Software Patents at the US Supreme Court: Patenting of escrow accounts

17 06 2014

The Supreme Court recently heard arguments over whether a company named Alice Corporation can own an “invention” for escrow accounts. While the idea of escrow has been around for centuries, Alice Corp has a patent that describes the concept of using a computer to implement it.

For Alice’s opponent, CLS Bank, a lot is at stake since the bank uses the patented process to clear millions of dollars in financial transactions each day. Even more is at stake for an American patent system swamped by millions of low-quality patents, many of them — like the one belonging to Alice Corp — related to software.

What can and can’t be patented

While the Supreme Court has issued many decisions about patent rules in recent years, the Alice case looks at the more fundamental question of what sort of things should receive patent protection in the first place. For now, the law is clear that “abstract ideas” like math formulas or gravity can’t be patented, and that specific applications that describe a process for implementing an idea are eligible for a patent. The question in Alice is where software fits into all this.

“Software or business method patents are typically broad patents that often cover basic methods of doing business,” said Brian LaCorte, a lawyer at Ballard Spahr, who is skeptical about patents that describe using a computer to implement age-old ideas such as escrow accounts.

From an economic perspective, to the degree that such software patents fail to offer genuinely new ideas, they appear to upset the notion of treating the patent system as a bargain between society and inventors.

As Robin Feldman, an influential patent scholar, wrote in the New York Times, patents like the one belonging to Alice Corp can result in the government handing out a powerful monopoly without receiving anything of value in return — the “inventor” gets a patent, but doesn’t disclose any undiscovered science or ideas. Another scholar, Mark Lemley, said of such patents in 2011, “they claim everything but contribute nothing.”

The Alice case also comes at a time that the Supreme Court is paring back patents in other areas. Last year, for instance, the court ruled that human genes are not eligible for patents.

Are software patents a “tax” on the tech sector?

The Alice case induced a long list of companies to file briefs, including a joint submission from a group of tech companies  – including Google, Amazon, Facebook and Netflix — that are rivals in the marketplace, but that have come together to ask the Supreme Court to squash abstract software patents.

“Abstract software patents have become a plague on computer-related industries,” noted the companies in their brief. The filing also claimed that the proliferation of such patents is “effectively tax innovation,” and includes a 1991 quote from former Microsoft CEO Bill Gates that warns that patents could have brought the early software industry to “a standstill.”

For many, the issue right now isn’t just theoretical. David Selinger, CEO of web-shopping firm RichRelevance, says his company spent about four percent of its annual revenue last year managing patent trolls.

“I think there’s a strong case for abolishing all software patents…or at a minimum, software patents should reasonably advance art and describe how you’re doing it,” Selinger, whose company also filed a brief arguing the Alice Corp “invention” should be ineligible for a patent, told me.

Other tech companies, including Microsoft and IBM, have taken a different view of the case, suggesting in their briefs that Alice Corp’s patents are not appropriate but expressing approval for other types of software patents.

Supreme Court cleans up unfinished business

One reason the Alice case is before the Supreme Court in the first place is that the court made a hash of the same issue four years ago. In a 2010 decision known as Bilski, the court explored many of the same issues that are now before it in Alice — but provided little useful guidance on how to screen for such patents in the future.

In the Bilski case, the Court rejected a patent describing a computer-related method for hedging commodity risks. In doing so, however, the Justices also threw out a “machine-or-transformation” test that had been used to evaluate when a patent should be granted, while also failing to provide alternate criteria for lower courts and the Patent Office to use instead. The situation soon became even more complicated after an appeals court panel, hearing the Alice case, attempted to apply Bilski — and produced a messy judgment in the form of seven different opinions from ten judges.

For the Supreme Court, then, Alice is an opportunity to correct its earlier mistake by finding a better way to draw a circle around what can and can’t be patented. The court is unlikely to outlaw software patents altogether, but will likely instead issue rules that make them easier to challenge — and to reduce the likelihood the Patent Office will issue them in the first place. In the short term, however, the Supreme Court’s decision is unlikely to do much to flush away many of the millions of low-quality patents already in the system.

Update: The transcript of the court’s recent finding is now available; legal observers have suggested that the Justices’ line questioning mean they are inclined to invalidate Alice’s patent, but not eliminate software patents altogether.

Outside attention

The Alice case is unusual because of the attention it is drawing from outside the legal community. Along with the attention from the tech industry, Alice also gave rise to weekend editorials by the New York Times and the Economist.

All the interest reflects how patents — and the monopoly they grant over ideas — have proliferated in recent years, and led to the rise of patent trolls like Intellectual Ventures, which don’t use the patents they acquire, but simply demand money from others. (By most accounts, Alice Corp is such a troll.)

The US Supreme Court, which has heard several other patent cases this term, is also not the only branch of government looking to fix the patent system: The US White House issued a series of executive orders to curb patent trolls, while Congress is expected to pass a patent reform bill this spring.


Apple v Samsung : the battle explained

1 12 2011

The intellectual property battle between between Apple and Samsung has been raging on since April in courts all over the world. But how did this (what can only be described as epic) battle begin in the first place?

The below infographic sets out the roots and progression of the Apple/Samsung lawsuit. Do you think the mobile designs are too similar?

Apple and Samsung involved in high-tech Mexican stand-off

22 09 2011

It should by now be common general knowledge that Apple and Samsung are engaged in a heated “IP battle” with over 20 IP disputes currently pending internationally in Germany, the UK, the Netherlands, France, Italy, South Korea, Japan, Australia and the United States between this California-based company and the South Korean tech giant….

