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January 2010 | |
Supreme Court Decision in Bilski v. Kappos Likely to Affect Software by John R. Harris  On November 9, 2009, the U.S. Supreme Court heard oral arguments in the case of Bilski v. Kappos,
which relates to the question of whether a business method directed to
commodities risk management is patentable subject matter. (Case No.
08-964.) A decision by the Court is expected by June 2010. When
the decision is handed down, it will likely affect not only the
patentability of so-called “pure” business methods,* but also any
process-oriented patents: computer software, computer-implemented
inventions, medical and diagnostic methods, agricultural methods,
financial services processes and systems, etc. The Supreme Court appeal involves the last stage of an effort by two inventors, Bernard A. Bilski and Rand A. Warsaw, to force the U.S. Patent and Trademark Office (USPTO) to issue them a patent for their risk hedging technique. The patent claims at issue relate to a method for managing consumption risk costs of a commodity. The claim recited a number of steps that were fairly broad and abstract, such as “initiating a series of transactions between [a] commodity provider and consumers,” and “identifying market participants,” and “initiating [another] series of transactions between said commodity provider and … market participants.” No computer or software was involved in the claim. The process could readily be carried out by a human being – without using any kind of machine. Nothing physical (not even data) appeared to be transformed by the process. The “Machine-or-Transformation” Test Must Be Satisfied to Get a Patent The USPTO denied a patent on the ground that the process was not patentable subject matter and the inventors appealed. In 2008 they wound up before the Court of Appeals for the Federal Circuit (“CAFC”). On October 30, 2008, the CAFC handed down an en banc decision in holding that a process, in order to be patentable subject matter under 35 U.S.C. § 101, must either be (1) tied to a particular machine or apparatus, or (2) physically transform a particular article into a different state or thing. This test for patentable subject matter is now called the “machine-or-transformation” test (MoT). The ruling is widely viewed as applying to any method or process invention. The CAFC decision (affirming the denial of a patent and setting forth the MoT test) was appealed to the U.S. Supreme Court in 2009. The most disturbing aspects of the MoT test are that (1) it seems narrow and relatively inflexible, (2) it applies to any method or process invention, and (3) it has no basis in the patent laws as passed by Congress – it is a test based purely on a number of older Supreme Court decisions. Details about the CAFC decision, which also overruled the well-known and controversial 1998 business method case, State Street Bank v. Signature Financial Corp., and other comments about the machine-or-transformation test are provided in our IP NewsFlash of October, 2008, which is available on the MMM web site.  In the views of many patent experts, the claims that Messrs. Bilski and Warsaw are trying to patent are too abstract and “human-implemented” to be patentable. Further, the claims are not particularly technical in nature, which is troublesome to those who expect patents to be directed to physical, tangible things like circuits, machines, and tools. However, there is no requirement in the U.S. patent laws (unlike in Europe) that there be any kind of “technical effect” in an invention to justify a patent. The notion of “technical effect” is itself semantically problematic – what exactly is “technical” anyway? The Bilski claims seem to be just a series of intangible, mental steps that people can take without the assistance of any machines or tools or devices. Furthermore, the claims have a high level of abstraction, which makes them seem all the more overbroad. In addition to these issues, many patent experts have a hard time seeing how the Bilski claims would be patentable on grounds of novelty and nonobviousness. Some patent experts think that the USPTO should have avoided the patentable subject matter issue and appeals by finding a good prior art reference and rejecting the claims for lack of novelty or for being obvious. However, the USPTO and the Federal Circuit apparently decided instead to make this a test case for patentable subject matter, rather than find another way to deny the patent. It almost seems that they were urging the Supreme Court to take on the case due to the controversial nature of business method patents. There is little doubt that many people want more certainty as to the patentability of business methods – and for that matter, more clarity on the patentability of computer software as well. The machine-or-transformation test provides that certainty – with the answer being “no patent allowed here” in many more cases than before the CAFC Bilski decision. The “Machine-or-Transformation” Test Seems Easy to Apply But Is Inflexible The machine-or-transformation test (MoT) in the Bilski Federal Circuit en banc decision is actually pretty easy to apply in this case. The Bilski claims on hedging risk with contracts did not involve any machines at all, and nothing was transformed. It is conceivable that the inventors could have presented claims involving transformations of money amounts in accounts, but no steps reciting account value transformations were included in the claims on appeal. But problems surface when the test is applied in other circumstances. The MoT test has the real potential of being too rigidly applied by the USPTO examiners and