Federal Courts Finally Providing Relief from Patent Trolls

At last, software patent trolls are getting a smackdown. A few short months ago, the Supreme Court rendered an opinion in the case that has come to be known as Alice vs. CLS Banks. In that ruling, the Supremes held that taking an already widely-used practice, and moving it to a computer, does not create a new, patentable invention deserving of a software patent.

In Alice vs. CLS Banks, at issue was a patent which had been issued to the Alice Corporation for financial transactions conducted by computer. While not precisely the same as the actual transaction at issue, which was a financial transaction known as “intermediate settlement”, you can think of it as if Alice Corporation had been issued a patent for moving money into escrow by computer. People have been putting money into escrow for centuries; the only thing ‘different’ about the Alice patent was that it was (in our analogy) a patent to move money into escrow using a computer.

Alice was using this software patent to go after banks, in the way that patent trolls are wont to do.

In the decision, the Supreme Court held that taking a well-known common action, and adding “doing it over a computer”, does not a wholly new, patentable invention make.

Said the Supreme Court, “the claims at issue amount to ‘nothing significantly more’ than an instruction to apply the abstract idea of intermediated settlement using some unspecified, generic computer,” adding that “Under our precedents, that is not enough to transform an abstract idea into a patent-eligible invention.”

The Court then went on to elaborate that “Simply appending conventional steps, specified at a high level of generality, to a method already ‘well known in the art’ is not enough
to supply the ‘inventive concept’ needed to make this transformation.

Put in plain English, taking something which people have been doing all along, and porting it to a computer, is not a sufficiently novel concept to warrant a patent.

That decision was handed down in June, and since then nearly a dozen software patents have been invalidated by Federal courts, based on Alice and subsequent precedents.

Most recently, just last week a Florida Federal court held that the software patent which had been issued to Every Penny Counts (EPC), and over which EPC was suing Wells Fargo, was invalid. EPC had been issued a patent for using a computer (software) to subtract small amounts of money from accounts, in order to accumulate, over time, a larger amount of money.

While the court in EPC vs. Wells Fargo noted that not only was this a common practice before computers, but that it was even part of the plot in Superman III, saying that “in the 1983 film Superman III, Gus Gorman, played by Richard Pryor, utilizes the coin clipping concept after discovering that each of his co-worker’s earnings includes a fraction of a cent. Gorman programs a virus to round each paycheck down to the nearest cent and to deposit the fractional difference into a recipient account,” we note that this has happened many times in real life, including by computer in the incident which was memorialized in Cliff Stoll’s The Cuckoo’s Egg, during which Stoll found and busted a hacker who had hacked into financial accounts, among others, and was moving around small amounts of money. (You can read Stoll’s first person account in an article here.)

So, does this mean that this will be the end of patent trolls? Of course not. But it does mean that either they will be more careful in the future, or they will just be sure to only target companies that can’t afford to take the matter to court. But maybe we can dream about a day when patents are not awarded unless they actually have merit.

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Federal Courts Finally Providing Relief from Patent Trolls
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Federal Courts Finally Providing Relief from Patent Trolls
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At last, software patent trolls are getting a smackdown. A few short months ago the Supreme Court started the smacking in the case of Alice vs. CLS Banks.
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One Reply to “Federal Courts Finally Providing Relief from Patent Trolls”

  1. I do not recall that the hacker depicted in The Cuckoo’s Egg accessed any financial institutions at all.

    However, the hacker’s presence was first noticed because of a discrepancy between the accounting and billing records for the LBL computer system, which failed to balance one month, leading to the discovery of a user account which was not associated with a billing address. The discrepancy was less than a dollar.

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