What may be less well-known is that Samsung and Apple in fact have a highly symbiotic relationship. For example, Apple is Samsung’s largest flash memory customer. Not only will Samsung feel it in the pocketbook if Apple stops buying, but many key components of Apple’s consumer electronics line such as the iPad, iPod and iPhone can’t be made without Samsung’s flash memory. What the world has with the ongoing Apple and Samsung war is a real-life high-tech Mexican standoff. Both companies hold the key to the other’s destruction — though their own is nested inside, somewhere just below the surface.

This situation may soon be changing and DigiTimes reports that TSMC (as opposed to Samsung) may be manufacturing Apple’s A5 processor from next year onwards. TSMC is reportedly testing A6 chipsets, which may include the dual or even quad-core ARM-based structures used in the iPhone, iPad and iPod.

This could seriously sour relations between these two rivals even further…. and with so much on the line for both parties, with nothing to lose (other than some  (extensive) litigation fees) it may well be a long time before the curtain closes on this high-tech mini-drama……..

Steve Jobs listed as inventor/designer on 313 of Apple’s patents……

21 09 2011

When people in the technology industry speak of  Steve Job’s knack for design, they often have Apple’s iconic products in mind: the early all-in-one Macintosh computers, the first iMacs with their brightly colored and translucent cases, and more recently, the various iPods, iPhones and iPads.

But what about the striking glass staircases in many of Apple’s stores? Mr. Jobs led their design — and has his name on two patents Apple received for that design. An interesting article showcasing Mr Jobs as a prolific inventor and technical designer was recently published by the New York times and is available here…..

Apparently, Mr. Jobs appears as the principal inventor or as one inventor among several on 313 Apple patents. Most are design patents that cover the look and feel of a product, rather than utility patents….

Still, the number of patents is far larger than those granted to most other technology company chiefs, including those whose technical breakthroughs and inventions were instrumental to their companies’ success. Only nine Microsoft patents carry the name of Bill Gates, a co-founder of the company who was its chief executive for more than two decades before stepping down in 2000. And little more than a dozen Google patents carry the names of the co-founders Larry Page and Sergey Brin, according to a search of the United States Patent and Trademark Office Web site.

As Mr. Jobs steps down from the chief executive role, his deep involvement in so many aspects of Apple’s products also brings into sharp focus the question of whether the company’s streak of innovation can continue over the long-term without his hand to guide it….

Legal implications of cloud computing

6 09 2011

Cloud computing, which is generally understood as a model for enabling on-demand network access to an elastic pool of shared computing resources that can be rapidly provisioned and released with minimal service provider interaction, has various advantages and offers exceptional opportunities to a business.  This technology is now finding wide implementation in South Africa in so far as it offers dynamic scalability and flexibility at a reduced cost…..

However, the legal implication of this technology is not perhaps as clearly defined as it could be and the following might provide some handy hints and tips on the matter……

In terms of managing the cloud computing infrastructure, from a legal point of few, certain best practices have been identified in the industry, these are:

  • Find a test case: Test the waters and set up a test case first, thereby minimizing the potential risk to the rest of your system/infrastructure,
  • Understand the cloud infrastructure and the risks: Enhance regular auditing and monitoring in your company,
  • Ownership of information is key: Ensure that you own your information and understand that how your data is going to be handled before the system is implemented,
  • Avoid cross-platform proliferation: Focus on one or perhaps two cloud service platforms at a time,
  • Understand the role and the lack of standards: Develop standard templates of contractual safeguards, data ownership and use limitations.

Customers such as banks, retail and telecommunications companies generally have a standard agreement developed to look after their position to reduce risks through a comprehensive set of terms and schedules.

Cloud vendors are, however, at the other end of the spectrum and the difference between the approaches of the service provider and customer are enormous. For example,  in Cloud vendor contracts, it is normal that warranties are given by the customer instead of by the service provider, and the service providers have a right to suspend your service whenever they choose to do so…this concept is almost unheard of in traditional outsourcing contracts and would certainly be questionable in view of the provisions of the Consumer Protection Act….. The CPA would certainly have a large role to play in these negotiations and should be borne in mind when reviewing the Cloud vendor contract……

To bridge this gap, before choosing a service provider, you should firstly analyze the available cloud service providers within the context of the market as a whole and try to derive the core themes and standard practices of each of these service providers……

It if further advised that you analyze the standard terms in your agreements with these service providers in order to identify any potential red herrings before hand as well as identifying those key factors you are prepared to discuss, negotiate, and agree on with the service provider.. …in this way you can filter down to the issues which need to be resolved a lot quicker and focus on those during your negotiations……

China changes tactics on technology patents

29 08 2011

It seems that the Chinese technology industry can no longer be regarded as a breeding ground for blatant IP infringement and patent proliferation with China recorded as the third highest filer of patents in 2010 – 337 497 patent applications have been recorded for the last year. 

The influx of patents not only underscores China’s growing strength in the technology sector, it also reveals a change in the country’s attitude toward intellectual property in general. It seems China is now starting to move toward recognising ideas and their origins….

The increase in patent filings has also sparked an increase in litigation….. Huawei Technologies and ZTE Corporation (China’s top two telecoms equipment makers) are engaged in litigation proceedings. ZTE filed a lawsuit in China in April saying Huawei had infringed its fourth generation technology. It seems both made progress in selling their mobile communication products in China and they are possibly now using patents as a competition tool…..

In general, intellectual property civil litigation increased in China by 37 percent to 41718 last year, according to the country’s Supreme People’s Court.

It seems the Chinese counterparts to Apple, Google and Samsung are developing their own armoury of patents. The obvious question being: is this to further stifle competition in the global smartphone industry……or have they  acted pre-emptively to the whole global  fist-fight by ensuring that their competitive edge remains as untouchable as possible……..

With reference to The Business Report of 26 August 2011.