The Supreme Court largely chose to uphold the status quo in the world of software patents today with a unanimous ruling in the case of Alice Corp. v. CLS Bank.

The court upheld the most recent ruling on the case from the U.S Court of Appeals for the Federal Circuit, invalidating patents held by Alice relating to using a computer to manage an intermediated settlement.

“We hold that the claims at issue are drawn to the abstract idea of intermediated settlement, and that merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention,” Justice Clarence Thomas wrote.

The decision is based on precedent set in previous patent cases, including Bilski v. Kappos and Mayo v. Prometheus, which provide a framework for figuring out whether an idea is patentable. In each case, the court ruled that companies can’t patent abstract ideas, and it held to that conviction with this ruling.

“Stating an abstract idea while adding the words ‘apply it with a computer’ simply combines those two steps, with the same deficient result,” Thomas wrote.

That’s good news for a lot of tech companies, and bad news for patent trolls and other companies that are using similar patents to extract licensing fees from firms that create software applications touching on similarly abstract ideas.

Aside from that, today’s ruling hasn’t changed much for companies that hold software patents. The court didn’t choose to invalidate all software patents, and declined to put in place new procedural rules that would make it easier for companies to defend against patent infringement allegations, something that some tech companies advocated for in briefs submitted to the court.

If there’s one thing that’s clear from today’s ruling, the question of software patent legality won’t be resolved quickly or easily. Justice Sonia Sotomayor was joined by Stephen Breyer and Ruth Bader Ginsburg in a concurring opinion that agreed with much of Thomas’s argument, but argued that business method patents, including software patents, were invalid.

What’s more, the ruling leaves open the possibility for future litigation based on the Supreme Court’s wording. All software is based on taking an abstract idea and applying it with a computer. Microsoft won a judgment against Motorola Mobility last year based on a patent it holds for synchronizing a calendar.

It’s unclear yet if keeping a calendar synchronized in multiple places will fall under the Supreme Court’s definition of an abstract idea, but that certainly seems like a possibility.

Update: Microsoft welcomed the decision today, saying the following in a statement emailed to GeekWire.

“Microsoft is pleased that the Court has confirmed existing law that abstract ideas are not eligible for patent protection, and distinguished the Alice patent from software inventions. Software powers nearly every inventive device, service and product in our world today, and providing patent protection for software-enabled technologies is critical to incentivizing innovation in every industry and sector of the economy.­”

David Kappos, the former U.S. Under Secretary of Commerce for Intellectual Property, similarly commended the court for the pat it took in its ruling today.

“Today’s decision affirms software’s critical role in modern innovation and the need for patent protection,” he said in a statement emailed to GeekWire. “Software innovations are powering the latest technologies in every industry, including IBM, Ford, GE, DuPont and others, creating American jobs and driving our economy. This decision helps maintain a positive climate for technology innovation in the United States.”

The full text of the opinion is embedded below.

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  • JustAnEntrepreneur

    Your analysis could not be more ignorant of what is good for startups.

    What is good for startups is that they can protect their ideas and return value to their investors. Patents (including “software patents” and “business method patents”) are one avenue for that. Please don’t equate what is ‘good for startups’ is also ‘bad for trolls’. Trolls, while distasteful to some, serve a very useful mechanism to return value to investors by building a market for a failed or even a successful startup’s IP.

    What is ‘bad for trolls’ is *always bad for startups* (but good for large, entrenched, companies).

    • Guest

      Your comment is ridiculous. I’ve yet to see a troll patent case, and I’ve been involved in several, that were based on a legitimate, implementable patent. In fact the exact opposite is always the case. I’ve never seen “investors” being represented either. It is always the same situation: a troll buys the patent (which should have never been granted in the first place), extends an idea to new technology for which the original never contemplated in the first place, files suit in East Texas, and then demands a licensing fee. The patents need to be vague and broad so it would require a lengthy court case. This is what forces companies into the “license or defend” mode and its called extortion.
      Real infringement suits are brought by actual inventors and companies who are being harmed and almost never involve a license fee because the purpose of their patent is to protect their idea while they attempt to build a business i.e. a start up.
      The purpose of a patent is to protect ideas so actual businesses can be built. Patents were never intended to be bought by legal firms who have no intention of building anything for the sole purpose of being used to extort money from companies that actually are building products.

