High court weighs patents on software

How to avoid stifling innovation?

In a case with the potential to reshape the software industry, the U.S. Supreme Court on Monday seemed poised to issue fresh limits on patents for computer-based business methods.

Though the case originated far from Silicon Valley, it has been closely watched as an indicator of how specific or abstract technical ideas can be to become eligible for patent protection. Patent claims over the way such ideas are incorporated into computers, cellphones and other devices have become a challenge for many high-tech companies.

Most of the justices seemed skeptical about extending patent protection to the claimed invention at issue, a sort of computerized escrow mechanism that helps ensure that both sides in a transaction do what they have promised to do.

But given the importance of the software industry in the information economy, the court also appeared wary of a misstep in announcing a general legal principle. The court’s task, Justice Stephen G. Breyer said, was “to go between Scylla and Charybdis.”

On the one hand, Breyer said, the court should not allow the patent system to stifle innovation.

“There is a risk,” he said, that “instead of having competition on price, service and better production methods, we’ll have competition on who has the best patent lawyer.

“And if you go the other way and say never” allow software patents, he went on, “then what you do is you rule out real inventions with computers.”

The patents in question, owned by the Alice Corp., outlined steps for mitigating settlement risks among multiple parties. The company’s lawyer, Carter G. Phillips, pointed the justices to a flow chart in one of the briefs to explain how the method worked.

The patents were challenged by CLS Bank International, which says it clears $5 trillion in foreign exchange transactions a day using methods to ensure that both sides performed. The Alice Corp.’s patents, the bank said, merely recited “the fundamental economic concept of intermediated settlement of escrow.”

The justices considered only the threshold question of whether the Alice Corp.’s ideas were eligible to be patented. The court has said that laws of nature, natural phenomena and abstract ideas do not qualify.