The United States Supreme Court has taken the unusual move of agreeing to review the Court of Appeals for the Federal Circuit’s (CAFC) decision in In re Bernard Bilski (In re Bilski). What might this mean for the future of business method patents? While I cannot see into the future, a little look in to the past might give us some perspective as to why this case is so important to anyone doing business online.
State Street
Prior to 1998, methods of doing business were not patentable. On July 23, 1998, the CAFC in State Street Bank & Trust Co., v. Signature Financial Group, Inc., ruled that a computer programmed with software is indeed patentable even if the result is expressed in numbers. This decision opened the floodgates, resulting in the filing of thousands of “business method” patent applications, many relating to Internet commerce. It was a veritable “land rush,” with patentees staking out monopolies over new areas of internet growth.
Flood of Business Method Patents
The United States Patent and Trademark Office (USPTO) has gained considerable knowledge about the allowance of business method patents over the past decade. Early on, however, the USPTO did not have access to the wealth of prior art patents they had for more pedestrian inventions like mousetraps and termite flatulence detectors. Given the lack of resources to thoroughly vet this new type of patent, the USPTO, left with no other option, allowed hundreds of patents which claimed combination of elements which had been in the public domain for years.
The Following Drought
The growing number of patents on public domain material led to an outcry from the online community. With the assistance of the public, the USPTO adopted stricter protocols, utilizing a more thorough database of current technical knowledge. These procedures led to a drastic decrease in the allowance of business method patents, but did little to address the large number of business method patents already issued. Another problem with the new protocols was that for many information technology related businesses, the new protocols were far too expensive and time consuming. Either the business ran out of money before the process was completed, or the patent failed to issue before the technology was outdated.
Enter Bilski
In October of 2008, the CAFC handed down its most momentous decision since State Street Bank. In In re Bilski, the CAFC ruled that business methods, like the Amazon “One-Click” purchase, cannot be patented. To be patentable, the CAFC ruled, an invention must fall into one of two categories: (1) it must be tied to a particular machine or apparatus, or (2) it must transform a particular article into a different state or thing. The court ruled business method inventions are subject to the “same legal requirements for patentability as applied to any other process or method.”
The Aftermath
The CAFC ruling in Bilski obviously came as a shock to the owners of the 50,000 business method patents the USPTO had already granted. This overnight deregulation of online business led to much hew and cry, culminating in a request (for certiorari) that the United Supreme Court review the CAFC’s ruling. The questions presented for United States Supreme Court review were:
1. Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. § 101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”
2. Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. § 273.
The United States Supreme Court Grants Certiorari
The United States Supreme Court has taken the unusual step of granting certiorari (agreeing to review the lower court’s ruling) in In re Bilski, the most important patent case involving the internet since the State Street Bank case. The Supreme Court might expand or eliminate the business method patent, resulting in a multi-trillion dollar swing in the value of existing, and future, business method patents. It may mean the death knell, or a new base of operations for patent trolls. It could shut down, or start up, tens of thousands of new online business. It may increase or decrease the cost of doing business online for everyone.
Stay tuned, for what are sure to be fireworks in this epic battle over business method patents.
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