      • JustAnEntrepreneur

        Some startups create patents, which are assets to the company/investors. Those assets create value for the investors through the secondary market.

        Having a place to sell patent assets is one way investors can be made whole, even if the business fails for whatever host of reasons it may. The secondary market are people who monetize ideas through licensing and lawsuits.

        I’m sure you realize that the *only* interests represented in the discussions about “patent reform” are big companies (who hate paying inventors and hate being sued). The voice of the inventors, especially independent inventors and startups, is not heard.

        • Mike

          You just described why we the tech industry has been unstable over the past two decades. UP DOWN UP DOWN UP DOWN. Relying on the second market to save your investment is dead proof of a failed investment. If that’s your plan, you failed investing 101.

        • Guest

          That’s BS. The value of a patent is ZERO until someone raises money, creates a product, gets it into the market, and starts commercializing it. Until then it is virtually worthless. The patent is the easy part, the hard part is the rest of it.

  • Roy Leban

    I agree with JustAnEntrepreneur. This part “That’s good news for a lot of tech companies, and bad news for patent trolls and other companies that are using similar patents to extract licensing fees from firms that create software applications touching on similarly abstract ideas.” is just plain ridiculous. There is a huge range of tech companies and there are many different definitions of what a patent troll is, and this ruling is neither good nor bad for any large group.

    In my experience, the problem is not what is and isn’t patentable. The problem is that the patent office can’t afford to hire better examiners, nor do examiners have enough time to spend on a patent. This results in examiners not understanding what is obvious and what isn’t. Valid claims are dismissed as obvious while ridiculously obvious things like “with a computer” or “for one or more” are considered to be non-obvious and granted. They also have a problem distinguishing between concepts and concrete design & implementation. Fix this and everything else will be less of an issue.

  • Dave

    Roy and JustAnEntreprenuer’s views are well out of line with most software companies and software investors I know. Among the software investors, Brad Feld and others have done a great job of articulating their views.

    Business method/abstract patents make no sense. They patent an idea, often an idea that has been around for centuries that is moving to electronic means–like the Alice case. Unlike other technology patents, you don’t patent specific code to do something, you patent a concept. In most other technology patent areas, this would be insane. In biotech, you don’t patent curing cancer. You patent a particular set of molecules combined in a certain way to cure cancer or a particular cancer. Same with semiconductors, you patent a particular semiconductor, or the way to make it, or whatever.

    Software patents of concepts benefit trolls primarily. Second they benefit really big companies with the resources to enforce their patents. But even the big companies have been getting tired of the huge expense and distraction for increasingly global patent disputes. Most patent disputes I’ve seen have $1-10 million annual price tags, even for modest size litigation. So smaller companies settle for licenses or simply do not go into a patent heavy spaces.

    Small companies do not have the resources to enforce a patent portfolio as a general rule. Investors don’t want to fund patent litigation for their VC portfolio companies, they want to fund growth.

    Removing business method patents from software would help, not hinder, enforcement. If you are an investor that is trying to recover from a startup based on the value of a software patent porftolio, you have already lost the vast bulk of your investment.

    • Dave

      Typo…Removing business method patents from software would help, not hinder, innovation [Rather than enforcement]. If you are an investor that is trying to recover from a startup based on the value of a software patent porftolio, you have already lost the vast bulk of your investment.

    • Roy Leban

      Dave, it’s clear you agree with me: “They patent an idea, often an idea that has been around for centuries that is moving to electronic means–like the Alice case.” This is crazy, and it’s caused by a patent office that doesn’t have the expertise to understand what is and isn’t patentable.

      The other point is that you can’t make a general rule about startups or software companies. Some startups aggressive about patents, some rely on trade secret protection, and some do nothing. While you are certainly welcome to your view, and you make good points, the idea that your view is the only one — or even the dominant one — is simply wrong.

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