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UPDATE 1-U.S. Supreme Court to decide whether software can be patented

Lawrence Hurley
Friday, 6 Dec 2013 | 1:05 PM ET

WASHINGTON, Dec 6 (Reuters) - The U.S. Supreme Court on Friday agreed to decide on a key software industry issue of which kinds of computer-related software are eligible for patent protection.

The court said in a one-line order that it would hear a case brought by Alice Corporation Pty Ltd, which holds a patent for a computer system that facilitates financial transactions. The patent is challenged by CLS Bank International. The court took no action on another case raising the same issue involving a patent dispute between WildTangent Inc and Ultramercial Inc.

The deep interest that the software industry and patent experts have in what is a threshold issue in patent litigation was underscored by the number of companies and industry groups that asked the court to decide the issue.

Companies including Google Inc Hewlett-Packard Co , Facebook Inc and Netflix Inc had already signaled their interest in the issue by asking the court to hear the WildTangent case. Many also filed briefs in lower courts.

Many in the industry want clarity in the law in large part because the U.S. Court of Appeals for the Federal Circuit, 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.

Mark Lemley, a patent law expert at Stanford Law School, wrote in a brief filed on behalf of Facebook and others that the appeals court had left the law "hopelessly confused."

Even those who have no position on what test courts should use, including the New York Intellectual Property Law Association, said the Supreme Court needed to decide the issue.

What can and cannot be patented is of key interest to the software industry, which generates much of its profits from its intellectual property.

The Alice case concerns an invention developed in the 1990s by Ian Shepherd who built a computer-based trading system for creating and exchanging financial instruments, including derivatives. Alice, which is half owned by National Australia Bank Ltd, was challenged by CLS, part of CLS Group Holdings AG, in a 2007 lawsuit. CLS said four patents were invalid. A federal district court ruled in favor of CLS in March 2011 and in May this year a divided appeals court agreed, although judges differed on what approach to take.

The court is likely to hear oral arguments in March and issue a ruling by the end of June. The case is Alice Corporation v. CLS Bank, U.S. Supreme Court, No. 13-298.

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