Software Innovation After Alice

Written by Christopher Shoup

Image by You Belong In Longmont, CC-BY 2.0 License.

The Supreme Court decided Alice Corp. v. CLS Bank Int’l in June 2014, a decision which greatly restricted the scope of patentability for software innovations. The case concerned an electronic escrow service—a computer program that acted as a “third party intermediary” between two negotiating parties and ensured that both would meet their financial obligations. The primary question for the Court was whether the patents were for “abstract ideas” and thus ineligible for patent protection under 35 U.S.C. § 101. The Court decided the inventions were not eligible for patent protection, holding that the claims merely “implement[ed] the abstract idea of intermediated settlement on a generic computer”.

Unsurprisingly, this holding – that software that applies well-known actions is patent ineligible – has profoundly impacted the state of software patents in the United States. Already-issued patents have felt the most tangible impacts of the decision; as of 2016, a total of 378 software patents have been invalidated out of a total of 568 challenges (66.5%). A loss in patent protection could, at the very least, be expected to hamper innovation and growth in the software industry. However, the industry’s metrics since Alice was decided in 2014 demonstrate that did not happen. In fact, the software industry appears to be thriving both in growth and patent applications.

According to CompTIA, after the Alice decision in 2014, the software industry witnessed a remarkable increase in job opportunities. The number of job opportunities increased over 50%—from just above two million to nearly 3.5 million openings. In 2016, the number of positions was still 2.5 million. While the number of employment openings lowered in 2016, it still remained above the pre-Alice numbers. Additionally, the Bureau of Labor statistics has predicted that software publishers would feature the highest rate of growth of real output, at 4.7% annually until 2024. The projections also placed the rate of salaried employment growth at 2.3%. Lastly, just looking at the USPTO data shows that the number of software patent applications has remained relatively consistent with all other patent categories. From the above data, it appears that Alice’s impact on the viability of software patents was lower than expected, or even non-existent.

One explanation for these results is that the software industry features a higher level of internal motivation to spur development, despite less extrinsic incentives (patent protection). An example of internal motivations is the rise of open-source software, the development strategy wherein software developers and rights owners provide the source code and licenses to modify/utilize the code for free to the public—essentially treating software as a public good. When open-source developers seek patents, they typically do so not out of desire for licensing, but rather out of defensive necessity. The process is known as defensive patenting and typically includes the issuance of non-enforcement statements, which are promises that a patentee will not sue others for infringement of the patent. Further, such software developers typically contract “patent peace provisions” that prohibit contributors to the code from attacking one another, or even the original patent holder. Overall, the example of open-source development may imply that software developers care less for the monetary benefits of patents and are therefore less impacted by the restriction Alice placed upon the art unit.

Overall, the lasting impact of Alice has yet to be seen in the four years since the decision. Even with the Court’s harshly anti-software stance, the software industry appears to be flourishing. The high level of independent motivation present in software development is one possible explanation for this resilience.