The Supreme Court on Thursday tossed out an Australian company's patent for business software in a closely watched case that clarifies standards for awarding patents.
The justices ruled unanimously that the government should not have issued a patent to Alice Corp. in the 1990s because the company simply took an abstract idea that has been around for years and programmed it to run through a computer.
The decision makes clear that to obtain a patent, a company's idea must actually improve how a computer functions or make other technical advancements. It could also help give technology firms a stronger defense against so-called patent trolls - companies that buy up patents and force businesses to pay license fees or face costly litigation.
The software at issue allows a neutral third party to make sure all parties to a financial trade have lived up to their obligations. New York-based CLS Bank International claimed the patent was invalid.
"We conclude that the method claims, which merely require generic computer implementation, fail to transform that abstract idea into a patent-eligible invention," said Justice Clarence Thomas, writing for the court.
Dozens of technology firms - including Google and Facebook - submitted friend of the court briefs in the case, asking the high court to restrict the free flow of software patents they say are often too vague and can block other companies from innovation. But other companies, such as IBM, warned that too many new restrictions could nullify thousands of existing patents and discourage companies from investing in research and development.
Patents give inventors legal protection to prevent others from making, using or selling a novel device, process or application. The Supreme Court has ruled in the past that abstract ideas, natural phenomena and laws of nature cannot be patented.
The U.S. Court of Appeals for the Federal Circuit had ruled that Alice Corp.'s patent was invalid, but only five of the 10-member panel of judges could agree on why.
The Obama administration had also urged the court to invalidate the Alice patent and urged the justices offer more clarity to help lower courts decide what is and isn't valid. The administration said several factors should be considered, including whether the software improves how the computer functions or uses a computer to improve how another technological process works.
Companies have spent millions fighting patent troll litigation from firms that buy up patents from others and make money by asserting infringement and demanding licensing fees or settlements.
The case is Alice Corp. v. CLS Bank International, 13-298.