Federal Court To Reconsider Software Patent Issue

A federal court is considering the definition of a "business method" patent as part of an appeals process that could affect the ongoing controversy over software patents.

On Feb. 15, the U.S. Court of Appeals for the Federal Circuit said it would review an appeal made in a case involving an application for a patent related to a method for managing risk in commodities trades. The judges will examine "whether a process is patent-eligible," according to the court order, and possibly reconsider a 10-year-old decision that upheld a patent for a system that optimized mutual funds. That decision, in a case called State Street Bank & Trust Co. v. Signature Financial Group Inc., opened the door for business method patents, which protect a process as opposed to, say, a chemical formula. It also reinforced the patentability of software algorithms.

The State Street Bank decision led to a flood of software patent applications. "That decision, coupled with the dot-com boom, brought about a lot of abuses in the patent system," says John Ferrell, a Silicon Valley patent attorney. Patents were granted, for instance, for obvious ways of conducting business on the Web.

The controversy over software patents has increased in recent years with the rise in interest in open source software. Open source advocates contend that software patents restrict innovation, and that almost all software is based on "prior art," which makes it unpatentable anyway.

But not everyone agrees that business method patents are at fault. One observer says it's simply incompetence in the Patent Office that has caused the dramatic increase in software patents granted in the last several years. "The majority of software patents are crap," says Greg Aharonian, publisher of Internet Patent News Service, "not because they're software patents, but because they're crappy patents."

Aharonian doubts the federal court will overturn the State Street ruling because there's too much legal precedence. But Ferrell says the court's action signals a shift, a desire to rein in vague and obvious patents that have led to legal system abuses, a poor perception of the Patent Office, and pending patent reform in Congress.