On June 19, 2014, the U.S. Supreme Court unanimously decided a closely watched software patentability case, Alice Corp. Pty. Ltd. v. CLS Bank International. While many believed Alice held some potential to address widespread confusion over the types of software that can be patented—and therefore had the potential to make a dent in the proliferation of litigation in this space—the Court instead leaned on reasoning and legal rules established in prior decisions in holding that patents Alice Corp. had asserted against CLS were invalid for claiming non-patentable subject matter. Specifically, the patent claims were found to be invalid because they were drawn to an abstract idea, and “merely requiring generic computer implementation failed to transform that abstract idea into a patent-eligible invention.” In other words, if the claim was a pre-existing idea, simply implementing software in a “purely conventional way” is insufficient to make it patentable. To be patentable, an inventive concept is necessary, something “significantly more than an instruction to apply the abstract idea.”
While the Supreme Court did provide us with additional guidance in how to determine a patentable software invention versus a non-patentable abstract idea, Alice gave us no real new law and no real new test that might provide clear and distinct standards regarding the patentability of computer-implemented inventions.
So where does Alice leave us?
First, we expect the decision to prompt a flurry of motions as litigants seek further clarity from the lower courts regarding their interpretation of the Supreme Court's decision, including the definition of an “abstract idea,” whether there is an “inventive concept,” how to quantify the term “significantly more,” whether it improves “the functioning of the computer itself,” and what it means to “effect an improvement in any other technology or field.”
Second, Alice is unlikely to dampen non-practicing entity (NPE) activity, given that the ruling did not drastically change the status quo. The mood among NPE investors immediately following Alice appears to support this sentiment. At RPX, our ongoing study of the NPE industry is core to our efforts of bringing transparency and predictability to the patent marketplace. In this instance, we looked at the trading performance of several sets of public NPEs as an indicator of their reaction to the outcome of Alice. Software-focused NPEs were down just 1.2 percent from the previous day's close, according to our analysis. Performance held generally steady throughout the following week—a result we take to indicate that Alice failed to raise any new concern among investors.
The outcome of Alice underscores that, while the courts may be inching toward greater clarity and definition in patent law, such reform will continue to move incrementally. Alice closed out a Supreme Court term that included six patent cases (a high watermark for the Court since 1982, when the Federal Circuit became the sole appeals venue for patent disputes). The relative importance and impact of these decisions varies; in one matter, for example (Nautilus), the result was a nudge toward a more sound interpretation of the “definiteness requirement”—in another (Limelight), the Court clarified that inducement does not cover divided infringement. Octane Fitness and Highmark provided greater rein for federal district courts in fee disputes.
The Court's focus is heartening. But even a steady pace of judicial progress demands that we continue to work outside the halls of justice to speed practical change to the patent market, as we’ve always believed that the courts are just one part of the equation. Efforts aimed at transparency, the use of data to accurately valuate patents and assertions and the development of risk-sharing tools can play a more powerful role in moving the ecosystem from rabbit hole to rational.