The Supreme Court has agreed to hear a case on how far software patents can go in covering an abstract idea. Today, the court said it would take on CLS Bank v. Alice Corp., a contentious decision over online trading tools. Next year, it will have to decide whether a handful of patents should be thrown out for cloaking a basic concept in technical terms — or whether doing so would effectively invalidate all software patents.

Alice Corporation develops financial software tools, and it promotes its patent portfolio heavily. In that portfolio are four filings for an electronic trading platform that lets a third party manage trading obligations between two other groups — ensuring that one side isn't able to unilaterally back out of the deal. And according to Alice, CLS Bank used the ideas it developed to create its own trading platform. One example, patent 5,970,479 ('479), covers the process of holding "shadow" balances for each party in a trade, tallying money until the end of a day and then giving each a net credit or debit. While Alice described it as a concrete software tool, though, CLS argued that this was essentially just the description of escrow, not any kind of actual innovation.

"This case is the death of hundreds of thousands of patents."

Lower courts proved bitterly divided on the issue. Ultimately, judges decided that Alice's patents weren't enforceable and consisted of little more than a basic concept; in a previous trial, a judge had said the system behind them "is not just abstract; it is also literally ancient" — pointing to a paper on early Roman trading practices. But a dissenting opinion from Judge Kimberly Moore and others said that if these patents weren't enforceable, virtually no software patents would be. "If all of these claims, including the system claims, are not patent-eligible, this case is the death of hundreds of thousands of patents, including all business method, financial system, and software patents as well as many computer implemented and telecommunications patents." The Supreme Court's previous decisions, dissenting judges said, involved patents "reciting a method and simply saying 'apply it' on a general purpose computer," not actual descriptions of software.

The Supreme Court dealt with a similar case last year, when it decided WildTangent v. Ultramercial, a dispute over a patent that essentially covered online advertising. In that instance, it sent the case back to the federal courts for review, and the issue now being appealed again. Past cases suggest that Supreme Court judges are willing to rule against patents that outline a specific technical application of an obvious idea, and it seems possible that this decision will fall in line. It's not clear where that would leave software patents as a whole, though it would at the very least make them harder to defend.

Software patents have come up again and again in reform efforts, and some judges said that the real issues may be beyond a court's capacity to settle. "Congress can, and perhaps should, develop special rules for software patents. It could, for instance, limit their life by limiting the term of such patents," Judge Richard Lin said in an opinion. "But broadening what is a narrow exception to the statutory definition of patent eligibility should not be the vehicle to address these concerns. While Congress may, this court may not change the law to address one technological field or the concerns of a single industry."