Software patents aren't dead, but they just took a blow. In a unanimous decision, the Supreme Court has ruled that a series of banking patents didn't cover a concrete software process but an abstract idea, throwing them out and potentially setting a stricter precedent for future patents.

Alice Corp. and CLS Bank are both major financial institutions, and they've been sparring for years in court. The issue is a series of patents that cover a kind of electronic escrow or "intermediated settlement," where a third party holds the real money while "shadow" balances are shown to both sides during trading. In order to preempt a threat from Alice, which held those patents, CLS asked for a court to declare them invalid, saying that the basic idea was obvious and that the patents didn't add more than a generic software process to carry it out. Alice countersued, alleging that CLS had infringed its patents, and the Supreme Court took up the issue in late 2013.

'Apply it with a computer' isn't a valid software patent step

Alice attempted to prove that its patents were more than just an idea by pointing to the specific software steps that it had to carry out. But the court found that these steps weren't ultimately much more than "stating an abstract idea while adding the words 'apply it with a computer.'" The claims "simply recite the concept of intermediated settlement as performed by a generic computer. They do not, for example, purport to improve the functioning of the computer itself or effect an improvement in any other technology or technical field." Each of the steps that Alice described were basic computer functions like adjusting account balances, keeping records, and issuing automated instructions, and the finished product didn't transform them into something more than the obvious sum of their parts.

Alice Corp. v. CLS Bank has been one of the most closely watched patent cases of the year. It takes on what patent reform advocates see as the unreasonably broad category of "software patents," which cover a process implemented on a computer rather than a piece of design or a physical invention. Earlier, the case was somewhat hyperbolically said to spell the "death of software patents," but this decision doesn't necessarily stop people from patenting a software "idea," as long as its technical steps are concrete improvements or new designs, not an aggregation of existing steps.