Analysis: The Supreme Court Rulings and Their Impact on Software

Last Monday, the US Supreme Court issued two landmark rulings, whose importance lay in the legal foundation of their final judgments. On the surface, the justices ruled that exported installation files are exempt from US patent law protection, and that it's okay for someone to make and market a better gas pedal.

But the foundation of the AT&T v. Microsoft ruling was that abstract renderings of software, such as source code, don't count as the software itself - thus, you can't patent source code. (You can copyright it, but that's another matter.) And in the equally important KSR v. Teleflex ruling, if someone sees an obvious way to improve a patented device, it can't be considered patent infringement if he markets that improvement. Thus conceivably, software that improves the operating efficiency of some other patented software - for example, a third-party filter for a codec - can't be considered an infringement of the patent holder's rights.

You can set out to improve any software, and you can even set out to write the code to do it. And so, the long, arduous process of instituting real patent reform in America has finally begun. We asked our frequent contributor, Info-Tech Research senior analyst Carmi Levy, to size up the impact of these two rulings on the markets he covers:

This is good news for anyone who believes that the patent system is in serious need of repair. It shows the US Supreme Court's recognition of limits that have to be placed on the scope and applicability of patent-related claims in the absence of full-blown patent reform. This reform will no doubt occur at some future point in time. But until it does, the courts need to figure out an acceptable means of compromise. This ruling could be a harbinger of how the court will keep things somewhat controlled until the patent laws themselves are fundamentally updated.

The patent system is as broken today as it's ever been. It's over 200 years-old, and it is woefully unable to keep pace with the depth and pace of technological change inherent in the markets whose behavior it attempts to regulate. These shortfalls have made it relatively easy for lawsuits that should never have seen the light of day to be launched. The intellectual property (IP) ground rules need to be firmed up, and curbing the ability of plaintiffs to pursue offshore claims seems like a worthwhile place to start.

We chatted with Carmi yesterday about this in further detail. We asked him first whether he thought these rulings were the signal that it's time to start revisiting recent patent decisions, and their viability under the new way of interpreting the law.

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CARMI LEVY, InfoTech Research: Well, you know, the patent courts are already so far backlogged and so far behind the pace of technological change that this would add an even more onerous level of activity on an institution that's already struggling to keep up. The truth of the matter is, all the resources in the world will not allow our court system, and certainly the patent system, to review patents that are already on the books and summarily throw them out, because they've now been redefined as expressions of an idea and not mechanical entities. Practically speaking, it would be impossible to ever pull that off in the realm of today's judicial and business reality.

SCOTT FULTON, BetaNews: I would think, in order for that to happen, somebody would have to issue the legal challenge.

"I think America needs to decide what it wants to be when it grows up: Does it want to have all of its businesses duking it out in court, the marketplace?"

Carmi Levy, Senior Research Analyst, Info-Tech Research

CARMI LEVY: Exactly, they have to be patents that are materially significant in today's market, that companies are actually in the process of disputing or that can potentially drive future business opportunity, such as the fact that it's a patent sitting on the books will not merit a suit being launched, not merit a challenge being launched. Truth of the matter is, there has to be money on the table, and there has to be some kind of opportunity that can go one way or the other before anybody would even want to take notice. However, looking at recent patent fights, obviously there are some patents that are worth more than others. Once you get into the millions or tens of millions or hundreds of millions of dollars range, now we're talking real money. So certainly it will give some organizations pause to dig into the stacks of patents, to start rooting out that they feel do have some kind of material value in the marketplace.

SCOTT FULTON: Because suddenly source code no longer falls under patent protection in and of itself, it suddenly requires copyright protection. And I don't know that there's a movement to create that lever that catalyzes the reform of copyright law to include it on the other side. I'm thinking there might be an interim period where source code exists in this kind of netherworld of, we don't know what it is.

CARMI LEVY: And I think there's going to be a bit of a boomerang, or a lag effect, as the overall software market, and indeed the world of technology, as they come to grips with essentially what this means to the creation, ownership, and management of intellectual property. The fallout for this both is, and will continue to be, significant for all players, and I think we're only beginning to understand what those implications are. It's going to be a fairly long road before we begin to actually see the tangible results of that fallout.

Next: What happens to "technology licensing companies?"

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