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U.S. appeals court issues divided ruling in software patent case

By Erin Geiger Smith

(Reuters) - A federal appeals court on Friday ruled that Australia's Alice Corp does not hold valid patents on a computerized trading platform, but it remained unclear how the decision would affect other software patents.

The software industry had been watching the case for a clue to legal protection of intellectual property rights that generate much of the sector's profits. But the U.S. Federal Circuit Court of Appeals failed to reach a consensus on how to determine what software is patentable.

How innovative an invention should have to be to receive legal protection is an issue of debate in the software industry.

Technology companies had hoped the Federal Circuit, which specializes in patent cases, would provide clarity on what software is patentable.

The deeply divided court upheld a Washington D.C.-based district court's decision that patents held by Alice were based on abstract ideas, which is not eligible for patent protection.

In the case, Alice had argued that even if its patents for exchanging financial obligations involved an abstract idea, the idea is "patentable if the computer plays a significant role in the invention."

Adam Perlman, an attorney for Alice, declined to comment. Alice is owned in part by National Australia Bank Ltd.

The court did not come up with any unified standard for determining what is abstract, said Matthew Moore, a partner at Latham & Watkins LLP who was not involved in the case.

Under patent law, an abstract concept - such as the idea of a self-driving car - may not be patented, but the engineering that creates a self-driving car may be patented.

The divided opinion shows the courts' struggle with coming up with a bright line rule, Moore said.

Instead, whether or not an invention is abstract will continue to be determined on a case by case basis, which judges knowing it when they see it, he said.

Google and Dell both had filed friend-of-the-court briefs stating that "bare-bones" patents like those owned by Alice court do not innovate enough to deserve patent protection.

International Business Machines Corp, however, said that most software inventions do qualify for patent protection.

In Friday's opinion, five judges joined a portion of the opinion, authored by Circuit Judge Alan Lourie, that suggested judges ask whether there are "genuine human contributions" to the invention when determining whether it should receive patent protection.

It will take future cases to determine whether the test can earn the support of a majority of the Federal Circuit or the U.S. Supreme Court.

The Federal Circuit's Chief Judge, Randall Rader, did not join that portion of the opinion authored and noted that the test is not precedent-setting.

In a dissenting opinion, Judge Kimberly Moore said that the test described by Lourie could cause a "free fall" in the patent system and that the opinion defines what is "abstract" much too broadly.

CLS is pleased that the district court's decision was affirmed and said the appeals court's decision "strikes an appropriate balance between innovation and competition."

The case is CLS Bank International v Alice Corporation, U.S. Court of Appeals for the Federal Circuit, No. 2011-1301.

(Reporting By Erin Geiger Smith)

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