Google Inc. owes its creation in part
to a patented software algorithm for ranking documents in a
database, issued to company founder Larry Page and owned by
Stanford University.

The world’s largest search-engine company contends that too
many other software patents hurt innovation more often than they
lead to viable businesses. Google, along with JPMorgan Chase
and the Yelp Inc. business-review site, say they need to be
able to quickly resolve cases in which a patent owner sues a
large number of companies over widely used software features.

An appeals court specializing in U.S. patent law will
consider the issue tomorrow, in arguments about when software
programs represent legitimate innovations and when they simply
computerize ideas that couldn’t otherwise be patented. The
question is important because challenging an invention’s
eligibility for a patent can be quicker and cheaper than
contesting a patent’s validity on other grounds.

“The patent system has had a hard time figuring out what
patents are valid when you are using a computer to make
something easier,” said Lynn Pasahow, who represented Inc. in its 1999 lawsuit alleging Barnes Noble Inc.
violated a patent for one-click shopping. “There’s an idea out
there that it’s like pornography, you know it when you see it,
or when the Federal Circuit or Supreme Court rules on it.”

The case before the U.S. Court of Appeals for the Federal
Circuit in Washington has divided technology companies that have
filed legal arguments with the court.

Patent Growth

Google, Facebook Inc. and Red Hat Inc. say patent standards
are too lax. International Business Machines Corp. warns that
stringent rules could stifle innovation. Computer software was
the fastest-growing area of patents between 1980 and 2005,
according to a report this month by the Brookings Institution, a
Washington research group.

While technology companies often use the derisive term
“trolls” for patent holders that don’t make products, they
direct particular ire at owners of software patents who sue
dozens, or even hundreds of companies claiming to have invented
aspects of widely used technologies like online shopping,
Internet mapping or tracking delivery vehicles.

Of the more than 5,600 patent-infringement lawsuits filed
in the U.S. last year, more than 12 percent were filed by just
10 companies over software, according to Bloomberg Law data.

“Coming up with a product that’s useful requires some
difficult and sophisticated programming — that’s the hard
part,” Suzanne Michel, Google’s senior patent counsel, said in
an interview. “You’ve got a system that’s over-rewarding the
easy stuff and blocking off the hard part of innovation.”

Unclear Rules

In the past, the legal rules weren’t clear enough for the
U.S. Patent and Trademark Office to reject vague applications,
said former PTO Director David Kappos, who left his post Feb. 1
and is now with the Cravath Swaine Moore law firm. That
doesn’t mean software patents aren’t valuable, he said.

“Look at Google — who would be the first of us to throw a
stone and say that wasn’t a great idea?” Kappos said. “If
you’ve got a patent and sue 50 to 100 manufacturers all at once,
what you’re really saying is that your patent covers the
problem, not the particular solution.”

The patents before the Federal Circuit concern a
computerized method for using an intermediary to make sure
buyers and sellers meet their obligations in stock and currency
trading. Patent owner Alice Corp., an Australian company jointly
owned by National Australia Bank Ltd. and Alice Ventures Pty,
filed infringement claims in 2007 against CLS Bank
, which settles about $4.5 billion foreign-exchange
transactions daily.

2011 Ruling

A federal judge in Washington ruled in 2011 that the idea
of using an intermediary to settle trades isn’t eligible for a
patent, and computerizing the notion didn’t make it patentable.

In a 2-1 decision in July, the appeals court reversed that
decision, ruling that Alice’s suit should proceed because the
patents cover “practical applications of the invention” and
not an abstract idea.

The Federal Circuit agreed to have all active judges on the
court rehear the case tomorrow, with a focus on how to determine
if a computer-implemented invention can be patented.

“There’s been a push for the past decade or even longer,
with voices saying these shouldn’t be patentable,” said Scott Doyle, a patent lawyer with Shearman Sterling in Washington,
who successfully represented Daimler AG’s Mercedes-Benz unit
against claims it infringed a patent for a monitor to detect
when a motorist is drowsy. “They are trying to figure out a
workable way to deal with these cases.”

Long-Standing Practices

The Clearing House Association, a trade group representing
the largest commercial banks, said in a filing that too many
patents simply add a computer to long-standing business

“Some software patents are dangerously broad and
dangerously vague,” said Julie Samuels, a staff lawyer with the
Electronic Frontier Foundation in San Francisco. “If I had a
magic wand and could go to day one, software should not be
patented at all. The harm software patents cause outweighs the

In the appeals court’s July ruling, Circuit Judge Richard Linn said that, unless it’s “manifestly evident” that patents
cover abstract ideas ineligible for protection, they should be
challenged on other grounds, such as whether they’re new or
obvious variations of others’ work.

Threshold Issue

A group that includes British Airways, Intuit Inc., Twitter
Inc., Yelp and SAP AG said the ruling may keep courts from
quickly resolving cases about patents that wouldn’t have been
issued under current standards.

“It encouraged trial courts to delay deciding this
threshold issue of law, allowing innovation-harming patents to
stand for months or years without any judicial scrutiny,” the
companies said in a Dec. 7 filing.

IBM, which has received the most U.S. patents for the past
20 years, said in a Dec. 7 filing that the “vast majority of
computer-implemented inventions are patent eligible” and
created technology that transformed society.

“Software patents as a class are under attack and have
been ever since the software industry began to rely on patent
protection as a rule rather than an exception,” IBM said.

The Business Software Alliance, whose members include Apple
and Microsoft Corp., said the Alice patents shouldn’t have
been issued because they cover “an idea that has existed in
non-digital form for millennia.” Still, the group said,
software inventions “constitute a growing and significant
portion of both the U.S. economy and U.S. export market.”

While the Federal Circuit will try to clarify the rules,
it’s unlikely to foreclose patenting of all software, said Erika
, a lawyer in Washington who represented a patent owner in
a 2010 Supreme Court case involving business method patents,
which often overlap with software.

“The court is aware that the patent office has been
issuing patents on software for 20 to 30 years, so there are
tens of thousands of patents that represent settled property
rights by inventors around the world,” she said.

To contact the reporter on this story:
Susan Decker in Washington at
[email protected]

To contact the editor responsible for this story:
Bernard Kohn at
[email protected]