The Federal Circuit struck another confusing blow for software patents yesterday in the case In re Bilski. For you lawyer-types, there is a detailed analysis on the Patently-O blog.

I won’t go into the legal minutiae of the decision, but it basically confirmed that a business method process is eligible for a patent only “if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”

So now the $64,000 question for software patents: what does it mean to be “tied to a particular machine”? Is it enough that your business process runs on a standard computer?

Unfortunately, the court leaves this question wide open, stating “We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine.”

Thanks for nothing. The industry will now spend millions of dollars in legal fees and lots of time and energy trying to figure out whether this means the end of software patents or whether there are a few “magic computer words” that can be inserted into software/Internet patent applications to satisfy this standard without really effecting the substance of patent coverage for software.

I’ve already blogged about our struggle to decide whether to seek patent protection at Alice.com here. Bilski doesn’t really make the decision any clearer. If all Bilski portends is that you can tie your claims to a computer hooked to the Internet, we need to file. But it could mean that software patents are now dead on arrival. To use Fred Wilson’s great analogy to the nuclear arms race (here), maybe Bilski means those nuclear bombs we’ve been stockpiling just all became duds. Or maybe not. Clear as mud.

The more I see this mess unfold, the more I think the whole patent system for software/business methods should be replaced. The current system is hopelessly out of sync with the speed of business innovation, has an exclusionary period that stifles innovation rather than encourages it, and adds a huge expense to both small and big companies alike.

Every company has a built in incentive to create a better way of doing business that attracts customers. Why should they also be rewarded with close to two decades of monopoly power? The patent system for software/business methods should simply exist to ensure that the companies that come up with some really innovative stuff get a small period of time to reap a reward before the rest of the market rushes in to copy what they invented.

My recommendation: create a system with a quick examination process (perhaps a peer review on obviousness/prior art) and a very short exclusionary period (2-3 years?). 2 years in Internet time is a lifetime.

With our first round of funding now closed (more on that soon), we’ve turned 100% attention to building Alice. For starters, the team kicked out a new version of Alice.com yesterday, which includes a bit more about what we’re up to with the company and links to our favorite song “about Alice.”

But the new site also brings a key question front and center: Who will Alice be in the minds of consumers? Sure, we think we’ve got a great business model, with a unique offer and the opportunity to build a new kind of retail platform with competitive advantages. But we need to take that disruptive model and package it up into an overall promise that will resonate in a simple way with an identifiable set of consumers. In other words, we need to develop a brand and a story that matches the value propositions of our company.

I recently came across brand tags, a site that does a fantastic job of showing how brands live in minds of consumers (thanks to Adam Singer over at The Future Buzz for clueing me in). The site, a creation of Noah Briar, is brilliantly simple. Enter the first word that pops into your head when you see a brand. Overtime, this has built up a giant aggregation of brand associations that allows you to see into the publics collective brand view. If you spend a little time plugging in brands, you’ll see who is doing a good job branding, and who is not (granted, the branding and the underlying product are inextricably linked). Here are a few of my favorite examples:

The Good

• Crest (top thoughts include Bright, Clean, Fresh and Minty)
• Amazon (top thoughts include Books, Cheap, Convenient, and Everything)

The Not So Good

• Hummer (Wasteful, Gas Guzzler and Big)
• Microsoft (Boring, Monopoly, Evil and Sucks)

What will we see years from now when Alice.com is up on this list? That’s what our team is working on, arguing about, and deciding right now.

Talk about buzz. Our company was just Yammering about a really creative advertising campaign by 7 Eleven designed to capture buzz from the upcoming Presidential election (and give out some personal buzz in the process). For the next month, you can register your “vote” every morning by stopping into 7 Eleven to fill up your coffee in either a blue Obama or red McCain coffee cup.

This is a fantastic example of viral marketing at its best. When Brian and I founded Jellyfish, we recognized that the rules of advertising were changing. The consumer now has the power to filter out boring, mass marketed, interruptive advertising messages. Advertisers need to give the consumer some tangible value to pay attention.

The 7 Election campaign does this on several levels:

• It is fun and incredibly viral (I’ve already sent this out via e-mail and Twitter and there are lots of folks blogging about it), giving 7 Eleven free brand awareness
• It is timely and press worthy, with traditional news outlets like the WashingtonPost and NewsDay , among many others, writing about it
• It includes a direct response impulse without dropping price (I want my candidate to win and I’m more inclined to grab that cup at 7 Eleven where I can both register my preference and walk around with an advertisement for both my candidate and 7 Eleven)
• It is cheap. Print up some cups, and slap together a website. Beats the heck out of annoying us all with 30 second tv ads, billboards, etc.
• Best yet, it might actual work, as the Company claims to have predicted the last two elections

Don’t like the way the results are shaping? Then you’d better drink up. Kudos to 7 Eleven.

We are working to make sure that the marketing plan for Alice follows the new rules of advertising. Give consumers a reason to tune you in, make your advertising a mutually beneficial event, and consumers should reward you with their attention and (hopefully) their business.

There has been lots of hand wringing this week in the start-up community over the US financial crisis. (for example, here and here and here). The discussion was fueled in large part by a post by Jason Calacanis in which he states that “50-80% of the venture-backed startups currently operating will shut down or go on life-support (i.e. 3-4 folks working on them) within the next 18 months.”

Although I found this claim a bit Chicken-little’ish (even in booming economic times the failure rate on start-ups is very high), I really like the advice Jason gives in his post. Namely, that you should stay lean, and focus relentlessly on your business model without being afraid to quickly adapt in your effort to build a great company. There are lots of similarities between Jason’s tips and the way Brian and I have operated in our past start-ups. In particular, I couldn’t agree more when Jason writes: “If you’re idea is wrong, it really doesn’t matter. What matters is if the original ideas allows you to evolve into your big idea.”

The only problem I have with the post is that Jason seems to suggest that being a lean, focused, rapidly innovative company is required because of the economic downturn, which infers that crappy ideas and bad execution can actually lead to success in times of economic prosperity. You bring up some great points Jason, but they should apply regardless of the macro-economic climate in which we find ourselves.

The financial meltdown hasn’t impacted Alice significantly (knock on wood). We are pleased to be wrapping up a large angel round of investment for Alice.com right now. Although the fund raising has been more difficult because of the financial market meltdown, we are still going to close our round as planned and obtain the capital we need to execute. What’s more, Brian and I have met with several potential VC partners in the past few weeks that are still very active in funding new ventures.

My takeaway is that the future is still bright for start-ups that have a good idea and a good team to execute on that idea. Let’s hope it stays that way, and that trying economic times like these makes us all better at bringing innovation to market regardless of what is happenning in the stock market.

Thanks to Brad Feld for helping me find this really cool visual representation of Wal-Mart’s growth:

Watch Wal-Mart Grow

As I watch Wal-Mart “take over the world” in this visual like an invading army, I’m struck by the massive amount of investments they’ve made in buildings and pavement and employees and shelves just to create a distribution network to reach the end consumer.

Alice.com is innovating in this area, and from the positive feedback we’ve gotten by poking fun at Wal-Mart on the Alice home page, there are lots of people that would love to see some fresh ideas and additional choices in this space.