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Supreme Court Confirms Patentability of Business Methods, Denies Bilski Patent
Posted On July 6, 2010

On the final day of its term, the U.S. Supreme Court released its long-awaited decision in the Bilski patent dispute. The lengthy and complex decision, entitled Bilski v. Kappos, affirmed the legality of business method patents, while leaving unanswered some questions about the scope and breadth of such patents. Reflecting those questions, the Court actually denied the specific business method patent that Bilski was pursuing on the grounds that it represented an unpatentable "abstract idea."

Bernard Bilski had applied for a patent for a method of managing risks between buyers and sellers in certain commodities markets, particularly the energy market. The patent application described a series of steps that were to be taken, including evaluation of historical costs, weather data, economic information, and statistical data, then conducting an analysis of the data to predict certain outcomes (e.g., higher or lower prices or availability.) The patent application was rejected by the initial patent examiner, as well as by the Board of Patent Appeals.

Bilski appealed the denials to the United States Court of Appeals. In again denying the patent application, the appeals court determined that a business method patent required some form of "machine or transformation" as a condition of patentability. Business methods, the court held, are considered a "process", which are permitted under the U.S. Patent Act. However, the court held that in order for a business method to be a patentable process it had to use a particular machine or apparatus as part of the process, or the process needed to transform a particular "thing" into something different.

This decision was seen as damaging, if not killing off most business method patents as many of them do not require a particular machine, nor do they transform a particular thing. The appeals court noted that methods and processes involving nothing more than manipulation of "legal obligations, organizational relationships, and business risks," or the use of algorithms and data-gathering usually did not involve particular machines nor transformations and would likely be unpatentable.

The U.S. Supreme Court, however, rejected the finding that a machine or transformation was a condition of patentability. The Court said that while the machine or transformation test was a "useful and important clue, an investigative tool, for determining whether some claimed inventions are process," it was not a condition of or "sole test" for determining patentability.

The Court acknowledged that the machine or transformation test was effective for evaluating process patents in the "Industrial Age" (quoting the Court's opinion), but that there were "reasons to doubt" the test for "determining the patentability of inventions in the Information Age." The court acknowledged that technological innovations such as "linear programming, data compression, and the manipulation of digital signals" required looking beyond the machine or transformation test to determine patentability.

The Court also specifically acknowledged the viability of business method patents under certain circumstances. On narrow grounds, the court noted that section 273 of the Patent Act talks about "methods of doing or conducting business" as part of a defense to patent infringement. The Court concluded that using this language, patent law acknowledges that business method patents must, "at least in some circumstances" be eligible for patent protection.

Looking more broadly at business method patents, the Court expressed concern that business methods patents "raise special problems in terms of vagueness and suspect validity." The tools of the Information Age allow levels of speed and sophistication that can enable methods of doing business that didn't exist before. The challenge, however, is that in granting a patent to a particular method, the patent "locks out" anyone else from using the same method. The court indicated that a "high enough bar" was needed to prevent patent law from "putting a chill" on the use of these technologies for "creative endeavor and dynamic change."

The Court side-stepped a particular solution to this challenge, instead focusing on the core principles of patent law. These include that patented inventions, processes, and methods must by novel, nonobvious, and particularly described. In addition, the Court noted that patents cannot be issued for laws of nature, physical phenomena, and abstract ideas. It was on this last concept that the Supreme Court denied Bilski's patent application. The Court found both the concept of hedging risk, and the mathematical formulas applied by Bilski to be abstract ideas. Since those concepts represented the bulk of Bilski's patent, it was rejected.

Supreme Court decisions are never simple, however, and an extensive concurring opinion, written by retiring Justice John Paul Stevens and signed by three other justices, keeps the issue of business method patents in doubt.

Concurring opinions are written by justices who agree with the ultimate outcome of the Court's decision, but not with the reasoning or analysis that the decision is based on. In this case, the four justices agreed that Bilski's patent was correctly rejected by the Patent Office and lower courts. However, their opinion states quite bluntly that business methods should not be patentable. They base this view largely on the "historical and constitutional moorings" of patent law. First, that throughout the history of patent law, business methods were not patentable. Second, that the "process" mentioned in the Patent Act requires more than a series of steps such as in many business methods. And third, that market forces and trade secret law are better than patent law for encouraging and protecting business methods.

Do business method patents have a future? The answer appears to be a conditional yes. The majority opinion of the U.S. Supreme Court is that business methods can be patented, and do not require a machine or transformation as a condition of obtaining a patent.

However, the case should be considered a shot across the bow of business method patents. The Court's unanimous rejection of Bilski's patent strongly indicates that something more than a series of particular steps to accomplish a particular act will be required for a patent. Also, there were four justices who would have rejected business method patents outright. It is likely that while the principal of business method patents has survived, the scrutiny that they will get will increase dramatically.

George H. Pike is the director of the Pritzker Legal Research Center and a senior lecturer at the Northwestern University School of Law. He teaches legal research, intellectual property, and privacy courses at the School of Law in both the J.D. and Northwestern’s innovative Master of Science in Law program. Prof. Pike is a frequent lecturer on issues of First Amendment, copyright, and Internet law for library and information professionals. He is also a regular columnist and writer for Information Today, publishing a monthly column on legal issues confronting information producers and consumers. Previously, Prof. Pike was director of the Law Library at the University of Pittsburgh School of Law, and held professional positions at the Lewis and Clark Law School and at the University of Idaho School of Law, and was a practicing attorney in Idaho Falls, Idaho. Prof. Pike received his B.A. degree from the College of Idaho, his law degree from the University of Idaho, and his Masters in Library Science from the University of Washington. He is a member of the American and Idaho State Bar Associations, the American Association of Law Libraries, and the American Intellectual Property Lawyers Association.

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Comments Add A Comment
Posted By kent norton7/6/2010 4:44:33 PM

i wonder if Fredrick Taylor, father of modern "scientific management" and time study ever did patent his model. Dr. Demming did try to apply statistical methods to American Management way back when and when we rejected it, went to Japan. they did well for years until they started fudging the results of tests. He said anything that was worth doing, industrially was worth and required measurement. i guess that is true today; except how do you measure 'creativity'. Dr. Peter Drucker's books was the first i read in business school and hold true for great managerial methods. I wonder how Harvard would patent "strategic misrepresentation" once taught there-maybe still/? Now, what does that mean? It starts with an "L". Methinks, there is still a lot of money in intellectual property law even with this Bilski patent. Boy those Polish people are creative and tenacious; did I mention smart? Yes

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