Editing Software patent debate (section)

== U.S. Supreme Court decisions ==
Several [[United States Supreme Court|Supreme Court]] decisions since 2000, as well as the [[United States Court of Appeals for the Federal Circuit|Federal Circuit]] and district court decisions interpreting and implementing them, have dramatically impacted the status of software patents in the United States. They have particularly affected many thousands of business-method patents that issued as a result of Federal Circuit decisions in the 1990s. The two principal Supreme Court decisions were ''[[Bilski v. Kappos]]'' and ''[[Alice v. CLS Bank]]'', the latter of which confirmed the applicability of the earlier decision ''[[Mayo v. Prometheus]]'' to computer-related inventions in which a computer was used to implement an abstract principle or preexisting business practice. See also ''[[Software patents under United States patent law]]''.

=== ''Bilski'' case ===
The ''Bilski'' case involved a patent application on methods for hedging against commodity price fluctuations, which the [[United States Patent and Trademark Office|PTO]] had rejected. The [[United States Court of Appeals for the Federal Circuit|Federal Circuit]], in ''[[In re Bilski]]'', upheld the PTO's rejection on the grounds that the claims failed the [[machine-or-transformation test]], which the court held should be used as the sole test of patent eligibility. The court did not hold that all business methods are patent ineligible, though a minority of the judges would have ruled that business methods are not properly the subject of patents.

The Supreme Court affirmed the judgment of ineligibility, in ''[[Bilski v. Kappos]]'', but on more general, and less articulated in detail, grounds of undue abstractness. It rejected the Federal Circuit's elevation of the machine-or-transformation test as the sole test of patent eligibility, saying that rather it was simply a "useful clue." The 5-4 majority refused to hold that all business methods were incapable of being patented, but four justices would have established such a rule. A concurring opinion pointed out that the Court was unanimous, however, as to many issues in the ''Bilski'' case, including a rejection of the Federal Circuit's late 1990s [[State Street Bank v. Signature Financial Group|''State Street Bank'']] decision, which allowed patents on any advance, technical or nontechnical (and in that case a numerical financial calculation of stock price changes) that produces a "useful, concrete and tangible result."

The Supreme Court's ''Bilski'' decision was criticized because of its lack of detailed guidance on how to determine whether a claim was directed to an abstract idea. Nonetheless, it provided some clarification and affirmed the Federal Circuit's taking a new direction in its software-related patent cases.

=== ''Mayo'' case ===
In ''[[Mayo v. Prometheus]]'', the Supreme Court invalidated a patent on a diagnostic method, because it non-inventively implemented a natural principle; the Court drew on cases involving computer software and other abstract ideas. In this case, the Court was much more detailed in describing how to recognize a patent-ineligible claim to an abstract idea. The ''Mayo'' methodology has come to dominate patent-eligibility law.  It revived the approach of the [[Parker v. Flook|''Flook'']] and [[Neilson v. Harford|''Neilson'']] cases, which is to treat the underlying principle, idea, or algorithm on which the claimed patent is based as if it were part of the prior art and to make patent eligibility turn on whether the implementation of it is inventive. This led to the "two-step" ''Alice'' test described next.

=== ''Alice'' case ===
At the time the ''Mayo'' case was decided, there was some uncertainty over whether it applied only to natural principles (laws of nature) or more generally to patent eligibility of all abstract ideas and general principles, including those involved in software patents. The ''Alice'' decision confirmed that the test was general. The ''Alice'' case involved patents on electronic methods and computer programs for financial-trading systems on which trades between two parties who are to exchange payment are settled by a third party in ways that reduce the risk that one party performs while the other does not. The patents cover what amounts to a computerized escrow arrangement.

The Court held that ''Mayo'' explained how to address the problem of determining whether a patent claimed an unpatentable abstract idea or instead a potentially patentable practical implementation of an idea. This requires using a "two-step" analysis.

In the first step, the court must determine whether the patent claim under examination contains an abstract idea, such as an algorithm, method of computation, a Law of Nature or other general principle. If not, the claim is potentially patentable, subject to the other requirements of the patent code. If the answer is affirmative, the court must proceed to the next step.

In the second step of the analysis, the court must determine whether the patent adds to the idea "something extra" that embodies an "inventive concept." If there is no addition of an inventive element to the underlying abstract idea, the court finds the patent invalid under section 101. This means that the implementation of the idea must not be conventional or obvious to qualify for a patent. Ordinary and customary use of a general-purpose digital computer is insufficient; the Court said—"merely requiring generic computer implementation fails to transform [an] abstract idea into a patent-eligible invention."

The ruling continued with these points:

* A mere instruction to implement an abstract idea on a computer "cannot impart patent eligibility."
* "[T]he mere recitation of a generic computer cannot transform a patent-ineligible abstract idea into a patent-eligible invention." 
* "Stating an abstract idea 'while adding the words "apply it"' is not enough for patent eligibility."
* "Nor is limiting the use of an abstract idea to a particular technological environment."

The ''Alice'' decision met a mixed reception, but profoundly affected U.S. patent law. In its wake, as explained in the [[Alice v. CLS Bank|Wikipedia article on the case]], courts invalidated vast numbers of so-called software and business-method patents (the overwhelming majority of those the [[United States Court of Appeals for the Federal Circuit]] considered) and the number of such patents issued has drastically fallen. The ''Alice'' decision has been widely criticized for its failure to specify in detail the boundaries of patent eligibility, but it has also been defended because its unanimity tends to stabilize decisional law in the field.<ref>Richard H. Stern, [http://docs.law.gwu.edu/facweb/claw/Alice-EIPR.pdf ''Alice v CLS Bank: US Business Method and Software Patents Marching towards Oblivion?''], [2014] {{smallcaps|Eur. Intell. Prop. Rev.}} 619, 629.</ref>

=== Subsequent developments ===
After ''Alice'', the Federal Circuit and district courts invalidated large numbers of business-method and software patents based on those courts' interpretations of ''Alice''. Federal Circuit Judge [[William Curtis Bryson|William Bryson]] summed this up in these terms:

<blockquote>
In short, such patents, although frequently dressed up in the argot of invention, simply describe a problem, announce purely functional steps that purport to solve the problem, and recite standard computer operations to perform some of those steps. The principal flaw in these patents is that they do not contain an “inventive concept” that solves practical problems and ensures that the patent is directed to something “significantly more than” the ineligible abstract idea itself. [Citing ''Alice'' and ''Mayo''.] As such, they represent little more than functional descriptions of objectives, rather than inventive solutions. In addition, because they describe the claimed methods in functional terms, they preempt any subsequent specific solutions to the problem at issue. [Citing ''Alice'' and ''Mayo''.] It is for those reasons that the Supreme Court has characterized such patents as claiming “abstract ideas” and has held that they are not directed to patentable subject matter.
<ref>[https://scholar.google.com/scholar_case?case=15554380012400502922&q=%22Loyalty+Conversion%22&hl=en&as_sdt=20006&as_vis=1 ''Loyalty Conversion Sys. Corp. v. American Airlines, Inc.''].</ref>
</blockquote>