Jack Ellis

Oral arguments were heard en banc by the US Court of Appeals for the Federal Circuit last week in CLS Bank v Alice Corp, a case which could have a major impact on the prosecution and enforcement of patents relating to computer-implemented inventions. While patent owners should keep close watch, software patent critics’ hopes for a significant limitation on the patentability of certain types of computer-related innovation are unlikely to be met.

Legal proceedings began in May 2007 when CLS Bank sought a declaratory judgment that it was not infringing on a number of Alice Corp’s patents and that the patents were invalid. Alice Corp subsequently sued CLS Bank for infringement. The patents in question cover a system for settling financial transactions between two parties and reducing the risk that one of the parties would not fulfil their obligations.

Erika Arner – a partner at Finnegan who represented the petitioners before the Supreme Court in Bilski v Kappos, another pivotal patent eligibility case – reports that there was a sharp divide among the Federal Circuit judges after hearing arguments from the parties last week. “There did not seem to be a consensus view on the proper way to evaluate computer-related inventions for patent eligibility under the Patent Act,” she says. “They seemed to be on both sides of the issue and though it is very hard to predict with any accuracy, I think we can expect a divided decision from the court.” The Federal Circuit is likely to take at least 4 months to hand down its judgment, though Arner cautions that the complexity of the case means it could be the end of the year before a decision is reached.

In recent years, the Supreme Court has heard two key cases involving patentable subject matter.  While Mayo v Prometheus related to diagnostic methods in the life sciences field and Bilski concerned business methods, the Supreme Court has yet to hear a patentability case regarding inventions involving software – and this could become the first. “This case has a better chance of going to the Supreme Court than many others, particularly if the Federal Circuit’s decision shows a real divide in opinion among the judges,” Arner suggests. “Computer implemented inventions are such a major area of innovation for the US economy today, so it wouldn’t be surprising if the Supreme Court decided to take this on.”

Leading high-tech companies are watching the case closely and several – including IBM, Philips, Google and others – have filed amicus briefs outlining their opinions on the potential impact of the outcome of the decision. “There are a wide variety of views from the software industry,” says Arner. “There are many that really feel that patents have no place in computer software, while there are also many companies that have decided to protect their computer-related inventions with patents and see great value in software patents.”

However, Arner thinks that it is highly unlikely that the Federal Circuit – or the Supreme Court, should the case get that far – will hand down a decision that would effectively render software-related inventions unpatentable. “The Supreme Court has said many times that Section 101 of the Patent Act - which spells out what can be patented – is supposed to be very broad,” she explains. “This flexibility is intended to cover technologies that haven’t even been dreamt of yet – and to try to clamp down on it in a way that would carve out the supposed bad patents while still leaving open the possibility of patenting inventions we don’t even know about yet is almost impossible to do.”

Nevertheless, she does warn that the outcome of CLS Bank v Alice Corp could potentially have a wide-ranging impact on businesses. “If the court really shifts the law with a radical decision, companies which have been granted patents on software in the past may encounter problems as they try to enforce those patents in the future,” she says.