It wasn’t supposed to happen like this. The U.S. Supreme Court’s long-awaiting ruling in Bilski v. Kappos was supposed to bring clarity to the question of what “processes” were eligible for patenting and whether general methods of conducting business more efficiently (so-called “business methods”) could qualify. These are vital issues for software and Internet companies, whether concerned with protecting their own products and processes (the novel parts of which may not tied to a particular machine or transform something physical and tangible) or living under the shadow of harassment from patent trolls.
You’ve probably sensed the hunger for an answer if you’ve read this blog at all over the past year. (And if you haven’t, we forgive you.) Everyone, including all nine Supreme Court justices, agreed that Bernard Bilski and Rand Warsaw’s patent application for a method of hedging weather-related risk in energy trading was properly denied by the Patent Office. That much was clear from the November 2009 oral arguments before the Court, in which the querulous justices peppered Bilski’s counsel with business method patent hypotheticals (speed dating, an 80%-effective method of keeping students awake during an antitrust class, a method of maximizing wealth by buying low and selling high, and horse whispering). The hypotheticals were only slightly more absurd than the reality with which businesses have been living since the Federal Circuit suggested in its 1998 ruling in State Street Bank v. Signature Financial Group that methods of conducting business could be patentable if they produced a “useful, concrete and tangible result.”
The Bilski/Warsaw “invention” did not pass the smell test. The question was why? Inquiring technologists and IP lawyers wanted to know.
Abstract Ideas
In the end, the Court splintered. All the justices agreed that Bilski’s patent application taught an abstract idea or principle, and as such, according to well-established precedent, was not eligible for patenting as a “process” under 35 U.S.C. §101. Abstract ideas or principles, laws or phenomena of nature (even if just discovered) and mental processes are not patent-eligible subject matter because they are seen as the basic tools of scientific and technological work, and courts are careful not to permit any single person or entity to preempt their use. (However, as the Court’s opinion noted, the application of such concepts to a known structure or process can be patentable if it is novel, useful, non-obvious when viewed against the prior art and supported by a full and particular description in the patent application.)
All of the justices also agreed that the Federal Circuit had overstepped its bounds by holding that the machine-or-transformation test, which grounded the patentability of processes in their connection to a particular machine or physical transformation) was the sole test for determining whether a process met the threshold requirement for patentability. However, in a true mindbender, they also all agreed that the machine-or-transformation is still relevant, as an “useful and important” clue or investigative tool (in the Court’s opinion) or as a “critical” tool (in Justice John Paul Stevens’ concurring opinion). Of course, the justices could not agree on exactly how the machine-or-transformation test was still important, useful, critical, awesome, etc. In the Court’s opinion, the justices drew a dichotomy between Industrial Age inventions and Information Age inventions and suggested that the machine-or-transformation test might be the proper standard for evaluating processes in the first category, but from my perspective, trying to puzzle out whether a client’s invention is more like a steam engine or a search engine doesn’t seem like a particularly helpful — or intellectually satisfying — inquiry. Ultimately, the Court did not articulate a standard, beyond trotting out the abstract idea trope as a lowest-common-denominator limiting principle.
What About Business Methods?
So where does that leave us? In limbo, dear techies. The lower courts will have to go back to the drawing board to devise new standards for evaluating software and Internet patents. The Bilski opinion — or more accurately, opinions (for there were several concurrences) — do provide a few tea leaves to read. Business method patents survive, but by the skin of their teeth. The Court’s opinion leaves open the possibility that some business methods may be patentable, although the majority is skeptical that they warrant “broad patentability”, and in his concurring opinion Justice John Paul Stevens (joined by Justices Sonia Sotomayor, Stephen Breyer, and Ruth Bader Ginsburg) argued strenuously that business methods should never be patentable.
The relevant part of the Court’s opinion (authored by Justice Anthony Kennedy and joined in by Chief Justice John Roberts as well as Justices Samuel Alito and Clarence Thomas) had this to say with regard to business method patents:
“Interpreting §101 to exclude all business methods simply because business method patents were rarely issued until modern times revives many of the previously discussed difficulties…. At the same time, some business method patents raise special problems in terms of vagueness and suspect validity…. The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.
In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools…. Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent…. But beyond this or some other limitation consistent with the statutory text, the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under §101.”
As previously mentioned, four justices (include three who remain on the Court) have taken the position that business methods are not patentable under any circumstances. It is also worth noting that Justice Antonin Scalia did not join in the portion of the Court’s opinion (quoted above) upholding the theoretical patent-eligibility of business methods. Therefore, at least three, and perhaps four, sitting justices reject business method patents totally, with four others rejecting their “broad patentability” and recommending that a higher bar be set. Notably, too, all of the justices take a dim view of the State Street opinion, with the majority refusing to endorse its perceived blessing of business method patents and Justice Stevens’ concurrence calling it a “grave mistake.” Forget abortion, gun rights and church-state separation: given this volatile mix, Elena Kagan’s views on patent law may assume paramount importance.
What Do I Do Now?
So what should software and Internet clients take away from all of this? Don’t blow your legal dollars on patents if the essential value of your invention or product lies in its algorithm or the fact that it automates or expedites a general business process. Despite the Court’s rejection of the machine-or-transformation test as the exclusive standard for the patent eligibility of processes, the Patent Office will only be emboldened by Bilski to continue its aggressive stance against business methods and software and Internet patents whose claims are broad and general and have only an ethereal connection to hard technology.
In addition, established companies with ample litigation reserves that are approached by patent trolls wielding business method and general process patents should consider the value of an upraised middle finger. If one such company (possibly co-funded by other similarly situated targets) succeeds in getting the troll’s patent invalidated, the troll’s business is vaporized. Accordingly, trolls may choose their targets more carefully from now on, may be more hesitant to follow through on threatened infringement litigation, and may be willing to take a smaller license fee before moving on to the next target. However, because business method patents survive and Bilski provides no concrete guidance for what qualifies as a patent-eligible process, the troll threat is not eliminated.
Towards Patent Act 2.0
Was Bilski worth the wait? I’d have to say no. On the other hand, perhaps the justices can’t be blamed for agonizing over our intellectual property law’s failure to come to grips with non-traditional inventions and the marginalization of brick-and-mortar innovation ecosystems. It’s time, perhaps, for Congress to step in and give us a Patent Act for the post-industrial age.