As , partner with McCarthy Tétrault in the Toronto office and a Member of the IPOsgoode Advisory Board, , “Patent law is based upon the social and economic rationale of balancing encouraging innovation and the avoidance of monopolies which can stifle competition.” In general, these principles have been extended into the realm of software as a means of rewarding and protecting the fruits of the inventor's labour in the hopes of stimulating and fostering further advances and discoveries through public disclosure mechanisms. Patents, and software patents, are, therefore key elements of the contemporary economic system.

However, while software may be generally similar to other types of inventions, the nature of software industries and software itself make the application of existing patent laws somewhat problematic. Economist and former Non-Resident Fellow at the Brookings Institute argues, in , that there are three dissimilarities that must be recognized when dealing with software: 1) detailed descriptions of a software often constitute the program itself, making it hard to distinguish between ‘ideas’ and ‘implementation’; 2) software are pieces of mathematics, which courts agree are not patentable; and, 3) software is written and produced by vast categories of users and programmers, making restrictions to competition problematic (at pp. 4-5).

These three issues entail disproportionate levels of competitive and monopolistic advantage to whoever acquires a patent right first. For example, a patent holder is able to extract burdensome rents from a competitor who wishes to build off of the works of others or create interoperable technologies based on previously existing patented discoveries.

In the SCOTUS was tasked with determining whether the patents at issue in the case, held by Alice Corps', were eligible for patent protection or whether they were simply ‘abstract ideas’.

The case centered around a computerized process for limiting “settlement risk” during financial exchanges between two parties by employing a computer system as a third-party intermediary. This 'third-party' creates and tracks digital account ledgers that mirror the balances that the exchanging parties hold in their ‘real-world’ accounts in order to determine whether or not a given transaction can be processed and supported by the parties' assets. As states, "In sum, the patents in suit claim (1) the foregoing method for exchanging obligations (the method claims), (2) a computer system configured to carry out the method for exchanging obligations (the system claims), and (3) a computer-readable medium containing program code for performing the method of exchanging obligations (the media claims)".

In 2007, CLS Bank filed suit against Alice Corps in the hopes of obtaining a declaratory judgment that the patents at issue��were invalid and, therefore, not infringed by CLS Bank’s use of a similar business practice. Following a SCOTUS decision in 2010, (561 US 593), the parties filed cross-motions for summary judgments on whether the patents were eligible under the .

Section 101 of the Patent Act defines patents as eligible for: “whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title” (). However, since 1972, the SCOTUS has held that "abstract intellectual concepts are not patentable” (, 409 U. S. 63, 67). As recently as 2011, in , the Court has upheld this principle out of concern that “patent law not inhibit further discovery by improperly tying up the future use of laws of nature” (Mayo, 566 US 16).

Using the two-part test set out in Mayo, the Court found that “because petitioner’s system and media claims add nothing of substance to the underlying abstract idea, we hold that they too are patent ineligible under §101” (Alice Corp., 573 US 17). In the concurring statement Justice Sotomayor, joined with Justices Gisburg and Breyer, agreed that “any claim that merely describes a method of doing business does not qualify as a ‘process’ under §101’” (Alice Corp., 573 US 1). The Court found that “there is no meaningful distinction between the concept of risk hedging in Bilski and the concept of intermediated settlement at issue here. Both are squarely within the realm of ‘abstract ideas’ as we have used that term” (Alice Corp., 573 US 10).

The decision in is careful not to extend this principle too far, which would run the risk of making all software patents ineligible. The Court recognizes that “an invention is not rendered ineligible for patent simply because it involves an abstract concept” (Alice Corp., 573 US 6). Applications of abstract ideas that are “to a new and useful end” (Alice Corp., 573 US 6) remain eligible for patent protection.

The SCOTUS decision in this case represents another step in the evolution of American intellectual property laws, in commercial contexts, in adapting to new technological and social circumstances. The Court has not defined what types of software and business practices are eligible for patent protection. Instead, it has reaffirmed long-standing principles about what types are not: those that monopolize the building blocks of human knowledge and invention, such as abstract ideas, and prevent further innovation.

