By Lawrence Hurley

WASHINGTON (Reuters) - The Supreme Court agreed on Friday to rule on the divisive issue of what kinds of software are eligible for patent protection in a case being closely watched by the technology industry.

The court's decision may prove key to deciding under what circumstances companies can be sued for using certain software in their products.

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.

With the rise of computer-based products in recent years, courts have struggled to apply patent law. Some legal experts, including the Electronic Frontier Foundation, a digital civil liberties group, say that courts are too keen to uphold patents on ideas that are too vague to deserve protection.

Such vague patents can be used against big tech companies, which say they are forced to spend money defending lawsuits instead of investing in research and development. Technology companies are particularly concerned about litigation brought by so-called "patent trolls," defined as companies that hold patents only for the purpose of suing other companies seeking to develop new products.

PATENT PROTECTIONS

Companies differ over what type of patent protections software products should receive. While some, like Google, favor looser protections, others, like International Business Machines Corp would prefer that most software be patent eligible.

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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.

"Hopefully, the case will accomplish at the Supreme Court what it could not at the Federal Circuit: greater clarity in the law," said Alice's attorney, Carter Phillips. CLS's attorney, Mark Perry, declined to comment.

The legal question boils down to how innovative an invention should have to be to receive legal protection.

The law in question is the U.S. Patent Act, which 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.

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."

Lemley wrote in an email on Friday that he expects the high court to agree with the appeals court that the patents in question were not patent eligible.

"But the devil will be in the detail of the court's opinion," he added.

Dennis Crouch, a professor at the University of Missouri School of Law who blogs about patent law, said he is amazed that courts have yet to determine once and for all that software can be patented.

The confusion has led patent lawyers to play down the software elements of inventions when applying for patents at the U.S. Patent and Trademark Office, he added.

"My hope is that this case will be a vehicle for the Supreme Court to clarify the law so that we can get back to business rather than playing language games at the patent office," Crouch said.

The case is Alice Corporation v. CLS Bank, U.S. Supreme Court, No. 13-298.

(Reporting by Lawrence Hurley; Additional reporting by Dan Levine; Editing by Howard Goller and Richard Chang)