John van der Luit-Drummond

The US Supreme Court is to take a look at the patentability of software after agreeing to consider CLS Bank v Alice Corp. However, any abolitionists expecting the court to hand down a decision effectively rendering software-related inventions unpatentable may be disappointed.

In May 2007, CLS Bank sought a declaratory judgment that it was not infringing Alice Corp’s patents that cover a system for settling financial transactions between two parties. Alice Corp subsequently sued CLS Bank for infringement but the district court found the patents were invalid. An appeal to the US Court of Appeals for the Federal Circuit, which heard the case en banc, resulted in what the IP Watchdog blog labelled a “nightmare” decision. Just five of the 10-member panel agreed with the lower court, with the other five disagreeing to various extents. In her dissent Pauline Newman stated: "There has never been a case which could do more damage to the patent system than this one."  With such wide disparity of opinion there was an increased likelihood CLS would arrive on the doorstep of the Supreme Court, so it was no surprise when the justices took it on.

But just because the court is hearing the case does not mean that we should expect a far-reaching judgment. Decisions in patent cases handed down by the Supreme Court have often been narrower and more fact specific than industry changing. Neel Chatterjee, partner at Orrick, Herrington and Sutcliffe LLP, expects the same in this case. “This will not likely be the death of all software patents,” he told IAM.  “The Supreme Court has struggled to decide when something is patentable and when it is not. So far they have refused to commit to any set of guiding principles. I think this case will lead to a little more guidance on what the lower courts should consider is patentable, but I don’t think you are going to find any broad pronouncements. Though we are probably going to see an army of amicus briefs from stakeholders suggesting what the rules should be.”

Matthew Moore, partner at Latham & Watkins, says that while it is hard to predict what the court will decide, the eventual outcome is unlikely to be widely applicable, but could spell the end for certain types of right. “I don’t think CLS is going to decide whether or not all software is patentable,” he said. “I think the court will be resistant to invalidating all software patents, but they may look to draw a bright line between allowing software patents and not allowing business method and financial service patents.”

Such views support what Finnegan partner, Erika Arner, previously told IAM when commenting on CLS v Alice back in February: “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. 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.”

The US software industry is huge and while some have stated that patents have held it back, the evidence for this is scant to say the least. What we do know is that VC investments in the industry are booming and that there are more big-hitting American software companies than from any other country in the world; many of them have made it clear time and again just how important they believe patents are to their success. Of course, there are others that take the opposite view, but they too have prospered within the system that currently exists. It is possible that the Supreme Court may take a look at this case and issue a surprise decision that renders the patents created on the back of billions of dollars of investments made by US businesses large and small worthless; but it might be wise not to bet too much on that actually happening.