Patent Trolls Dealt a Blow by Supreme Court

WASHINGTON (CN) - The Supreme Court curried favor with innovators Thursday in rejecting the claims of a patent holder that tried to protect an abstract idea.

At issue here are patents related to a computerized trading platform in which a third party tries to eliminate "settlement" risk.

In any financial transaction, there is a risk that only one of the two parties will actually pay its obligation, leaving the paying party without its principal or the benefit of the counterparty's performance.

Australia-based Alice Corp. said its patents address that risk by relying on a trusted third party to ensure the exchange of either both parties' obligations or neither obligation.

Claiming that three of Alice's patents were invalid and unenforceable, CLS Bank International and CLS Services filed suit in 2007 for a ruling of noninfringement.

A federal judge in Washington, D.C., ultimately awarded CLS summary judgment, invalidating certain claims of the three patents, and the en banc Federal Circuit eventually affirmed the judgment for CLS in its entirety.

After the Supreme Court took up the case, the Electronic Frontier Foundation argued that a ruling for CLS would "clean up the mess that is software patent law."

The group noted in an amicus brief that patent trolls exploit the system to attack small startups, where legal expenses can kill and "the mere threat of those expenses can chill innovation."

Though tech giants like Apple and Samsung are also targeted, more than half of the defendants in patent-troll litigation make less than $10 million annually, according to the brief.

"In this case, the Supreme Court has the opportunity to implement a sensible system, limiting these broad and vague claims that do nothing besides fuel lawsuits," EFF senior staff attorney Julie Samuels said in a statement. "A clear ruling here would limit one of the patent troll's favorite weapons - broad and vague software patents - and keep our innovation economy safe."

The justices apparently got the message, unanimously finding Thursday that Alice's claims are drawn to a patent-ineligible abstract idea under Section 101 of Title 35.

There is much precedent demonstrating "that the mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention," Justice Clarence Thomas wrote for the court. "Stating an abstract idea 'while adding the words "apply it"' is not enough for patent eligibility. Nor is limiting the use of an abstract idea '"to a particular technological environment."' Stating an abstract idea while adding the words 'apply it with a computer' simply combines those two steps, with the same deficient result. Thus, if a patent's recitation of a computer amounts to a mere instruction to 'implemen[t]' an abstract idea 'on ... a computer,' that addition cannot impart patent eligibility. This conclusion accords with the pre­emption concern that undergirds our §101 jurisprudence. Given the ubiquity of computers, wholly generic computer imple­mentation is not generally the sort of 'additional featur[e]' that provides any 'practical assurance that the process is more than a drafting effort designed to monopolize the [abstract idea] itself.'"

Thomas said the justices focused on "whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer."

"They do not," he contined.

In a brief concurring opinion joined by Justices Ruth Bader Ginsburg and Stephen Breyer, Justice Sonia Sotomayor repeated her view "that any 'claim that merely de­scribes a method of doing business does not qualify as a "process" under §101.'"

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