The next big case to pay attention to concerning software patents appears to be the CLS Bank v. Alice Corp. case, which is being reheard “en banc” (by the full slate of judges) at the federal circuit court of appeals (CAFC). The short version of the case is that it involves a patent over the idea of software that conducts a “shadow transaction” to make sure that there are enough funds to complete a real transaction, before allowing the real transaction to go through, thus minimizing “settlement risk” (the risk of the deal not actually being completed). Should that be patentable? Well, that’s part of the argument. The district court tossed out the patent as being simply about an “abstract idea,” which is not patentable, as abstract ideas are excluded from section 101 of the patent act, which lists out patentable subject matter. On appeal, a divided three judge panel overturned the lower court, and said that when you looked at the invention as a whole, it was patentable subject matter under section 101. The full CAFC has agreed to rehear the case, and the amicus briefs are flowing in, as people realize that this case is the next key battleground over software patents.
Of course, as often happens in these kinds of cases, you get amicus briefs with wildly divergent claims. For example, here we’ll show and discuss the briefs from both the EFF and the Business Software Alliance (BSA). Somewhat surprisingly, both of those briefs agree on one thing: that the actual patent in question should be ruled invalid, as in the district court ruling. But that’s about the extent of the similarities between the two — who paint extremely different versions of the world of software patents today. The EFF brief explains how damaging software patents are to innovation and the wider economy while the BSA brief talks about how software patents are the greatest thing ever for innovation. One of these three-letter-acronymed organizations is wrong, and it’s not the EFF.
The EFF brief is quite detailed in how, where and how much software patents are doing harm to innovation and the economy. It explains how there’s been an explosion in the number of patents applied for, granted… and being used in litigation. They also detail how the costs associated with patent trolling have gone out of control, and how large companies like Google and Apple both spent more last year on patents than they did on actual research and development. If you read Techdirt regularly, you’ve seen many of the arguments and data they present, but it’s a great overview whether or not you’re familiar with the situation.
Meanwhile, the BSA takes a rather… different view of the world. And, by “different” we mean the view that Microsoft (the BSA’s largest supporter) would take, whereby software patents are just freaking awesome. It does this by first rewriting history. It claims that the patentability of software is a long-settled matter without any disruption at all. It does this by completely ignoring the reality — often espoused by companies who are BSA members, including Microsoft — that software was not realized to be patentable subject matter until after the State Street case in 1998. As we’ve noted many times, even Bill Gates used to claim that if everyone was patenting software in Microsoft’s early days, the industry would have stagnated rather than grown. Of course, now that basically every tech company out there is more nimble and innovative than Microsoft, it seems to want to stagnate the world.
It then talks up the importance of software to the economy and innovation — which is true — but falsely argues that this massive growth in innovation exists because of patents, rather than in spite of them. It keeps insisting that software companies rely on patents to have the incentive to innovate. This is laughable. Seriously. Whoever wrote it should be ashamed. I deal with software companies all the time — including many very, very successful ones. And the people there all tend to hate patents with a passion. The idea that these patents have been any form of incentive is simply ridiculous. But they claim that without patents, innovation might grind to a halt:
Simple economics makes clear that, if patent protection for software were curtailed, the adverse consequences would be swift and severe. With less profit to capture from the commercialization of the fruits of research and development, businesses would divert their resources into other ventures, and software development would suffer. That would have a ripple effect on productivity across the entire economy. Advanced software allows factory workers to be more precise, cars more fuel efficient, and healthcare more effective. Any new obstacles to software development would carry a penalizing multiplier effect that could threaten the continued technological advantage of the United States. For these reasons, “[d]iscrimination against a form of innovation that is increasingly critical to technological advancement, indeed that in many areas dominates technological advancement, makes no sense.”
Once again, there is no evidence to support this. None, zero, zilch. Because it’s simply not true. The “simple economics” the BSA describes is wrong both in theory and in practice. The software industry was built up and became super successful in a time before most software companies — including most BSA members — got any software patents at all. Ignoring that is simply historical revisionism being used for the sake of blatant protectionism.
They then go on to argue that, basically, CAFC had better not change a damn thing, because any change to such “settled” law, would be a disaster. Somewhat amusingly, they quote a decade old paper from Mark Lemley to support the argument that software patents are here and never going away and everyone should stop complaining. Why is that amusing? Because much of the EFF brief also relies on Lemley — but a much more modern Lemley. That is, the key to the EFF’s brief is suggesting that the judges at CAFC use this case as a chance to put into practice exactly what Lemley suggested earlier this year as an “easy” solution to the issue of software patents. Rather than worry about Section 101 and what’s patentable, focus on Section 112(f), which (effectively) says that you can’t claim a broader function (such as the idea of easing settlement risk with shadow transactions), only the specific implementation of the proposed solution or invention.
As Lemley noted when he first published his paper on the subject, all this really needs is for judges to enforce the law as written — and the EFF is suggesting that now would be a good time for CAFC to start actually doing that. While the BSA filing gives lip service to Section 112, arguing that it is a good reason why the courts shouldn’t redefine Section 101 to not allow software patents, I do wonder if BSA folks would really be that happy if the courts suddenly started tossing out tons of software patents for violating section 112(f) by describing a general idea, rather than a specific implementation.
Either way, whether the court deals with these specific issues or somehow dances around them (again), it’s clear that the CLS Bank v. Alice case is one worth following if you care about software patents.