Supreme Court seems ready to kill patent for computerized risk analysis

WASHINGTON — The Supreme Court sounded ready Monday to curtail the use of certain business patents in a case involving a patent for a computerized risk analysis of international financial transactions.

Use of such business-method patents has soared in recent decades. Once granted, they can give a firm or a person a monopoly for up to 20 years to profit from the patented process.

Critics say many of the recent computer-related patents are vague and stifle innovation by giving exclusive rights to commonly used methods or formulas.

In recent years, all nine Supreme Court justices have voiced concerns about the expanding use of patents, saying at one point that “abstract ideas” are not eligible for patents.

They unanimously voided patents for human genes, for mathematical formulas that help companies save on energy, and for systems that help doctors decide on the right dosage of a particular drug for an individual patient.

In their attempt to clarify rules to distinguish true inventions from useful ideas that rely on a computer program, justices on Monday sounded more determined than ever to call a halt to patents for computer-driven formulas that hedge risks or predict outcomes.

In Monday’s hearing, National Australia Bank subsidiary Alice Corp. of Melbourne defended its U.S. patent for the computerized formula. Carter Phillips, attorney for Alice, said the system monitors “literally a global set of deals that are going on simultaneously” to make sure the transactions go through as intended.

But Justice Stephen G. Breyer said the formulas resembled computerized versions of his mother’s low-tech method for determining when he should stop spending. She “used to look at my checkbook, and when she saw that in fact I had written more checks than I had in the account, she would grab it and say ‘Stop!’” he said.

Breyer said he worried about the impact on innovation. “Instead of competition based on price, service and better production methods, we’ll have competition on who has the best patent lawyer,” he said.

Justice Anthony M. Kennedy said he also found the underlying idea too simple to be patented.

“If you describe that to a second-year college class in engineering and said: ‘Here’s the idea. You go home and program it over this weekend,’ my guess is that would be fairly easy to program,” Kennedy said. The trading system may be driven by a computer program, but “all you are talking about is an idea,” he told Phillips.

Solicitor Gen. Donald Verrilli Jr. also urged the court to rule that useful business ideas are not eligible for patents. If a computerized hedging strategy can be patented, “it’s hard to see why, for example, the first person who came up with a frequent flier program wouldn’t have been able to claim a patent there,” he said.

The case has attracted the attention of high-tech industries.

Google Inc. and Amazon.com Inc. filed a joint friend-of-the-court brief urging the court to put tighter limits on patents. “A plague of abstract computer-related patents is impairing and taxing innovation in the high-tech sector,” they said.

Others worried that a broad ruling could cast doubt on all patents for computer software. Justice Sonia Sotomayor asked whether email or word processing would be at risk.

No, the lawyers said, because those involve technological advances for computers, not simply running programs on a computer. If the software “improves the functioning of the computer,” it is eligible for a patent, Verrilli said.

He urged the justices to issue an opinion saying business methods and computerized hedging formulas are not eligible for patents. “It’s important to our patent examiners that we get some clarity,” he said.

Also in need of clarity is the special court that handles patent appeals. Despite the high court’s recent rulings, its judges split 5 to 5 last year and were unable to rule on whether the Australian banking firm’s computer formula should have been awarded a patent.

A decision is expected in late June in the case of Alice Corp. vs. CLS Bank International.

david.savage@latimes.com