the Board of Patent Appeals and Interferences (BPAI), which initially hears appeals from USPTO patent denials. The USPTO has to implement court decisions through its internal regulations, and many examiners apply these regulations in a formulaic, rigid manner. For many systemic reasons, patent examiners have little incentive to be helpful and flexible. So, if the Supreme Court approves the MoT test and upholds the Federal Circuit’s approach, it may prove almost impossible to get any kind of business method patented – even a computer-implemented method that is arguably novel and nonobvious. Many patent experts expect that the Supreme Court will deny Messrs. Bilski and Rand a patent on their particular claims. Comments by the justices at the oral argument suggested as much. Although such an outcome may be the “right” answer in this case, there is a significant risk that the Supreme Court will create further uncertainty in the area. The Supreme Court in its KSR v. Teleflex case (2007) seemed to express the view that it did not like rigid, bright line tests in the patent area. If that view persists in the Bilski case, the MoT test will be viewed as too rigid, and a more flexible approach will be required. The Court in the KSR v. Teleflex case considered whether the so-called “teaching-suggestion-motivation” (TSM) test was the only test for determining whether the prior art rendered an invention obvious and therefore unpatentable. Because almost all inventions are some combination of known elements, the TSM test requires a patent examiner (or accused infringer) to show that some suggestion or motivation exists in the prior art to combine known elements to form a claimed invention. The Court in that case did not completely disavow the TSM test – they said one could use this test, but other considerations could apply. This indicated that the Supreme Court favors a more flexible approach in determining obviousness. The Potential For Disruption Is Real – Flexibility Results in Uncertainty Perhaps
the Supreme Court in the Bilski case will similarly adopt a more
flexible approach in determining patentable subject matter and say that
the MoT test may be used, but other considerations could apply.
However, in ruling that flexibility is required, greater uncertainty
will result. What About the Patentability of Computer Software?  As mentioned above, the Bilski case does not involve a computer or any computer programs or any automated operations. Nonetheless, the case is troubling to the computer industry because computer programs are, in essence, instructions for computer-implemented processing of data. The data handled in these processes often, but not always, represents physical entities and measurements. A test for patentability that limits the granting of patents to inventions that process data representing purely physical entities and quantities will negatively impact the patentability of computer software inventions. Furthermore, such a test has the potential to invalidate a huge number of existing patents. It is hard to rationally argue that a computer program does not transform input data into some kind of useful output, whether that output is used physically in a control application, or presented in a report, or merely displayed in a useful, aesthetic manner. The patentability of computer software, either by itself or as an integral part of other technologies, has long been an area of controversy. This issue is closely tied to the patentability of business methods, because both involve processing of information. Many of the legal issues of patentability of business methods bleed over into a consideration of the patentability of software and IT and medical methods. The U.S. economy is heavily dependent on information-based technologies, and is still widely viewed as the world leader in information technologies (IT) and medical innovation. Any ruling by the Supreme Court that sends a message that innovators in the IT or medical procedures space cannot patent their innovations could deal a blow to U.S. competitiveness and further damage the economy. The CAFC in its Bilski decision avoided deciding whether data transformations
without some connection to something physical would satisfy the
MoT. Some patent experts think that it left that question as part
of the bait for the Supreme Court. What Should Companies Do Now To Get Process Patents?  No matter what the Supreme Court does in the Bilski case, the patent system will trod ahead. Patents are an integral part of modern technology-based businesses – they provide tools for managing competition in a process-fair manner and serve as a capital-raising tool for emerging companies. They are not going away any time soon. Besides, the patent system emanates directly from the U.S. Constitution (Article 1, Section 8) and cannot be readily dismantled. If you or your company are seeking to patent any kind of process, here are some steps to consider to improve your prospects for obtaining a patent:
* * * * * It is not known when the Supreme Court will issue its decision in the case. Some court watchers have suggested that a ruling will not be issued until perhaps June 2010. We will continue to closely monitor developments in the Bilski case and issue an alert shortly after a decision is rendered. In the meantime, if you would like more details about the case or need help assessing patent strategies in light of the possible outcomes, contact any of the following MMM attorneys:
* According to some, a “pure” business method is one that does not involve automation and is strictly human-implemented, such as transactions between people.
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