U.S. Appeals Court Hands Down Landmark Patent Ruling

Bob Preston
WASHINGTON — The U.S. Court of Appeals for the Federal Circuit has ruled that software must affect the physical world in some way in order to be eligible for a patent.

The decision overruled an earlier case, State Street vs. Signature Financial, which gave companies the ability to patent a piece of software provided it met certain requirements for being useful and innovative.

The new decision, referred to as In Re Bilski, overturned the provisions of that case, including:

  • The existing test called for software to produce a "useful, concrete and tangible result." The court rejected that.
  • In order to be eligible for a patent, a piece of software must operate a machine or otherwise transform something from one state into another.
  • Software patents issued under the previous standard are no longer valid.
Opponents of the decision lamented that the court has sabotaged the ability of businesses to make money from useful software.

"This decision is not only intellectually dishonest, but it is also straight-up stupid," said Gene Quinn of the Practicing Law Institute. "At a time when our economy is on the brink of a collapse that none of us have ever witnessed during our lifetime an activist court ought not to be legislating from the bench, far overstepping any legitimate boundaries of appellate practice and rendering a decision that will cost U.S. companies billions of dollars. That's right – billions of dollars. In one fell swoop much of the Microsoft patent portfolio has gone up in smoke."

But proponents of open-source software see the decision as a major victory.

Jason Schultz, acting director of The Samuelson Law, Technology and Public Policy Clinic at UC Berkeley, said that software companies will see fewer "frivolous" lawsuits in the future.

"We've seen a rise in the number of lawsuits against tech companies in the IT area specifically," he said. "Many are very questionable patents, and the patent office is overwhelmed. It will reduce the number of patent applications, which are filed in the IT space –especially by these questionable entities or companies trying to patent trivial things."