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Supreme Court could limit software patents in Alice case

Grant Gross | April 3, 2014
A case before the U.S. Supreme Court earlier this week could have a huge impact on business-method and software patents, with some experts concerned that the court could put significant limits on what can be patented.

The Alice court fight involves four electronic-trading patents owned by Australian company Alice and developer Ian Shepherd. Lawyers for CLS Bank, a huge financial clearinghouse that facilitates more than US$5 trillion in transactions each day, argue the patents cover a computerized version of the centuries-old concept of escrow, while lawyers for Alice say the patented processes are much more complicated.

Shepherd, in an email, noted that four of the company's patents have been reviewed and granted by the U.S. Patent and Trademark Office on four separate occasions. Shepherd developed the processes in the early '90s, while CLS began operating in 2002, so "it's not that we're quibbling over a timing difference of just a year or so," he said.

The case also touches on a hot debate about the U.S. patent system, beyond the issue of what ideas are too obvious to be patented. CLS lawyer Mark Perry has called Alice a nonpracticing entity [NPE] — commonly called a patent troll by critics. Many tech companies are currently pushing U.S. lawmakers to crack down on abusive lawsuits filed by companies that don't make products, but use patent infringement lawsuits as their primary business model.

"Alice has never built a computer system capable of settling transactions according to the claimed method, has never written instructions to program any computer to perform the method, and has never practiced any of the asserted claims," Perry wrote in a brief for the Supreme Court.

Shepherd disputed Perry's assertions, but said the lawsuit has limited the company's ability to commercialize his patents. "Unlike CLS, we're a very small entity and lack the resources to 'promote' our position in any way," he said by email.

Alice invested about $15 million to build a computer system to implement Shepherd's shadow records process in the 1990s, he added, but the company wasn't able to complete the project.

"We built more than those steps/operations reflected in the claims at issue in our litigation," he said. "Having built a working system to about 95 percent completion, the 2000 tech crash happened (unfortunately) and, as a consequence of this, we postponed completing the development of our system and bringing it to market."

In 2001, Alice "become aware" that CLS Bank likely infringed one of the company's patents, he said. The company approached CLS about licensing, and the bank filed its lawsuit against Alice in 2007.

Alice has "commercialization aspirations if only we had the personnel and [money] to do this — something that's currently very challenging given this litigation," Shepherd said. "I would like to think that these company characteristics don't qualify Alice being judged to be a nasty NPE/patent troll."

During Supreme Court oral arguments Monday, several of the justices seemed to look for a way to more clearly define what types of business methods and software are patentable, but it's not clear what those rules might look like. Some justices, including John Roberts and Stephen Breyer, seemed to voice frustration that attorneys for Alice, CLS and the U.S. Department of Justice didn't provide clear, simple rules for deciding what computerized business methods are patentable — although the DOJ proposed a multiple-step test.


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