The Supreme Court seemed to quickly recognize the danger of Flook and abandoned its logic a few years later in Diamond v. Diehr. However, the Supreme Court shares a trait in common with much of humanity: It hates to admit when it’s wrong. So, instead of overruling Flook, the Supreme Court pretended its new decision was consistent with Flook. So while it appeared the mutated line of cases was dead, it was merely dormant. A generation later, this would have dire consequences for software patents.
Beginning in the early 2000s, many high-tech companies began claiming that they were threatened by inferior patents directed at methods of doing business over the Internet. Not satisfied with a 2010 Supreme Court decision (Bilski v. Kappos) limiting business-method patents, these voices began crying out that all software patents threaten American innovation.
The Supreme Court again responded in 2014 in Alice v. CLS Bank, which revived the decades-old holdings in Funk Brothers and Flook. Alice built on longstanding law that abstract ideas by themselves are not patentable. Courts have treated the term “abstract idea” as shorthand for the general goal or purpose of the invention.
Alice held that a claim involving an abstract idea can never be patented unless it involves an “inventive concept” (e.g. unconventional computer elements) over and above the abstract idea itself. In other words, no matter how novel the goal or purpose of a software innovation, it cannot be patented unless it is implemented in a way that improves the computer’s performance.
Intangible assets, including intellectual property, constitute 80% of the S&P 500’s market value, up from just 20% in three decades. For Microsoft, intangible assets represent 95% of its value. Apple is the most valuable company in history. Since Alice, district courts have invalidated most software patents facing subject-matter eligibility challenges. How will the marketplace value companies whose real worth is tied up in computer-implemented innovations?
Thus, while Alice’s mutated interpretation of patent law provided immunity from litigation on many software patents, the question remains: Has weakened patent protection rendered the high-tech industry less healthy overall?