Patent Pending for Software Claims

Acquiring, using, and defending software patents has become big business—sometimes playing a vital role in a company’s success. But that could all change if the Supreme Court decides software can no longer be patented.

If the justices make that decision, following oral arguments that began today, the ruling could drastically alter the competitive landscape of the software industry.

The case, Bilski v. Kappos, marks the first time in more than 25 years that the Supreme Court will look at the criteria used to determine whether a business method or process—such as the series of actions that software performs—can be patented. Lawyers say the court case means change is inevitable and probably won’t favor software developers seeking the security of patents.

“Software and biotech patents are at risk of all being invalidated by the Supreme Court,” said James Carmichael, a principal at Miles & Stockbridge PC in Baltimore and a former administrative patent judge and examiner in chief for the U.S. Patent and Trademark Office.

Invalidating those patents could “kill the incentive to invest in research and development going forward,” he said.

That’s just one concern among many patent-holding companies, including D.C.-based education software company Blackboard Inc.

“As a software company, we are investing hundreds of millions of dollars in software development, and you need to be able to protect that investment,” said Matthew Small, Blackboard’s general counsel. “As long as we have that protection, we’re fine.”

Blackboard has been involved in several patent infringement lawsuits with at least five companies and individuals since 2001, as both plaintiff and defendant.

In the Bilski case, Supreme Court justices will question a particular test used to decide if a process may be patented. The test says a process that uses a specific machine or transforms the physical state of something can be protected by a patent.

Critics of the test believe loose interpretations of it have led the patent office to award too many weak patents that disrupt fair competition and innovation. Now that test, or a new one, might be interpreted in a way that could shatter the validity of software patents or make them harder to acquire and defend.

“Putting thousands of issued software patents into question will cause a lot of uncertainties in the market, and uncertainty is always a bad thing in business,” said Marc Kaufman, an intellectual property and tech partner at Nixon Peabody LLP in Washington, D.C. “It’s highly unlikely that the Supreme Court will say that software…is banned from patent eligibility,” but any decision biased against software makes it harder for companies to protect their innovation and effectively compete in the marketplace.

In the opposing view are tech companies that believe patents stifle innovation. That camp includes Red Hat Inc., a major open-source software brand in Raleigh, North Carolina, which had $184 million in sales during the second quarter of its fiscal 2010 that ended August 31.

Open source refers to software code that isn’t patented and can be free or licensed to outside developers to be modified or built on. Kaufman argues that open source has been a catalyst for patent applications from companies that build on top of open-source software code, then want to protect their particular modification or improvement on it.

“Some of the parties pushing for a narrow interpretation of software-patent tests are doing it because they’re behind the curve on protecting their own innovations and don’t want others to have weapons,” he said. “It’s an opportunity to equalize the field.”