Patents in the Information Age: Bilski Preview

The Supreme Court’s imminent decision in the case of Bilski v. Kappos will recalibrate the definition of patentable subject matter for the Information Age, and is likely to be a landmark case in the history of intellectual property law.

35 USC Section 101 requires that as a threshold matter, for an invention to receive a patent, it must be, “… a new and useful process, machine, manufacture, or composition of matter…”

Courts have interpreted the Section 101 language to implicitly exclude laws of nature, natural phenomena, and abstract ideas, since they are basic tools of scientific and technological work over which no one should have a monopoly.

While that test worked well in an age when most inventions were or acted upon tangible items such as chemicals or machines, it does not work so well when many valuable innovations are intangibles like software, but not akin to laws of nature or abstract ideas.

The narrow issue at stake in Bilski is an application for a so-called business method patent proposing a series of steps to utilize futures contracts to reduce economic risk in fixed-price electric utility contracts.

The broader issue in Bilski is how close a nexus an invention must have to operations or effects in the physical world to meet the threshold requirements of Section 101.

The Court of Appeals for the Federal Circuit ruled in In re Bilski that under existing case law interpretations of Section 101, “processes” do not include “laws of nature, natural phenomenon, [or] abstract ideas,” but rather would need to: 1) be “tied to” a particular machine or apparatus; or 2) transform a particular physical article or substance into a different state or thing. It then ruled that the Bilski business method did not pass this test, because: 1) the application did not claim the invention was tied to a particular apparatus or machine; and 2) the invention did not transform any physical article to a different state or thing, but only manipulated abstract financial data and legal obligations.

It is unknown whether the Supreme Court will adopt the Federal Circuit’s formulation of the Section 101 test, but many observers believe that the Bilski business method will probably be held non-patentable whatever the ultimate test. (And, contrary to many media reports, the Court could easily deny the Bilski invention without undercutting the rationale of all existing business method patents.)

The more difficult task for the Supreme Court will be to set forth a formulation of the Section 101 test that while consistent with existing case law, also protects economically important innovations of the Information Age, such as software, that require great innovation and yield great economic benefits, but do not at their core operate in the physical, tangible world.

At oral argument before the Supreme Court, the attorney for the Patent and Trademark Office, which opposed the Bilski application, nevertheless asked the justices not to disturb existing patent protection for software and medical diagnostic procedures, but some justices appeared to be struggling with just where to draw the line in a way that respected prior case law without stifling future innovation.

The Licensing Law Blog will post a full analysis of the Bilski decision when it is released.

© 2010 – 2011, Richard R. Bergovoy. All rights reserved.

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