Melbourne firm's case tests U.S. patent system

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Melbourne firm's case tests U.S. patent system

Lawsuit over foreign exchange system continues.

Lawyers for Melbourne-based Alice Corp, a firm 50 percent owned by the National Australia Bank,  spent Friday in the U.S. Court of Appeals, endeavouring to have its successful lawsuit against a US-based firm for patent infringement held up.

Alice Corp sued CLS Bank International in 2007 for patent infringement over its use of a foreign exchange settlement system.

The case has been closely watched by Google, Facebook and other technology companies, as it may steer future decisions on U.S. rules for granting patents for software, or if software should be patented at all.

The case began in 2007 when Alice Corp sued CLS Bank International for patent infringement. CLS, which runs a foreign-exchange settlement system, argued that the Alice patents were invalid because they were nothing more than an abstract idea.

In July, a panel of the appeals court agreed with Alice in a 2-1 decision. 

Google, Dell and Facebook filed a friend-of-the-court brief criticising that decision, arguing that patents like Alice's do not innovate enough to deserve patent protection. LinkedIn, Twitter and others agreed. International Business Machines, on the other hand, filed a brief saying most software inventions qualify for patent protection. IBM, which has topped the list of U.S. patent recipients for 20 years, cautioned the court against creating a strict rule that would further limit protection.

On Friday the full U.S. Court of Appeals for the Federal Circuit heard CLS' second appeal, with arguments centred on whether patents for a computerised system for exchanging financial obligations are valid. 

Disagreement was apparent among the 10 judges on the panel, and experts said they expected a divided decision, which could land the case before the U.S. Supreme Court.

Under patent law, an abstract idea - such as the idea of a self-driving car - cannot be patented but the engineering that creates a self-driving car can be patented.

Mark Perry, the attorney who argued for CLS Bank, said that the U.S. Patent and Trademark Office initially rejected one patent as too abstract but did approve it after Alice Corp re-wrote it to add the use of a computer.

But in the case of at least one of Alice's claims, an impatient Judge Kim Moore strongly disagreed. "Wow! This is so far from ... an abstract idea!" she said, referring to a portion of one patent.

Adam Perlman, the attorney who argued for Alice Corp, said that the patent should be held valid because a machine performs the function.

But Judge Timothy Dyk pressed on the question of whether the patent was abstract and whether it was obvious. An idea that is an obvious, small improvement is not considered patentable.

Referring to a system of tallying trades done over the course of a day, he suggested that it may be impossible to do such work without infringing a patent.

Patent experts at the hearing expected a divided ruling.

"I think everyone walked out of the room with the thought that there's a real difference of opinion from those judges," said Erika Arner, a patent attorney with Finnegan, Henderson, Farabow, Garrett & Dunner LLP, who is not involved in the case.

The case comes after two Supreme Court decisions involving similar issues of patent eligibility.

In Bilski v. Kappos, the high court found in 2010 that a business-method patent for guarding against investment risk was an abstract idea and could not be patented. Last March, in Mayo v. Prometheus, the court ruled that a company could not patent a diagnostic process involving blood tests because observations about natural phenomena cannot be protected.

The case is CLS Bank International et al v. Alice Corporation Pty Ltd, U.S. Court of Appeals for the Federal Circuit, No. 11-1301.

(Reporting By Diane Bartz and Erin Geiger Smith).

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