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Supreme Court Recognizes Limits in Software Patentability

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The Supreme Court unanimously upheld the patentability of software Thursday in a closely watched case, but raised the bar on what types of software are protected.

The court ruled that it was not enough to implement an abstract idea on a computer, but that only software that advanced or improved existing ideas could be patentable.

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Today's ruling affirmed a lower-court decision that found that CLS Bank International, an international finance company, hadn't violated the intellectual property rights of Alice Corp., an Australian-based company with patents describing what's essentially a computerized escrow system for settling payments.

Notably, the court did not throw out the idea of software patentability, which some companies had worried might happen. The justices took a more narrow path, saying that inventors or companies don't deserve patents on abstract ideas that are only new because they've been implemented on a computer.

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The court found that digitizing an abstract idea like escrow and putting it on a computer isn't enough to warrant a patent. Software and technological advances that improve on an idea can be patentable, but the court found in this case that Alice Corp.'s invention didn't really do that.

Alice Corp. did not "purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field," Justice Clarence Thomas wrote on behalf of the court.

"Here, the representative method claim does no more than simply instruct the practitioner to implement the abstract idea of intermediated settlement on a generic computer," the justices said. "Because [Alice Corp.'s] system and media claims add nothing of substance to the underlying abstract idea, they too are patent ineligible."

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Last year, the U.S. Court of Appeals for the Federal Circuit, which hears patent appeals, found in favor of CLS but the judges couldn't agree on why and issued six different opinions. The court's muddled decision provided little clarity for the intellectual property community, which has struggled with software patentability questions.

CNBC's parent NBC Universal is an investor in Re/code's parent Revere Digital, and the companies have a content-sharing arrangement.

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