The United States Supreme Court has decided to hear an appeal of a lower court decision that a federal judge called the "death" of software patents.
In a worst-case scenario for the high-tech industry, if the Supreme Court upholds the ruling it could invalidate many existing software patents or at least make them more difficult to defend in lawsuits.
Justices decided to hear an appeal from electronic marketplace Alice Corp, in its attempt to patent its computer-implemented escrow systems, software, and methods. It is being challenged by CLS Bank International.
The Supreme Court has already ruled that abstract ideas, natural phenomena and laws of nature cannot be patented but has refused so far to decide whether software, online-shopping techniques and medical diagnostic tests fit into that realm.
The US Court of Appeals for the Federal Circuit determined that Alice Corp's patents couldn't be granted. Five of the 10-member panel agreed that Alice's attempt to patent its way of using third-party escrow accounts to overcome the risks of fraud and non-payment were not eligible to be patented. The other judges concurred in part and dissented in part.
Dissenting judges called the decision potentially disruptive to the patent system.
"Let's be clear: 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," said Judge Kimberly Moore.
"There has never been a case which could do more damage to the patent system than this one," said Judge Pauline Newman.
Tech companies say software patents have played a critical role in keeping the US at the cutting edge by giving people control over their inventions for nearly 20 years.
Justices will hear the case next year.