In doing so, the decision in is another precedent in favour of competitive markets and the avoidance of the deleterious affects of excessive rent-seeking by patent holders that make overly broad claims on the tools necessary for human development and innovative creations.

Joseph F. Turcotte is an IPilogue Editor, a PhD Candidate and SSHRC Doctoral Fellow in the Communication & Culture Program (Politics & Policy) at 91��ɫ, and a Nathanson Graduate Fellow at the Jack & Mae Nathanson Centre on Transnational Human Rights, Crime and Security at Osgoode Hall Law School.

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Are computer-implemented inventions patentable subject matter?��

This case between Alice Corporation Pty Ltd (Alice) and CLS Bank International (CLS) is one of many recent disputes stemming from the ambiguity of the patentability of software and business processes in the United States. (The IPilogue has previously covered a similar issue��in����.) The patents in question all involve a computerized system for processing financial transactions.��A particularly contested area��in the��dispute is the scope of patentable subject matter, and the various legal tests involving abstract ideas and inventive concepts in patent claims. The question poses is:

Whether claims to computer-implemented inventions – including claims to systems and machines, processes, and items of manufacture – are directed to patent-eligible subject matter within the meaning of 35 U.S.C. § 101 as interpreted by this Court.

Title 35 U.S.C. § 101 is a provision of that provides:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

Alice is essentially asking the court if computer implemented inventions are patentable subject matter as processes, machines and items of manufacture under US patent law. this appeal to the Supreme Court as inevitable after��the decision in the��appeal to the Federal Court��resulted in 6 separate decisions spanning��, all applying different legal analyses to the issue of patentability.

Who is interested?

This case has generated an extraordinary , including 11 briefs filed at the petition stage where the court decides if it will hear the appeal, and 41 briefs at the merits stage where the court makes a decision. In addition, the US Solicitor General was granted permission to participate in the oral arguments. The amount of interest is indicative both of the ambiguity in the current law, and the extent of the interests at stake.

Software and business process patents in general have garnered much attention recently, particularly in the US which is one of the most lucrative worldwide. Much of the debate over these kinds of patents stems from the overriding concept in patent law about the difference between implemented inventions and abstract ideas. All patent law systems share the common feature that abstract ideas and scientific principles cannot be patented. Only novel inventions that actually perform a real-world function are patentable. There are numerous areas where this distinction comes up, but it is most notable in software patents.

In many jurisdictions, including the US, pure software algorithms are . Written software code is protected by��copyright, but this only protects against verbatim reproduction. Copyright does not protect the underlying ideas, or against independent invention. As such, many software companies have looked for ways to patent software, thus expanding their monopoly beyond the literal code.

One way to achieve this is by incorporating the software or business process into a larger invention, which builds upon other patentable subject matter. This has lead to the "do it with a computer" argument, where patents granted for otherwise��ineligible��subject matter simply through the addition of an integrated device.

What is on the line?

Much has been written recently about the scope of patent protection, particularly in light of (NPE), some of which are pure innovation��companies, and others who obtain patent rights with the sole intent of enforcing them against infringing parties. These NPEs have been��criticized��by some industry members and�� [see 16:02-18:39] alike for��taxing��innovation, and abusing the patent system without adding any benefit. This��phenomenon��has been particularly pronounced in��software��patents, which are for being broad, ambiguous, or obvious.

Conversely, many industries are increasingly deriving and from their business processes and software algorithms. As industry increasingly shifts to a knowledge economy, businesses have more incentive to pursue monopolies through intellectual property law for their processes and algorithms.

What is the answer?

As with many areas of intellectual property law, the best decision will balance the needs of all stakeholders involved. The very nature of intellectual property is granting a time-limited, state-enforced monopoly in exchange for innovation and investment. The overriding policy goal is to encourage future developments by balancing the economic incentives of a monopoly with the need to avoid making that monopoly so broad that it stifles innovation. Hopefully the US Supreme Court, assisted by volumes of supporting briefs from a wide spectrum of parties, will be able to strike that balance for software and business process patents.

Alex Buonassisi is an IPilogue Editor and a JD Candidate at the University of British Columbia.

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