The US supreme court delves on Monday into the hotly contested question of when software is eligible for patent protection.

The nine justices will hear a one-hour argument in a case of interest not just to software companies but also to a wide range of businesses that sell products containing computer-implemented features. The ruling, expected by the end of June, will affect companies involved in such industries as healthcare, IT, communications and high-tech engineering.

The case before the US's highest court involves Alice Corporation, which holds patents for a computer system that facilitates financial transactions. The patents are challenged by CLS Bank International, which says they are not patent eligible. In May 2013, the federal appeals court ruled for CLS but the judges were split on which legal test to adopt.

But it's not just the two sides which are interested in the outcome. Google, Dell, Verizon Communications, Microsoft, Hewlett-Packard and engine manufacturer Cummins are among the companies that have filed legal papers weighing in on the issue.

The legal question boils down to how innovative an invention should be to receive legal protection. The US Patent Act states that anyone who "invents or discovers a new and useful process, machine, manufacture, or composition of matter", or an improvement of an existing one, can get a patent. An invention related to an abstract idea can be patented, but it must include a way of applying the idea.

Ain't got algorithm

The supreme court ruled in the 1970s that an algorithm – a set of simple instructions on how to carry out a task – is not itself patentable. That would suggest that anything which can be carried out solely by a computer is not patentable, because a computer program is by definition an algorithm. But lower courts in effect ignored that, affirming patents that were written and functioned solely on computers without human interaction. Alice Corporation says that because its idea requires the use of a computer, it is patentable. But there has been dissent among judges over whether that makes it patentable under the supreme court rulings of the 1970s – which have never been reversed, and are supposed to be authoritative.

Companies vary over what kind of eligibility threshold they would prefer. Those that often get sued for patent infringement, such as Google, favour a tighter definition. Those that want to protect their own patents, such as IBM, would prefer that most software be eligible for patenting.

With the rise of computer-based products, courts have struggled to apply patent law. Some legal experts, including the Electronic Frontier Foundation, a digital civil liberties group, say that the US Patent and Trademark Office issues too many patents, and that courts are too keen to uphold them. In 2011, the USPTO granted almost 125,000 software patents, up from about 25,000 in 1991, according to a report in August 2013 by the US Government Accountability Office (GAO).

Trolling takes its toll

Tech companies are especially concerned about litigation brought by so-called "patent trolls", also known as "non-practising entities" (NPEs), defined as companies that hold patents only for the purpose of suing other companies that are seeking to develop new products, rather than making any products that use them. The resulting litigation stifles innovation, the companies say. Congress is considering legislation aimed at reining in patent trolls.

Between 2007 and 2011, NPEs accounted for an estimated 19% of all patent infringement lawsuits, according to the GAO report.

Patent owners that do not manufacture products are much likelier than ones that do to bring lawsuits based on software inventions, according to a study released last week by RPX, a publicly traded patent clearinghouse.

The US court of appeals for the federal circuit in Washington DC which has primary responsibility for interpreting patent law, has struggled to adopt a test that judges can use to review software patent claims, with various judges reaching different conclusions.

The problem stems from cases filed in the 1970s, when the US software industry was just beginning to find its feet – and sought patent protection, rather than copyright protection. While copyright protects the precise content of something (and is applied to computer programs), patent protection in software would prevent a rival from imitating its functionality while not having used precisely the same code to achieve it.

Curable success

Though US software companies were initially unsuccessful, a key case in 1981 did open the door to software patents, when the makers of a rubber-curing system which involved a computer for measuring and reacting to temperatures. Because it linked a real-world application to the computer, the supreme court allowed the patent.

Since then software patents which have real-world interaction have been allowed – opening the floodgates to the problems that now plague both large and small companies. The European Union has never allowed "pure" software patents, and has been tougher on patent claims that involve software.

By coincidence, the supreme court hearing comes as Apple and Samsung, the world's two biggest smartphone and tablet makers, are beginning a trial in San Jose over allegations that each has infringed the other's patents – much of which rely on software. But some of the patents involve human interaction with the computer (in the form of the phone), and so would still exist if the supreme court were to strike out pure software patents.

Trading Technologies International, which sells software for use in derivatives trading, is one of the companies that favours broad patent eligibility.

Steven Borsand, the company's executive vice president for intellectual property, said his company relies heavily on its patents. It successfully sued a unit of Cantor Fitzgerald for infringement and has settled other cases, he said.
Borsand said he was concerned that in seeking to target patent trolls the high court also would hurt businesses that are making legitimate use of their patents.

"We spend a lot of money developing stuff. Once it's out there, it's pretty easy to copy," he said. "That's what happened."

Daniel Nazer, an attorney with the Electronic Frontier Foundation, said that restrictions on patent eligibility would lead to greater innovation because companies would be forced to come up with new products instead of relying on patent protections.

"That's how people get cheaper, better products," he said. "You stay a step ahead."

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