Editorial: A welcome crackdown on patents

The Supreme Court moved again Thursday to rein in patent lawsuits, something it’s been doing with remarkable regularity in recent years. This time, the court invalidated a common type of software-based business method patent because it doesn’t involve any actual invention. The court stopped short of barring patents on any type of business method — which three justices wanted to do — or software program. Nevertheless, the spate of recent patent rulings should help clear a path for more innovation by cracking down on vague and overly broad claims, which have given patent holders too much power to block unrelated inventions and deter investment.

This court has taken up a growing number of important patent law cases as patent litigation has surged, and its rulings on them have usually been unanimous. That alone stands as a loud and unmistakable rebuke to the U.S. Patent and Trademark Office, which approved the patents that the Supreme Court rejected, and the Federal Circuit Court of Appeals, whose rulings have misguided patent examiners. But the justices’ repeated interventions are also a not-so-subtle critique of Congress, which has failed to curb the patent “trolls” that accumulate broadly written patents, then threaten alleged infringers with lawsuits unless they pay questionable licensing fees.

The latest case focused on a dispute between Alice Corp., which developed and patented an electronic marketplace for financial derivatives, and CLS Bank, which operates a clearing house for currency trades. Writing for the court, Justice Clarence Thomas held that Alice Corp.’s patents were based on an abstract idea — the long-standing industry practice of completing trades through an intermediary to guard against fraud — that was not itself patentable. The mere fact that Alice Corp. used software and computers to implement the practice didn’t magically transform it into a real invention.

The decision should make it impossible to obtain a patent for automating a basic business concept, which is what too many business method patents do today. More subtly, it also set a higher standard for software patents in general by suggesting that they must improve how computers function, not simply use them in a new way.

As the founders recognized, patents have an important role to play in encouraging people to make risky investments in research and development, and then share their knowledge with the public. But the rewards of the system have been diminished by bad patents and practices that defy the founders’ goals, making innovation risky and encouraging people to keep advancements secret. The court’s ruling in the Alice Corp. case should help reverse some of those practices and allow real innovation to flourish.