Patent Ruling's Effect on 'Trolls' Debated

Patent Ruling's Effect on 'Trolls' Debated Diego M. Radzinschi/NLJ Mark Perry of Gibson Dunn

The U.S. Supreme Court’s much anticipated ruling Thursday in Alice Corp. v. CLS Bank International may prove to be a turning point in the corporate world’s battle against patent trolls.

The debate over the impact of the terse 18-page ruling began minutes after it went up online—and is likely to continue for months. But a consensus among intellectual property experts seemed to emerge that the decision was bad news for entities that cobble together broad but weak patents for the main purpose of suing deep-pocket patent holders for infringement—trolls, in other words.

The court ruled unanimously that taking an abstract idea and finding a way to implement it through a “generic” computer application was not a patent-eligible invention. Since that is a technique attributed to trolls, the decision may signal to lower courts to toss out some of the litigation they initiate.

“To be patentable, the claims will need to improve the function of the computer itself or make some other improvement in a technical field,” said Cindy Kernick, an intellectual property partner at Reed Smith. “The expected result is that many patents suits now pending will be resolved on summary disposition. Hopefully this will make some of the trolls stop and rethink the merits of their demands.”

The court’s decision resolved a long-running dispute over patents held by the Australian company Alice Corp. used in settling, tracking and reducing the risk of global financial transactions. Alice and CLS Bank have been in court since 2007 arguing over the validity of Alice’s patents. On Thursday, CLS Bank prevailed. CLS has offices in New York City, London and Tokyo.

Justice Clarence Thomas, writing for the court, said, “The relevant question is whether the claims here do more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer. They do not.”

Gibson, Dunn & Crutcher partner Mark Perry, who argued the case for CLS Bank, also applauded the ruling as a blow against trolls—a term he used to describe his adversary.

“The Supreme Court correctly rejected the attempt of Alice Corp., a nonpracticing entity or ‘troll,’ to foreclose productive companies like banks from practicing the ancient economic method of intermediated settlement,” Perry said in a statement.

Carter Phillips of Sidley Austin, who represented Alice before the high court, objected to Perry’s description of his client as a “troll.” Phillips said Ian Shepherd, the company’s founder, “was the inventor and fully attempted to implement the invention, but CLS essentially stole the idea and monopolized the market.” Phillips added, “So it was his client that made my client a nonpracticing entity. But that is not a ‘troll.’ And it is interesting that Mark did not use that term at all during the oral argument.”

Software industry leaders were relieved by the ruling, which some feared might erase patent eligibility for all software or apps. Though Thomas never used the word “software,” he said “there is no dispute that … many computer-implemented claims are formally addressed to patent-eligible subject matter.”

Victoria Espinel, president of the Business Software Alliance, said in a statement: “This decision is a victory for innovation. The opinion makes clear that real software inventions are patentable under U.S. law and that merely connecting an abstract idea to a computer doesn’t make it patentable.” She said the ruling will give “helpful guidance to software developers, courts and patent examiners.” Andrew Pincus of Mayer Brown authored a brief in the case for the alliance.

Brett A. Krueger of Honigman Miller Schwartz and Cohn added, “While the Supreme Court spent over 100 years refining the concept of ‘an abstract idea’ … the Supreme Court succeeded in providing patent practitioners with clear guidance on how to apply it for software related patents.”

Not everyone thinks the ruling brought clarity. Steve Cherny of Kirkland & Ellis predicted there would be “really tough cases ahead where the courts will have to fill in the framework and help people understand where the line is.”

The ruling was a rare affirmation by the high court of the U.S. Court of Appeals for the Federal Circuit. The Federal Circuit in May 2013 issued a splintered en banc decision in the Alice case, with six separate opinions and a “reflection” by then-Chief Judge Randall Rader in which he lamented the long-running “commotion” surrounding the issue.

The decision was the sixth and perhaps most important patent case on the court’s docket this term—more patent disputes than the court has heard since the Federal Circuit was created in 1982. In all five previous patent cases this term, the justices overturned rulings by the Federal Circuit.

Contact Tony Mauro at tmauro@alm.com.

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