Software and Patents Still a Mess, 14 Years On

NEW YORK ( TheStreet) -- Ever since an appeals court held in the 1998 case of State Street Bank vs. Signature Financial Group that software could be patented, the "floodgates have been open," as CNET reported at the time.

The problem is that software consists of algorithms. It's math. Once you let people patent math, folks start turning everything into math and rushing to the patent office.

Two years ago, in a case called Bilski vs. Kappos, the Supreme Court was given a chance to clarify this bizarre concept. In a split decision, which I called the Roberts Court Innovation Tax from my post at ZDNet , they punted. While invalidating the patent at issue, they failed to give clear guidance for use in future cases.

Now the same United States Court of Appeals that heard State Street is being asked to take a third run at the question, Groklaw reports, in the case of CLS Services Ltd. vs. Alice Corporation Pty. Ltd.

The problem here isn't patents per se. As the blog PatentlyO wrote before this case was taken for re-hearing , the initial result, using a three-judge panel, could lead to any abstract idea becoming patentable, not just those describing a machine or other invention. It would be a major escalation of the patent wars.

The same blog suggests the court, as a whole, may look at the whole idea of software patents , but that seems unlikely. As Ars Technica notes, the case before the court only involves applying the vague rules in Bilski to another piece of financial software, the kind of program the State Street case was all about.

But do we need patents at all? A recent paper from The Federal Reserve Bank of St. Louis (PDF) offers the intriguing answer of "no."

The paper argues there is little evidence stronger patents spur innovation, that competition works better, that patents are more often used by incumbent market players to cement their positions, that all this costs money, and that over time any patent system becomes more restrictive against new competitors in the market.

Trouble is, as in legislative efforts aimed at patent reform, the same system that fails to protect competition in software is essential in areas like medical devices and drugs. The "Patent Wars," as Above the Law calls them, are mainly restricted to computing, and have been fought continuously since State Street.

The Above the Law article describes an Apple's ( AAPL) "invention discussion session," in which every software tweak engineers mentioned was called a separate patent by lawyers. Judge Richard Posner, who recently tossed Oracle's ( ORCL) patent claims against Google ( GOOG), has called the current system "chaos."

The obvious answer is for the court to revisit State Street, to strictly limit how much software can be patented, restricting patents to physical inventions that can be produced in the real world.

Such a decision would cost the patent bar (and our biggest high-tech companies) billions of dollars, but justice is also supposed to be blind and look out for the public interest, not any private one.

Too much to hope?

At the time of publication, the author has a position in AAPL.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.