From whence does the law of what can be claimed in a patent derive?

Legislative: There is basically nothing. To date, Congress has handed off this question to the other branches.

Executive: There is the USPTO's Manual of Patent Examination and Procedure (MPEP), which is their attempt to interpret the existing judicial rulings in a coherent manner.

Judicial: Because the other branches are currently leaving it up to the courts, the existing law by which a claim is judged is entirely from the courts.

The Supreme Court made three rulings regarding whether software is patentable: Gottshalk v. Benson, Parker v. Flook, and Diamond v. Diehr. These can easily be read as the Court dealing with the question of what is a general-purpose computer and how it differs from a patentable device. The first two rulings stated, hands-down, that software should not be patentable, even if the mathematical formula embodied in the software is "useful" for human affairs, and even if there is a physical last step, which the Flook ruling called "post-solution applications of such a formula." The third ruling, Diamond v. Diehr, allowed a patent on complex machinery to stand. The conclusion of the ruling is worth reading in its entirety, because it is the axis around which the "what is a general-purpose computer" definition revolves:

We have before us today only the question of whether respondents' claims [are] patentable subject matter. We view respondents' claims as nothing more than a process for molding rubber products and not as an attempt to patent a mathematical formula. We recognize, of course, that when a claim recites a mathematical formula (or scientific principle or phenomenon of nature), an inquiry must be made into whether the claim is seeking patent protection for that formula in the abstract. A mathematical formula as such is not accorded the protection of our patent laws, Gottschalk v. Benson, and this principle cannot be circumvented by attempting to limit the use of the formula to a particular technological environment. Parker v. Flook. Similarly, insignificant postsolution activity will not transform an unpatentable principle into a patentable process. To hold otherwise would allow a competent draftsman to evade the recognized limitations on the type of subject matter eligible for patent protection. [*]On the other hand, when a claim containing a mathematical formula implements or applies that formula in a structure or process which, when considered as a whole, is performing a function which the patent laws were designed to protect (e. g., transforming or reducing an article to a different state or thing), then the claim satisfies the requirements of 101. Because we do not view respondents' claims as an attempt to patent a mathematical formula, but rather to be drawn to an industrial process for the molding of rubber products, we affirm the [validity of the patent].

The axis of the Diehr ruling is that "On the other hand" phrase on the starred line ("[*]"). The lines before stated software loaded onto a general-purpose computer is not what patents are about, and the line after the star states that when a device is transforming matter and curing rubber, then that's a real live machine.

So far, it's all wine and roses: we have a specific discussion of what can be claimed, and it excludes pure software on the one hand but allows a machine with task-specific code to be patented as a machine.

Omitting a ruling or three, the Court of Appeals for the Federal Circuit then took over. I have nothing nice to say about the CAFC, so I won't say anything. But these are the guys who ruled on In re Alappat, which I mention as the single thorn in our campaign's side.

In re Alappat was yet another case over a software device, and the court used only the second half of the above Diamond v. Diehr ruling-- "patent laws were designed to protect ... transforming or reducing an article to a different state or thing ..." and pointed out that programming a stock computer with software creates a "new machine." After all, the memory on the computer is transformed to a different state. That's why we computer geeks call it a state machine.

In other words, they threw out the entire debate about distinguishing between a general-purpose computer or a specialized device, and just said it's all patentable.

So once In re Alappat was accepted, business method patents and tax loophole patents followed naturally. By eliminating Diehr's balance between "insignificant post solution activity" and bona fide machines, everything became patentable.

The important part of this narrative is that In re Alappat threw out the question of what is a general-purpose or special-purpose computer as just irrelevant and not worth debating.

And that, dear reader, is where software patents come from. And that is why we must end software patents.