Supreme Court Deals Major Blow to Patent Trolls

The United States Supreme Court. Photo: US Gov’t

The Supreme Court just dealt a major blow to patent trolls.

On Thursday, the court upheld the notion that an idea alone can’t be patented, deciding unanimously that merely implementing an idea on a computer isn’t enough to transform it into a patentable invention. Published on the Supreme Court website, the decision does leave room for patenting specific ways of implementing an idea, but it could prevent some of the most frivolous patent cases from moving forward.

Such cases have become an enormous problem in recent years, particularly in the tech industry. The industry is plagued by an increasing number of “patent trolls,” companies that exist solely to force money out of others using patents, and many large companies now spend an enormous amount of time and money defending themselves from patents that should never have been granted in the first place. Legislators and activists have long pushed for new patent laws in an effort to solve this problem, but recent efforts have stalled, and today’s court decision can help limit the problem while other bills are penned.

The case in question was Alice Corporation vs. CLS Bank. Alice Corporation, a financial company based in Australia, holds a number of patents for facilitating financial exchanges between two parties by using a computer as a third party. CLS Bank, a foreign currency exchange company, filed a claim that the patents were “invalid, unenforceable, or not infringed,” and then Alice countered with a claim that CLS was infringing its patents. The court ruled in favor of CLS, reasoning that third party intermediation is a fundamental building block of the economy, and not a novel invention and that “merely requiring generic computer implementation fails to transform that abstract idea into a patent-eligible invention.”

‘What the Supreme Court did in the Alice vs CLS case is give parties dealing with those various patents a very important tool to fight back by invalidating those patents.’

The decision is important because many software patent cases are based on ideas rather than implementations, says Julie Samuels, executive director at the public policy think tank and research outfit Engine. “Most of the troll cases involve software patents of dubious quality,” she says. “What the Supreme Court did in the Alice vs CLS case is give parties dealing with those various patents a very important tool to fight back by invalidating those patents and, going forward, gives the patent office instruction about what it can and cannot issue patents on.”

For example, online advertising company Ultramercial is currently suing video streaming company Hulu. Ultramercial is alleging that Hulu violates its patent on forcing viewers to watch a commercial before playing copyrighted content. Alice vs. CLS establishes that the mere idea of showing ads before content isn’t patentable–only the specific implementation.

But other patent reforms are still necessary to protect companiesd from frivolous patent suits. The Alice vs. CLS ruling may help prevent dubious patents from being granted in the future, but it won’t stop patent trolls from filing suits with their existing software patent portfolios. And because of the high cost of fighting litigation, many companies may continue to shy away from fighting such suits, even if they are likely to win.

Legislators have tried to resolve the cost issue, but they’ve hit political road blocks. Last December, the House of Representatives passed a bill that addressed the matter in part by requiring the loser in a patent suit to pay the legal fees for the winner, which would, in theory, discourage frivolous claims and encourage wrongfully targeted companies and individuals to fight back. It was widely expected to pass in the Senate as well, but Senator Patrick Leahy, a Democrat from Vermont, killed the bill in during committee last month.

Samuels says the patent reform bill is still needed, but the Alice vs. CLS an important victory. It’s yet another example of the Supreme Court reigning in patent decisions made by circuit courts. And it solves a problem that was unlikely to be resolved by Congress. “Neither the House nor the Senate had the political will to address the patent quality issue,” she says. “This decision deals with the issue Congress wasn’t willing to, even if the law had passed.”