The recent Supreme Court decision in Alice v. CLS Bank has left the patent world in a quandary regarding the patentability of software and computer-implemented inventions. As so often happens when the Supreme Court weighs in on patent law its decision raises more questions than it answers.

Oddly enough, despite the volumes of commentary regarding Alice's implications for software patents, it is worth noting that the word “software” appears nowhere in the opinion. As it happens, this is all for the better, because the much-ballyhooed distinction between hardware and software is (or should be) irrelevant with regards to patentability. Hardware circuits are logically equivalent to software code. As summarized by A. S. Tanenbaum in Structured Computer Organization (2nd Ed.) (1984), “Any operation performed by software can also be built directly into the hardware and any instruction executed by the hardware can also be simulated in software…Today's software is tomorrow's hardware, and vice versa.”

The real question is not the patentability of software per se but whether there is an actual invention, regardless of the specific medium in which it is implemented. As Justice Thomas states in Alice, does the claimed invention “purport to improve the function­ing of the computer itself or effect an improvement in any other tech­nology or technical field”?

Section 101 of the patent statute (35 U.S.C.) covers eligible subject matter, which includes “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.” The Supreme Court has carved out exceptions under §101 for “laws of nature, natural phenomena, and abstract ideas.” In invalidating the Alice patent the Supreme Court focused on the abstract nature of the invention and applied a two-step test: 1) “First, we determine whether the claims at issue are directed to one of those patent-ineligible concepts,” and 2) “If so, we then ask, ‘[w]hat else is there in the claims before us?'”

The million-dollar question (billion-dollar perhaps?) never explicitly answered by the Supreme Court is what exactly constitutes an abstract idea with regards to excluded subject matter. Instead, the Court approaches abstract ideas in much the same way it has pornography: “I can't define it, but I know it when I see it.”

Unfortunately, the Supreme Court does not know an abstract idea when they see it. Throughout Alice the Court uses “abstract” when they really mean well known. In Alice (and Bilski before it) the Court treats the practices of financial hedging and intermediated settlement of accounts (i.e. clearinghouses) as fundamental “building blocks” of modern commercial culture and a “fundamental economic practice.” However, neither practice is an abstract idea. The true abstract ideas at issue include uncertainty, supply and demand, profit and loss, counterparty risk, etc. The practices of hedging and clearinghouses are sophisticated solutions that evolved over time to deal with these fundamental abstract ideas. Neither practice is obvious or given but is, in fact, the product of human design and innovation (and one would imagine quite a bit of trial and error) over centuries.

Further to this point, the Court's treatment of the financial practices in both Bilski and Alice is largely framed in historical terms. Specifically, the Court observes, “Like the risk hedging in Bilski, the concept of intermediated settlement is ‘a fundamental economic practice long prevalent in our system of commerce.'” The key phrase is “long prevalent.” These financial practices are concrete, practical methods. The problem with the Bilski and Alice inventions was not that they were abstract. It was that they were invented centuries earlier. The only “invention” in both cases was to take a well-known method and automate it with computers. In other words, they were painfully obvious.

Alice, like Bilski before it, is a wonderful example of reaching the correct result for the wrong reasons. These patents should not have been invalidated under §101 because they were drawn to ineligible subject matter. They should have been invalidated under §103 for simple obviousness. While the end result is the same for the parties involved, the flawed line of reasoning used by the Court affects us all. Alice adds confusion to the issue of eligible subject matter where none was needed. The substance of the Court's reasoning is more applicable to §103, thereby creating confusion as to which code section and standards should be applied in evaluating patent claims both during examination as well as in litigation.

However, let us be blunt. Historically software patent applicants have not done themselves any favors by claiming extremely broad “inventions” with little substance or technical detail. Amazon's one-click shopping patent is perhaps the most infamous and will likely remain the textbook example for decades to come. To a certain extent, the decisions in Bilski and Alice can be viewed as self-inflicted wounds. Many software-related inventions are so broad and general in scope they come across as vague ideas rather than concrete inventions. This has landed them under §101 analysis when in fact they were simply obvious and most likely inadequately enabled.

In light of recent developments, those applicants seeking patent protection for computer-implemented inventions would do well to strive for technical specificity and detail not only in the application specification but also in the claims. In the past, I have encouraged applicants to explain in detail what is happening “under the hood” and the challenges encountered in making that happen. Nowadays, I would go a step further and not only pop the hood but also take the engine apart. Quite often the real invention is not the overall combination of parts (however unique that might be) but the specific way in which they fit and work together.