(Bloomberg ) Google Inc. owes its creation in part to a patented software algorithm for ranking documents in a database, issued to company founder Larry Page and owned by Stanford University.
The world's largest search-engine company contends that too many other software patents hurt innovation more often than they lead to viable businesses. Google, along with JPMorgan Chase & Co. and the Yelp Inc. business-review site, say they need to be able to quickly resolve cases in which a patent owner sues a large number of companies over widely used software features.
An appeals court specializing in U.S. patent law will consider the issue tomorrow, in arguments about when software programs represent legitimate innovations and when they simply computerize ideas that couldn't otherwise be patented. The question is important because challenging an invention's eligibility for a patent can be quicker and cheaper than contesting a patent's validity on other grounds.
"The patent system has had a hard time figuring out what patents are valid when you are using a computer to make something easier," said Lynn Pasahow, who represented Amazon.com Inc. in its 1999 lawsuit alleging Barnes & Noble Inc. violated a patent for one-click shopping. "There's an idea out there that it's like pornography, you know it when you see it, or when the Federal Circuit or Supreme Court rules on it."
The case before the U.S. Court of Appeals for the Federal Circuit in Washington has divided technology companies that have filed legal arguments with the court.
Google, Facebook Inc. and Red Hat Inc. say patent standards are too lax. International Business Machines Corp. warns that stringent rules could stifle innovation. Computer software was the fastest-growing area of patents between 1980 and 2005, according to a report this month by the Brookings Institution, a Washington research group.
While technology companies often use the derisive term "trolls" for patent holders that don't make products, they direct particular ire at owners of software patents who sue dozens, or even hundreds of companies claiming to have invented aspects of widely used technologies like online shopping, Internet mapping or tracking delivery vehicles.
Of the more than 5,600 patent-infringement lawsuits filed in the U.S. last year, more than 12 percent were filed by just 10 companies over software, according to Bloomberg Law data.
"Coming up with a product that's useful requires some difficult and sophisticated programming -- that's the hard part," Suzanne Michel, Google's senior patent counsel, said in an interview. "You've got a system that's over-rewarding the easy stuff and blocking off the hard part of innovation."
In the past, the legal rules weren't clear enough for the U.S. Patent and Trademark Office to reject vague applications, said former PTO Director David Kappos, who left his post Feb. 1 and is now with the Cravath Swaine & Moore law firm. That doesn't mean software patents aren't valuable, he said.
"Look at Google -- who would be the first of us to throw a stone and say that wasn't a great idea?" Kappos said. "If you've got a patent and sue 50 to 100 manufacturers all at once, what you're really saying is that your patent covers the problem, not the particular solution."
The patents before the Federal Circuit concern a computerized method for using an intermediary to make sure buyers and sellers meet their obligations in stock and currency trading. Patent owner Alice Corp., an Australian company jointly owned by National Australia Bank Ltd. and Alice Ventures Pty, filed infringement claims in 2007 against CLS Bank International, which settles about $4.5 billion foreign-exchange transactions daily.
A federal judge in Washington ruled in 2011 that the idea of using an intermediary to settle trades isn't eligible for a patent, and computerizing the notion didn't make it patentable.
In a 2-1 decision in July, the appeals court reversed that decision, ruling that Alice's suit should proceed because the patents cover "practical applications of the invention" and not an abstract idea.
The Federal Circuit agreed to have all active judges on the court rehear the case tomorrow, with a focus on how to determine if a computer-implemented invention can be patented.
"There's been a push for the past decade or even longer, with voices saying these shouldn't be patentable," said Scott Doyle, a patent lawyer with Shearman & Sterling in Washington, who successfully represented Daimler AG's Mercedes-Benz unit against claims it infringed a patent for a monitor to detect when a motorist is drowsy. "They are trying to figure out a workable way to deal with these cases."
The Clearing House Association, a trade group representing the largest commercial banks, said in a filing that too many patents simply add a computer to long-standing business practices.
"Some software patents are dangerously broad and dangerously vague," said Julie Samuels, a staff lawyer with the Electronic Frontier Foundation in San Francisco. "If I had a magic wand and could go to day one, software should not be patented at all. The harm software patents cause outweighs the benefit."
In the appeals court's July ruling, Circuit Judge Richard Linn said that, unless it's "manifestly evident" that patents cover abstract ideas ineligible for protection, they should be challenged on other grounds, such as whether they're new or obvious variations of others' work.
A group that includes British Airways, Intuit Inc., Twitter Inc., Yelp and SAP AG said the ruling may keep courts from quickly resolving cases about patents that wouldn't have been issued under current standards.
"It encouraged trial courts to delay deciding this threshold issue of law, allowing innovation-harming patents to stand for months or years without any judicial scrutiny," the companies said in a Dec. 7 filing.
IBM, which has received the most U.S. patents for the past 20 years, said in a Dec. 7 filing that the "vast majority of computer-implemented inventions are patent eligible" and created technology that transformed society.
"Software patents as a class are under attack and have been ever since the software industry began to rely on patent protection as a rule rather than an exception," IBM said.
The Business Software Alliance, whose members include Apple Inc. and Microsoft Corp., said the Alice patents shouldn't have been issued because they cover "an idea that has existed in non-digital form for millennia." Still, the group said, software inventions "constitute a growing and significant portion of both the U.S. economy and U.S. export market."
While the Federal Circuit will try to clarify the rules, it's unlikely to foreclose patenting of all software, said Erika Arner, a lawyer in Washington who represented a patent owner in a 2010 Supreme Court case involving business method patents, which often overlap with software.
"The court is aware that the patent office has been issuing patents on software for 20 to 30 years, so there are tens of thousands of patents that represent settled property rights by inventors around the world," she said.