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The Supreme Court is sending sharp messages on patents

The U.S. Supreme Court’s ruling yesterday striking down a patent on a computer-implemented business method was the coup de grace on a remarkable term of resounding rebukes for the U.S. Court of Appeals for the Federal Circuit, the court that is ordinarily the final arbiter in patent cases.

Technically, of course, the High Court’s opinion yesterday in Alice Corp. v. CLS International Bank actually affirmed the Federal Circuit’s ruling in the case, but that would be a misleadingly charitable way to describe what really happened.

The ten judges of Federal Circuit had struggled mightily with the Alice case. It involved a patent on a computer-implemented method of mitigating risk in foreign currency transactions. Basically, it incorporated an escrow agent into the process to ensure that one party wouldn’t default after the other party fully performed his or her end of the bargain. Since the concept of employing an escrow agent is age-old, and the invention simply seemed to walk through the steps of using a general purpose computer to apply that familiar concept, the legal question was whether this was really an invention or just a gussied-up “abstract idea,” ineligible for patent protection.

The Federal Circuit had thrown out certain patent claims in the Alice patent–a patent is composed of numerous “claims,” each of which can be separately enforced–but as to others it split 5-5 on their patentability. That situation, by default, results in an affirmance of the ruling of the trial judge, who, in this case, had tossed out all the patent claims. Since the Supreme Court also decided to throw out all the claims, it reached the same outcome that had been the de facto result of the Federal Circuit’s stalemate, so it “affirmed” the Federal Circuit in that sense.

But in contrast to the Federal Circuit—whose ten judges issued seven separate opinions in the case—the Supreme Court seemed to find Alice to be a simple case. Justice Clarence Thomas’s 17-page opinion was both brisk and unanimous. (Though some observers had feared, and a few others had hoped, that the Supreme Court might use the Alice case to declare all software patents invalid, Justice Thomas did not even use the word “software” in his ruling, so the general presumption continues to be that software is patentable in appropriate cases.)

Many patent practitioners were disappointed by the brevity, opacity, and “I-know-it-when-I-see-it” quality of the Supreme Court’s Alice ruling. It shed little light, for instance, on what exactly makes an idea “abstract.” In addition, as I wrote in an explanatory piece about the case  just before the Supreme Court arguments, even many lawyers who were dubious about the validity of the Alice patents thought “patent eligibility” was the wrong basis for striking them down. (They might also have been invalidated, for instance, due to “obviousness” or “indefiniteness”—concepts that are better defined in the case law.)

Others, on the other hand, are welcoming Justice Thomas’s approach in Alice. Professor Robin Feldman, the director of the Institute for Innovation Law at University of California Hastings College of Law in San Francisco, for instance, is one of these. In an interview, she draws attention to the fact that Justice Thomas at least four times alluded to the need for judges to look past “the draftsman’s art,” and to try to ask the more fundamental, commonsensical question of, as Feldman puts it, “Is there any there there?”

But even those who are disappointed by the lack of doctrinal guidance in the Alice ruling cannot fail to perceive the unmistakable overall message being sent to the Federal Circuit, especially when Alice is viewed in the context of the rest of the Supreme Court’s patent rulings this term.

The Court heard an extraordinary six patent cases in the term that is coming to an end next week, known as the October 2013 term. That’s the most, according to Tim Holbrook, an associate dean of faculty and intellectual property professor at Emory University School of Law in Atlanta, since the Federal Circuit was first set up in 1982. (All appeals in federal patent cases go to this specialized court, regardless of where they arise geographically.)

Incredibly, the Supreme Court decided every one of these cases unanimously.

It also, in effect, decided every one of them in a markedly different fashion than had the Federal Circuit. As I’ve just noted, its handling of the Alice case was an affirmance only in the most technical sense, and the other five cases resulted in unambiguous reversals.

The Court’s rulings in Alice and at least three of the other cases—Nautilus v. Biosig Instruments, Octane Fitness v. ICON Health & Fitness, and Highmark v. Allcare Health Management System—were also opinions that were warmly welcomed by those who rail against the scourge of so-called patent trolls. (A patent troll is a pejorative term for a non-practicing entity, or NPE—a company that exists solely to buy patents on the open market and then demand licenses from operating companies. Critics accuse trolls of bringing disproportionately weak cases in hopes of extracting nuisance settlements.)

In Nautilus, for instance, the Court made it easier for defendants to invalidate patents for “indefiniteness”—vagueness in their drafting—and Octane Fitness made it easier for defendants to force a plaintiff to pay the defendant’s attorneys fees if the plaintiff loses.

While it would be a mistake to see the High Court as in any way anti-patent—it’s not—it definitely does seem to want patents to be harder to enforce than the Federal Circuit has made them, and it wants the bringing of weak patent claims to be rendered riskier for whoever does so.

“There is clearly an institutional concern at the Supreme Court with the Federal Circuit,” says Holbrook, and a belief that the latter has allowed “the balance within the patent system to tilt too strongly in favor of patent protection.”

If there is a silver lining for those who like the status quo in patent law, it is that the Court’s recent term may make it less likely that Congress will see a pressing need to pass additional reform legislation in the field. The Court’s ruling in Octane Fitness, for instance, making fee-shifting easier, seems to defuse one popular rallying cry that had been helping to drive reform efforts.

In addition, it is gradually becoming apparent that one of the reforms of the America Invents Act of 2011, the creation of a so-called “inter partes review” procedure, which only took effect in September 2012, is beginning to have a meaningful impact on the patent landscape. These procedures enable potential patent defendants to challenge recently issued patents by means of inexpensive, administrative proceedings within the U.S. Patent and Trademark Office itself, rather than having to resort to exorbitant litigation. (These administrative proceedings have been so effective in striking down patents, in fact, that, as the AmLaw Litigation Daily recently reported, a subsidiary of one prominent non-practicing entity, Cascades Ventures, filed a federal lawsuit in Alexandria, Virginia, earlier this month attempting to strike down the whole inter partes review procedure as unconstitutional. Cascades theorizes that it deprives patent-holders of their Seventh Amendment rights to a jury trial!)

Until we have absorbed the impact of the various changes recently ordered by the Supreme Court and those we are still only beginning to feel from the America Invents Act, calls for still more legislative relief may, in fact, be premature.