The Gordian Knot
Facing the greatest patent decision in the past decade, one upon which billions of dollars in patented subject matter hung in the balance, the Supreme Court of the United States took its time issuing Bilski v. Kappos, waiting nearly eight months to issue its final opinion. The question before the Court was whether a patent can be issued for a claimed invention designed for the business world. If the Court held that “business method” patents were not patentable, billions of dollars worth of patents would be instantly worthless. If the Court upheld the patentability of the claimed Bilski invention, there would be a run on the patent office, with inventors trying to obtain a government monopoly on everything from how to write software code to how to brush your teeth. The resulting minefield of patents would stifle innovation among all but the very richest companies.
The Trip to Telmessus
In 1997, Bernard Bilski filed various patent claims on a method for hedging commodities. Claim 1 of the Bilski patent application read as follows:
1. A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer;
(b) identifying market participants for said commodity having a counter-risk position to said consumers; and
(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.
The following year, the Court of Appeals for the Federal Circuit, issued its seminal ruling in State Street, holding that methods of doing business were patentable subject matter.
In 2008, the Court of Appeals for the Federal Circuit held that a business method had to meet the Machine or Transformation (MoT) test to be patentable. Notwithstanding, Bilski’s patent examiner held that while methods of doing business were patentable, Bilski’s particular claimed invention did not constitute patentable subject matter under 35 U.S.C. § 101, as it was merely an abstract idea, not implemented on any specific apparatus, such as a computer processor. Bilski appealed the decision to the Board of Patent Appeals and Interferences, which sided with the Examiner. Bilski appealed to the Court of Appeals for the Federal Circuit (CAFC) which heard the case en banc. What the CAFC gave in State Street, it appeared to take back in Bilski, holding that to be eligible for patent protection, 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 Bold Stroke
Bilski appealed from the CAFC decision and the Supreme Court granted certiorari. The question on everyone’s mind was whether the Supreme Court would prohibit business method patents, invalidating billions of dollars worth of existing patents or allow any business method to be patented, opening the floodgates to people seeking to monopolize everything under the sun. The Supreme Court, in its infinite wisdom, and to the chagrin of the CAFC, did neither.
In reviewing its past rulings, the Supreme Court noted that in choosing expansive language for 35 U.S.C. §101, Congress contemplated giving patent laws a wide scope of construction. The Supreme Court noted precedent provided only three specific exceptions to 35 U.S.C. §101’s broad scope: “laws of nature, physical phenomena, and abstract ideas.” Not so subtly pointing a finger in the direction of the CAFC, the Supreme Court cautioned courts “not read into the patent laws limitations and conditions which the legislature has not expressed.” Justice Kennedy, writing for the majority, and citing Diamond v. Chakrabarty, 447 U. S. 303 (1980), wrote that a categorical rule denying patent protection for specific types of inventions not specifically contemplated by Congress would “frustrate the purposes of the patent law.” Addressing the CAFC’s machine-or-transformation test specifically, Justice Kennedy noted that such a test would create uncertainty as to the patentability of software.
Dissecting 35 U.S.C. §101, the Supreme Court held that “new technologies may call for new inquiries,” and that it is not the purpose of the Court to freeze process patents to “old technologies, leaving no room for the revelations of the new, onrushing technology.” citing Gottschalk v. Benson, 409 U. S. 63, 71 (1972). The Court noted that business methods cannot be categorically eliminated from the scope of patentable subject matter, as 35 U. S. C. §273(b)(1) specifically contemplates their existence.
Taking the other side of the issue, the Supreme Court noted that failure to set a high enough threshold for the patentability of business methods would create a flood of patent claims on the United States Patent and Trademark Office, “that would put a chill on creative endeavor and dynamic change.” Just because a particular business method constitutes a “process” under 35 U. S. C. §101, does not mean that a patent claim on the method should be granted. The business method must still meet the requirements of 35 U. S. C. §102 (novelty), 35 U. S. C. §103 (nonobviousness) and 35 U. S. C. §112 (full and particular description).
Eschewing the machine or transformation test, the Supreme Court noted that such categorical rules risk wide-ranging and unforeseen impacts. The Supreme Court resolved Bilski much more narrowly, relying on the prior decisions in Benson, Flook, and Diehr. These rulings, collectively, demonstrated that Bilski’s method claims were not patentable processes because they were merely attempts to patent abstract ideas. In this aspect of the ruling, all members of the Court were in agreement.
Benson explicitly declines to adopt the machine or transformation test as a sine qua non test for business method patentability. Flook holds that unpatentable abstract ideas do not become patentable merely by limiting the “abstract idea to one field of use or adding token postsolution components.” The Federal Circuit also violated two principles of statutory interpretation outlined in Diamond v. Diehr, 450 U. S. 175, 182: 1) Courts should not read into the patent laws limitations and conditions which the legislature has not expressed; and 2) Unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. The Supreme Court noted that it was “unaware of any ordinary, contemporary, common meaning of ‘process’ that would require it to be tied to a machine or the transformation of an article.”
Is the Knot Still Tied?
While the Federal Circuit, and the rest of the world, were looking for a new test for the patentability of business method claims, the Supreme Court stopped short of offering any new rule or guidance. Noting that because Bilski’s claim was unpatentable under prior rulings as an abstract idea, there was no reason for the Supreme Court to further define what may or may not constitute patentable business methods. Justice Kennedy noted that Benson, Flook, and Diehr provided the necessary “guideposts” as to what constitutes a patentable process under 35 U.S.C. §101. The majority went on to note that nothing in the Bilski opinion should be read as endorsing State Street or any of the Federal Circuit’s past interpretations of §101. Basically, business as usual.
Inviting Sharper Blades
In knocking out the CAFC’s exclusive machine or transformation test, the Supreme Court stated it was not the intention of the Court to preclude the CAFC from developing future patentability tests or criteria “that further the Patent Act’s purposes and are not inconsistent with its text.” The ruling in Bilski did not upset the apple cart one way or the other. The ruling will invalidate very few, if any, existing patents. It will also not invite a deluge of patent applications on abstract ideas.
It remains unclear however, whether the existing rules of Benson, Flook, and Diehr will be sufficient to allow the United States Patent and Trademark examiners to readily determine what is and what is not patentable when it comes to business method claims. Given that the United States Patent and Trademark now has over a decade of experience with these types of patents under its belt, it is much better positioned to tackle these issues than it was when the Bilski patent application was originally filed. If new cases, new technology or new internal rules make the Bilski analysis unworkable, let’s hope it does not take another decade to work out the bugs.