The Terrible Twos: The State of Innovation Two Years After Alice v. CLS Bank

It has been two years since the Supreme Court invalidated an electronic escrow service patent in Alice v. CLS Bank. The economy has not ground to a halt as some feared it might. New products continue to be invented; new services continue to be introduced; entrepreneurs continue to make progress. Some point to this and call Alice a success. However, while the sky has not fallen, the past two years have revealed corrosive implications, with indiscriminate application of the Alice decision threatening American innovation and competitiveness.

Those who celebrate Alice regard it as a positive step in preventing or eliminating low quality software patents. Others mourn the widespread invalidation of high quality software patents caused by overbroad application of Alice in federal courts. Both viewpoints are justified and partially accurate—an unfortunate reality, because the mark of good policy is to strike a balance that curbs abuse without destroying or frustrating positive incentives.

Even two years after the Supreme Court wisely declined to abolish software patents in Alice, some still suggest patent protection is unnecessary or even inappropriate for today’s innovation. That is clearly wrong. The two intervening years have shown that a vibrant patent system is more important, not less. In a recent essay, “Patents and the Wealth of Nations,” Stephen Haber provides an abundance of historical data supporting the direct positive correlation between innovation and strong patent rights, going so far as to identify that no wealthy countries have weak patent rights and no poor countries have strong patent rights.

The problem with Alice is overly broad application that arbitrarily untethers patent protection from the merits of a given invention. Building the next dating app is a fundamentally different endeavor from creating a safer air-traffic control system or a disease detection and prevention algorithm. Just as there is always straight-forward work to do that requires little extrinsic incentive, there is also always very difficult work to do that will only get done with strong and reliable extrinsic incentives. Through Alice’s progeny, we are sending a destructive message that will affect all software‑reliant industries, including life sciences, transportation and agriculture: The United States is no longer a hospitable place to invest in heavy-weight software innovation.

While there are certainly abusive patent suits, it’s important that we not let them justify curtailing investment in the hard innovation that leads to major breakthroughs and delivers significant value. For example, medical device innovator Second Sight developed the world’s first approved system for restoring vision to blind individuals suffering from retinitis pigmentosa, an incurable inherited disease. Second Sight’s groundbreaking and life-altering invention relies on novel software that would never have been created without assurance that the investment would be rewarded if the innovation proved successful. Similarly, machine learning company ManyWorlds has developed software that not only interprets big data, but also anticipates, learns and offers useful knowledge to human workers in real time.

So the issue, as usual, is balance. And we have lost it through lower court decisions applying Alice, which have erroneously and detrimentally narrowed the scope of patent-eligible subject matter and have diminished the roles of novelty, obviousness, specificity and clarity. An obvious or previously accomplished step is already unpatentable without resorting to the blunt tool of subject matter exclusion. The existing requirement that patents provide clarity about the scope of the claimed invention already accomplishes the oft-cited goal of those over-using the Alice decision: preventing overbroad claims that risk impeding future discovery.

Rather than celebrate or mourn the anniversary of Alice, we should recognize that its overly broad application stifles software innovation in fields that require major, sustained investments to address humanity’s truly daunting challenges—across industries from life sciences to information technology to transportation and beyond. There is some room for cautious optimism—recent decisions from the federal circuit in Enfish, Bascom and Rapid Litigation Management have upheld quality patents challenged on eligibility grounds—but unless the courts continue to provide clearer guidance, a long heritage of American innovation leadership will be at risk. We should seek balance by applying Alice narrowly, “lest [Section 101′s exclusionary principle] swallow all of patent law”— and let the other parts of the law do their work.


Dave Kappos is a partner at Cravath, Swaine and Moore LLP and previously served as under secretary of commerce and director of the United States Patent and Trade Office.

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