History Ain’t Changed: Supreme Court Issues Anticlimactic Bilski Patent Decision

System for Walking a Snake, US Patent No. 6,490,999

Hat tip, http://www.ipwatchdog.com

It was anticipated as the case that would recalibrate patent law for the Information Age. The long wait inspired many references to Samuel Beckett’s Waiting for Godot. But when the Supreme Court finally handed down its opinion in Bilski v. Kappos on Monday, it appeared that the more appropriate reference was Pete Townshend’s “Won’t Get Fooled Again”: “But the world looks just the same/And history ain’t changed.”

As detailed in a prior post, the narrow issue in Bilski was whether a method of hedging risk in commodity futures transactions met the threshold patentability requirements as a “process” under Section 101 of the Patent Act, or whether it was ineligible as akin to a law of nature, natural phenomenon, or abstract idea. The broader issue was how close a nexus an invention must have to operations or effects in the physical world to meet the threshold requirements of Section 101.

Although the case was argued before the Supreme Court on November 9, the Court did not hand down its opinion until the last day of the term, generating intense speculation that the Court’s answer to the broader issue of the case would redefine the scope of allowable business method patents – patents on improved procedures for engaging in business transactions, such as Amazon’s “one-click” shopping cart – and that such a redefinition might also affect patent eligibility for software, advanced diagnostic medical techniques, data compression, and digital signal processing, and thus have a major impact on the future of innovation in the United States.

Except that the Court never decided the broader issue.

Instead, the Supreme Court justices issued three separate opinions, which agree on some points and disagree on others, with one justice joining portions of two different opinions. All agreed that the Bilski invention itself was non-patentable, but could not agree on a broader test for a patentable “process” that transcended the Bilski facts.

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….” Section 100(b) defines “process” as a “process, art or method…includ[ing] a new use of a known process, machine, manufacture, composition of matter, or material,” but offers no further guidance beyond this somewhat circular definition. However, 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. (If an invention passes this threshold requirement, it must satisfy further requirements to receive a patent, such as being novel, useful, and non-obvious.)

The patent specialist Court of Appeals for the Federal Circuit formulated a comprehensive threshold test in 1998 in State Street Bank & Trust Co. v. Signature Financial Group, Inc., by ruling that an invention was a patentable “process” if it produced a “useful, concrete, and tangible result.” But that standard lead to patents on methods of transacting business that were criticized as unworthy of patent protection, for example a “method of training janitors to dust and vacuum using video displays,” and a “system for toilet reservations.” While State Street was hailed by some information technology companies, such as IBM and Amazon, it was criticized by Google and others in the open source community as encouraging litigation and therefore discouraging innovation and the free exchange of ideas.

In 1997, Bernard Bilski and Rand Warsaw applied for a patent on an invention that consisted of a series of steps showing how to use futures contracts to hedge risks created by seasonal fluctuations in demand in the energy utility market. The application was denied under Section 101 by the patent examiner and the Board of Patent Appeals and Interferences.

The Court of Appeals for the Federal Circuit (CAFC) affirmed these rejections, and in so doing, announced a new comprehensive test to determine whether a process is patent eligible, which the CAFC argued was consistent with both the language of Section 101 and prior case law interpreting it: (1) if it is tied to a particular machine or apparatus, or (2) if it transforms a particular article into a different state or thing. And although the CAFC denied that it was overruling State Street with a more stringent standard, it certainly appeared that way to many observers.

At the Supreme Court, five justices joined Justice Anthony Kennedy’s lead opinion that any “process,” business or otherwise, passes the Section 101 threshold, as long as it is not akin to a law of nature, natural phenomenon, or abstract idea. (The remaining four justices voted to reject Bilski on the grounds that business method patents as a category had never qualified under Section 101.) But they also ruled that the Bilski invention clearly flunked the test, because it was no more than an “abstract idea” on how to hedge risk, with token limits on field of use and token “post solution” (i.e. “real world”) activity.

Justice Stephen Breyer’s concurring opinion attempted to clarify and synthesize the three opinions (by Kennedy, Breyer, and John Paul Stevens) by arguing that all nine of the justices had agreed that the CAFC exceeded the language of Section 101 and prior case law by making the “machine or transformation” (MOT) test the exclusive test for patentable processes under Section 101, but also agreed that MOT can be utilized as “an important clue” and “investigative tool.” He also argued that all of the justices had outright rejected the State Street “useful, concrete, and tangible results” test.

So after the smoke clears from Bilski, there is no new bright line test for a patentable process, although MOT can be utilized as an “important clue.” By one vote, the justices did not categorically exclude eligibility for business method patents, but it appears that none of them are enthusiastic supporters, either. There remains a large gray area for inventions, such as many kinds of software, that are neither clearly processes that act on the physical world on the one hand, nor laws of nature, physical phenomena, or abstract ideas on the other hand.

Justice Kennedy conceded that the ruling may create future uncertainty, as the Patent and Trademark Office and the courts struggle on a case-by-case basis to determine whether a process invention is patentable subject matter. But he replied that without clear guidance from Congress in the Patent Act, the Court would not attempt on its own to strike a balance between protecting inventors and protecting the free exchange of ideas.

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