Federal Court Rules in Bilski Business-Method Patent Case

Posted by: Diane Brady on October 30, 2008

Here’s an entry from our legal affairs senior writer Michael Orey:

A federal appeals court issued a decision today that appears likely to scale back the granting of controversial “business-method” patents. For the past decade, patents have been granted for such things as methods for ordering on e-commerce Web sites, systems for conducting Internet auctions, various financial products, and other techniques companies and entrepreneurs have claimed to be “processes” eligible for protection under the U.S. patent statute. The long awaited ruling in what is known as the Bilski case rejected an attempt to patent a method of hedging risk in commodities transactions. In doing so, the U.S. Court of Appeals for the Federal Circuit said that its 1998 ruling that opened the door to such patents must be applied more narrowly.

The business strategy at issue in Bilski was developed by two individual inventors, Bernard Bilski and Rand Warsaw. But the case drew interest and court filings from dozens of large corporations. Some, like IBM Corp., argued for tightened standards that would sharply limit what IBM in-house patent counsel David Kappos described as “runaway issuance of nontechnological process patents.” Others, such as technology services and consulting giant Accenture, defended patents stemming from such areas as financial services and organizational behavior as central to innovation in a 21st century economy. Kappos said IBM was “very pleased” with the court’s decision. “It doesn’t spell the complete demise of business-method patents,” he says, “But without question it points to a major downsizing.” In a conference call to discuss the ruling, Accenture representatives acknowledged that the court had not embraced the broad view of patentability that Accenture had pushed for, but emphasized that there was still room to protect business strategies.

While rulings over the years have used various tests to determine if a process qualifies for patenting, the Federal Circuit said the sole analysis should be the “machine-or-transformation” test – which requires showing that the claimed invention is either tied to a particular machine or that it transforms an “article” (such as a substance or data). At the same time, the majority opinion, joined by 9 of the 12 justices ruling in the case – acknowledged that “the widespread use of computers and the advent of the Internet” had begun to challenge the usefulness of such a test. The justices invited the U.S. Supreme Court to develop a new test for determining the kinds of inventions that should be eligible for patent protection, one that might better “accommodate emerging technologies.”

But the court dodged what for many is a crucial question: Whether simply employing a computer itself is enough to earn patent eligibility . The justification for granting many business-method patents to date has been, in part, that they made use of a computer to perform calculations or the Internet to complete a transaction. The court said it was choosing not to address that issue, because the patent sought in the Bilski case did not require use of any machine. Nor, the court concluded, did the claimed patent “transform any article to a different state or thing.” Said the court: “Purported transformations or manipulations of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances.”


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Reader Comments

Andre

October 30, 2008 02:31 PM

The US soft patenting practise is a real mess. Let's see if Re Bilski would stop the low quality patent flood. I share the view that only economists can decide if the patent system is appropriate for a certain subject matter. In the field of software we clearly have insufficient evidence and everyone working in software development knows how dangerous soft patents are as they deprive authors from the fruits of their work.

balfour

October 30, 2008 02:41 PM

I think the court of 12 men is hung up on the word machine. I think for the purposes of these kinds of claims te word machine applies to an invented specific kind of machine, like a jam jar opener. A computer is not a machine a computer is an electronic and visual display entity, please tell me where the machinery which allows it to be categorized as a machine comes in. Can I make a patent for the double entry book keeping process? maybe I can if it uses a mechanical calculator.

boat building in aluminium alloy

October 30, 2008 02:50 PM

I wonder if anyone has patented the stock market trading process known as option trading. If that was thought of today is it patentable.
I'm glad to see that words and phrases are beginning to be appreciated for what they are, heiroglyphic representations of a process of thinking concluded by twelve judges at some time in the space time continuum dependent upon the intellectual and common sense attitudes prevalent at that time in history, which thankfully change depending on eyesight education and society knowledge and experiences.

I.A.M X, Asperat. Ed

Michael J. Feigin, Esq.

October 30, 2008 03:18 PM

They did NOT overrule State Street or Diamond v. Dier which are both held to still be good law. What they did say - and what the Patent Office has already been doing - is requiring that your method not just be a mental transformation, but be tied to actually transforming a physical object or be tied to a physical object. Bilski had lousy claims and shouldn't have been allowed. They chose it for just that purpose, but software patents, if they meet the test, are still valid.

I put more comments and quotes from the case on my own website at http://patentlawny.com/index.php/business-method-patents

bemused

October 30, 2008 03:20 PM

Perhaps common sense could be a useful way of determining a patent. After all, using this so called test of machine or transformation is just a way of saying let me clear my mind. How about working out the best way to empty a bucket and say you can't do it unless you pay me.
Of course I see the dilemma in marginal "inventions" but innovation! How about patenting the method of costing for waste in manufacturing plants that have precise systems according to cost accounting theory. That is innovation, it isn't invention. I have done such for a company and I wouldn't call it patentable. Maybe the test is the end result, the end result has to be something specifically new. The profit on a hedged transaction is not something new. Why is a book copyright, why is music copyright. The end results are unique. If there is a new end result creation it is patentable. Otherwise, you are patenting new methods of doing the same thing, you are patenting innovation, you are patenting normal activity.

