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Supreme Court likely to overturn software patent legislation

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The United States Supreme Court today heard oral arguments in an ongoing software patent case: Alice Corp. v. CLS Bank International. The case is drawing lots of attention from several big names (like Microsoft and Google) as the SCOTUS justices weigh a crucial argument involving the legitimacy of software patents.

Okay, fair warning, your author is not an economist. What follows is an explanation gleaned from reading several different sources in an attempt to figure out what is actually going on here behind all the legal-ese and technical jargon (of which there is a lot). So, here's what happened:

In 2007, Alice Corp, "an electronic financial marketplace," filed four patents that, according to IT World, helped regulate "a computerized trading platform for currencies." These patents essentially helped make a longstanding economic principle way more efficient than it was previously; as one justice put it, Alice Corps programs do in seconds what it would take a person with a pen and paper 20 years to accomplish.

At the same time that Alice Corp is developing its programs, CLS Bank International develops a similar program and then claims that Alice Copr. can't have the patent they've filed for, because all Alice Corp. has done is implement an abstract idea, which the Supreme Court has already clearly stated is a big no-no.

Patents, the Supreme Court claims, are only to be awarded in the event of a “new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” Over the years, however, they have developed three exceptions to this rule: "laws of nature, physical phenomena, and abstract ideas.” It's that last one, "abstract ideas," that has caused the ensuing kerfuffle.

The case could prove to be a pretty big deal, because if the Supreme Court comes down in favor of CLS, saying that companies cannot, in fact, file patents simply based on the real world implementation of economic principles. A verdict in favor of CLS could potentially strike down several patents held by large companies like Microsoft and IBM.

Alice Corp. v. CLS Bank International also marks the Supreme Court's first foray into refining standing U.S. patent laws, a labyrinthine section of current laws that is only becoming more complex in the Internet Age. According to the U.S. Government Accountability Office, almost 125,000 software patents were granted by the patent office in 2011. That's an increase of 500% compared to the 25,000 patents issued in 1991.

Depending on which attorney you talk to, this case either represents a watershed moment in software patent litigation (Alice Corp. attorney, Carter Phillips, claims that the Supreme Court could potentially invalidate hundreds of thousands of patents "in one fell swoop") or a simple example of one company attempting to capitalize on information they could never possibly own (CLS attorney, Mark Perry, says, "This isn't the death of software patents.").

Several experts have claimed that, based on the Supreme Court justices' line of questioning, Alice Corp's patents will very likely be rendered moot.

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