Anyone hoping that the U.S. Supreme Court would limit the ability to patent software will be disappointed by Monday's ruling.
The court ruled against patent applicants Bernard Bilski and Rand Warsaw (PDF), who in 1997 had tried to patent a process for hedging investments, a process of countering one investment risk with another.
But the majority of justices stopped far short of a broader ruling that would have curbed so-called business method patents -- and perhaps software patents as well.
"The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The court, therefore, need not define further what constitutes a patentable 'process,'" Justice Anthony Kennedy said, writing for the court's majority.
Kennedy rejected the idea, endorsed by a federal appeals court, of limiting what types of non-physical processes can be patented. Such a change "would create uncertainty as to the patentability of software" and "inventions based on linear programming, data compression, and the manipulation of digital signals," he wrote, before adding that the court was not addressing any of those technologies in Monday's ruling.
Advocates for software patents hailed the ruling. Tom Sydnor, a fellow at the free-market Progress and Freedom Foundation, called it a "moderate, sensible position" that "rejected implausible bright-line rules that would prohibit" patenting software or business methods.
"This is not the bright-line test anybody was hoping for," said Steven Bauer, an intellectual-property attorney and co-head of the Proskauer Patent Law Group. Instead, it will add another layer to every software patent case, requiring plaintiffs to show their patents aren't abstract ideas, he said.
The ruling left opponents of software patents disappointed.
"The landscape of patent law has been a cluttered, dangerous mess for almost two decades," Eben Moglen, chairman of the Software Freedom Law Center, said in a statement. "The confusion and uncertainty behind today's ruling guarantees that the issues involved in Bilski v. Kappos will have to return to the Supreme Court after much money has been wasted and much innovation obstructed."
The appeals court had said a patent on a non-tangible process can be granted only if it passes the so-called "machine-or-transformation test" -- that is, if it's "tied to a particular machine or apparatus," or if it "transforms a particular article into a different state or thing." But the Supreme Court rejected that concept, saying the machine-or-transformation test is not the sole means of determining whether a process is patentable.
Perhaps the most interesting portion of Monday's ruling is the concurrence by Justice John Paul Stevens, joined by Ruth Bader Ginsburg, Stephen Breyer, and Sonia Sotomayor.
Stevens wrote that "methods of doing business are not, in themselves," permitted to be patented under federal law, which suggests that he and a minority of his fellow justices would also eliminate software patents.
"The breadth of business methods, their omnipresence in our society, and their potential vagueness also invite a particularly pernicious use of patents that we have long criticized... Patent holders may be able to use it to threaten litigation and to bully competitors, especially those that cannot bear the costs of a drawn out, fact-intensive patent litigation... Of course, patents always serve as a barrier to competition for the type of subject matter that is patented. But patents on business methods are patents on business itself. Therefore, unlike virtually every other category of patents, they are by their very nature likely to depress the dynamism of the marketplace."
In the United States, software patents have been granted since the 1980s. They've had some disruptive effects: the patent on the Lempel-Ziv-Welch, or LZW, compression algorithm used in GIF images forced the creation of the alternative patent-free PNG format. The patent on MP3 compression technology, which ensnared Microsoft, led to the patent-free Ogg Vorbis audio format.
Free-software aficionados have long worried that their projects could be shuttered because of patent threats from companies with the means and motive to litigate. Microsoft said in 2007, for instance, that Linux violates 235 of its patents.
And the End Software Patents coalition estimates that $11.4 billion is wasted every year on litigation over software patents, with 55 software patent lawsuits filed every week.