I always like common sense, as it involves "sense" common to all of us, which all can see, commonly, and not capable of being handcuffed and shackled by obfustication of overly onerous erroneous and confiscatory prime words.

Jack

October 30, 2008 04:03 PM

For those who believe that software should not be patentable. If somebody comes up with a software that makes true artificial intelligence (not Roomba) possible, or be able to analyze and decipher human thoughts, should that software be patentable? From both economic and technological points of view, it will certainly be a huge step forward.

csl-gatekeeper

October 30, 2008 04:22 PM

all this does is define the split patent process and enforce the hardware and software firewall device known as the CSLLLC=GateKeeper. It's all good.

Strategery

October 30, 2008 07:12 PM

As said earlier, a common sense approach needs to be used. I think this needs to be expanded to all patents. The criteria should be: 1. Does the patent protect a device or method that is currently allowing a person/company to do something better than a competitor? If so, the patent should probably be upheld. 2. Is the device/process under patent being used? If not, patent protection should be revoked. Patenting inventions and waiting for someone to infringe upon them, or selling the patent to a party interested in keeping a product OFF the market (such as oil companies buying patents for fuel saving devices) should not be allowed. Patents/copyright has become useless in the age of globalization: fly-by-night companies in China and elsewhere infringe upon patents, and many of these companies are difficult or impossible to find. Also, stolen technology can rapidly put the legitimate company that holds the patent out of business before they can peruse legal action against the infringement.

Wayne

October 30, 2008 08:07 PM


Actually no, it's ridiculous. It doesn't address the real issue, which is that less than 1 in 10,000 patents are for real, useful things. The other 9,999 are:

1) Obvious
2) Already in use
3) Impossible

In some ways number 3 is the worst. There seems to be an increasing number of people who just don't understand that you can't fool mother nature.

This applies to all patents, be they software, business methods, or hardware.

Stranger

October 31, 2008 02:11 AM

@Bemused

There is no such thing as common sense. For anything that seems sensible to someone, there will be at least a significant minority for which that does not seem sensible. (I unfortunately have no proof of this, other than everyday experience.)

@Jack

Those two huge steps forward will be of much more benefit to the human race if everyone is allowed to use them, rather than just the inventor. They will likely be scientific projects, rather than private development, and will therefore not be patentable anyway, so it's not really worth discussing.

Also, on a lighter note, if the artificial intelligence is patented, will it need to pay to reproduce? If it weren't for prior art we could patent 'a process for creating humans' too. :)

blah

October 31, 2008 11:39 AM

@Stranger

The good news is that in KSR vs. Teleflex, the Supremes moved away from "common sense." Instead, they chose to reinforce whether something is obvious to someone skilled in the art. That case changed the patent landscape maybe more than Bilski will.

plh

October 31, 2008 11:47 AM

On April 19, 2011, the USPTO and other POs activate the automatic online patent examination system, Skynet, to cope with the enormous number of applications coming from AI invention machines*. Two days later, the AIs launch the first wave of an unrelenting flood of patent infringement suits, rapidly bringing the entire world economy to its knees. :)

* “The machine, which he calls the "invention machine", has created antennae, circuits, and lenses, and has received a patent from the US Patent Office.”

http://en.wikipedia.org/wiki/John_Koza

Mark McGuire

October 31, 2008 01:41 PM

As an entrepreneur in an online start-up, this case leaves me guessing whether our patent attorney now just needs a few magic words that will hook our novel way of doing business online to a standard computer. Millions of dollars will be wasted figuring this out and we'll probably contribute to that sum, spending time and money that could be used to better execute our business and add value to the marketplace.

I've filed software patents at two start-up companies previously and I think the current biz method patent system is broken. Don't just give us a more confusing legal standard. We should move to system with a very quick examination process (perhaps peer review?) and grant a very short exclusionary term that better matches the speed of innovation in today's market.

You can read my argument here if interested http://flywheelblog.com/2008/10/in-re-bilski-software-patents-are-clear-as-mud/

So Sue Me

November 3, 2008 07:36 PM

Software should not be patentable. Software is basically a collection of many, many, many ideas and algorithms. To have even a small percent
covered by patent agreements would keep lawyers busy for many years on even a small program,
this stops innovation, creativity and economic development.

Software patents will remove US leadership in software, watch it go to China, India where they don't need no stinkin' patents. buh-bye.

Bob Lewis

November 4, 2008 04:45 PM

Let's go back to the purpose of it all - encouraging innovation.

That's the whole point, and if the process has the opposite effect it's a broken process.

I'd contend that for the most part, business methods patents have stifled innovation rather than encouraging it.

Somewhere in the decision to award a patent or not should be this question: How hard was it to sweat the details?

Amazon.com's one-click checkout? Very simple - state the idea and the rest is straightforward.

The laser? State the idea and you still have a devil of a lot of hard work to do.

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How can you manage smarter? BusinessWeek writers Nanette Byrnes, Patricia O’Connell, Emily Thornton, Matthew Boyle, Michelle Conlin and Diane Brady synthesize insights from the brightest business thinkers, critique the latest management trends, and comment on leaders in the news.

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