor, you may wonder at what point an idea becomes so abstract, it can no longer be patented as an innovation. And in the modern world, where computers assist in just about every task, does patentability extend to work products that software helps to create?
Those questions might sound a little academic, but they're loaded with implications for entrepreneurs. Plus, they were at the center of a patent case being argued before the Supreme Court Monday. The case, Alice Corp. v. CLS Bank International, is likely to redefine how patentable your ideas are in the future, particularly if your business develops new technology.
"What the Supreme Court has to deal with now is the question of whether implementing an idea on computers is even eligible for consideration of a patent," says Robert W. Unikel, partner at Kaye Scholer and a specialist in intellectual property.
The case is particularly important as the number of patents granted each year climbs, particularly for tech-related inventions. In 2013, the U.S. Patent and Trademark Office issued more than 300,000 patents, an increase of nearly 75 percent compared to 2000. The USPTO grants about 40,000 software patents annually, according to research from New York University.
In the late 1990s, Alice Corp., based in Australia, patented a software process that essentially computerized how funds in a financial transaction are guaranteed through an escrow account. It sued CLS Bank, based in England, which uses a similar process, though of its own invention, for the many foreign exchange transactions it conducts. (About half of all patents issued by the USPTO in a given year originate from foreign countries.)
On appeal at the U.S. Court of Appeals for the Federal Circuit, which hears patent cases before they head to the Supreme Court, the case basically stumped the justices, who issued six different opinions in July, 2012, Unikel says.
In examining the Alice case, the Supreme Court justices will likely rely on two earlier high court rulings made within the past two years. One, called Bilski v. Kappos, examined whether business methods can be patented, and the high court ruled that not all business processes can be. In the second case, called Mayo vs. Prometheus, the Supreme Court looked at the patentability of a drug diagnostic test, and ruled that its methods for determining the proper balance of medication for treatment were not patentable, in essence because they were naturally occurring.
The Supreme Court, which will rule on the case by the end of June, is likely to have some difficulties with the Alice case. The justices will want to provide clarity, but at the same time they will want to avoid making a decision that can cripple technology innovation.
"The Supreme Court will be wary of a bright line rule that says this category of things is or is not patentable," Unikel says.
Arguments presented by Alice and CLS Bank lasted about an hour, says George Beck, a partner specializing in intellectual property at Foley & Lardner in Washington, D.C., who attended the hearing on Monday morning. Despite the highly technical nature of the arguments, Beck says the courtroom was full, and there was a long line of observers waiting to enter.
"From their questions today, it seemed like the justices are trying to be very mindful of having a sweeping test that would implicate the hundreds of thousands of patents that could be characterized as software-related," Beck says.
The Alice Corp. case, in combination with two other patent cases that the justices will decide by the end of term this summer, are likely to redefine significant parts of patent law, legal experts say. While Alice will set guidelines for what types of inventions can be patented, Octane Fitness v. Icon Health & Fitness and Highmark Inc. v. Allcare Health Management Systems, Inc. will redefine who pays for court costs in so-called patent troll cases, the number of which have skyrocketed in recent years, and how much leeway federal appeals courts have in hearing patent decisions from district courts.
"The court will try to articulate a clearer standard, and we'll get a guidepost about the factual situation and people can analogize from this," Beck says.