The legal, business, and scientific communities eagerly await the Supreme Court’s ruling in Bilski v. Kappos and many scholars, business leaders, and legal professionals try their best to anticipate how the Court will rule. Many patent attorneys and patent agents are drafting two sets of claims for their clients and the one they file will depend on how the Supreme Court rules.
For all of the opinions, articles, and conjecture, all one need do is study the law and look at the precedents to know that anticipating how the Supreme Court will rule in a case is akin to trying to gaze into a crystal ball. So, what will be the future of business methods as patent-eligible subject matter? Will the machine-or-transformation test stand? What will be the fate of the Bilski patent? An educated guess is the best that one can hope for in this situation.
The Bilski Matter
In 1997, Bernard Bilski and Rand Warsaw filed a patent application in the USPTO for “methods for managing the consumption risk costs of a commodity sold at a fixed price and, more particularly, methods for managing the weather-related risks associated with energy pricing.” The claimed process comprises three steps:
- initiating a series of sales or options transactions between a broker and purchaser-users by which the purchaser-users buy the commodity at a first fixed rate based on historical price levels;
- identifying producer-sellers of the commodity; and
- initiating a series of sales or options transactions between the broker and producer-sellers, at a second fixed rate, such that the purchasers’ and sellers’ respective risk positions balance out.
The examiner at the USPTO rejected all claims of the Bilski patent application on the grounds that “the invention is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.” Bilski appealed the examiner’s rejection to the USPTO Board of Patent Appeals and Interferences (BPAI). On appeal, the BPAI affirmed the examiner’s rejection but on different grounds.
The board rejected the examiner’s “technological arts” test and the requirement of a specific apparatus. The BPAI nevertheless rejected the Bilski claims as not involving any patent-eligible transformation of physical subject matter from one state to another and that the claims preempt any and every possible way of performing the steps of the claimed process.
Bernard Bilski and Rand Warsaw then appealed the BPAI rejection to the Court of Appeals for the Federal Circuit. The Federal Circuit “sua sponte ordered an en banc review.” The court upheld the BPAI rejection in a 9-3 decision. While court affirmed the State Street view that business methods are not per se excluded from patent-eligible subject matter, the court opined at length that previous tests for patentable subject matter were not valid. The court then held that the test to apply is the “machine-or-transformation” test, and that Bilski and Warsaw’s claimed method does not meet that test.
Bilski and Warsaw appealed their case to the Supreme Court and the Court granted certiorari on June 1, 2009. Oral arguments were heard on November 9, 2009. As of the writing of this article, the Supreme Court has not handed down a decision on this case.
The Brief for Petitioner Bernard L. Bilski and Rand A. Warsaw presented two issues before the Court. The issues presented are:
- Whether 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 and;
- Whether the “machine-or-transformation” test for patent eligibility, contradicts Congressional intent that patents protect “method[s] of doing business” in 35 U.S.C. § 273.
The transcript of the oral arguments indicates that the Justices were not comfortable with the inflexible test promulgated by the Federal Circuit but neither were they in favor of a wholesale inclusion of any business method as patentable subject matter. Despite simplistic and, at times, derisive examples from the Justices (such as Justice Scalia wondering if he could get a patent for a book on how to win friends and influence people, or Justice Sotomayor’s inquiry as to the patentability of speed dating) it is suggested from the transcript that the Justices felt that the Federal Circuit went too far with the “machine-or-transformation” test.
Justice Sotomayor repeatedly referred to the Federal Circuit’s decision in Bilski as “extreme”. “Once you announce an exclusive test,” Justice Sotomayor said, “you’re shoe-horning technologies that might be different. So help us with a test that doesn’t go to the extreme the Federal Circuit did, which is to preclude any other items, something we held open explicitly in two other cases, so we would have to backtrack and say now we are ruling that we were wrong, and still get at something like this.” Neither the advocates nor the Justices could offer an alternate test. Even Justice Breyer confessed that he couldn’t come up with a meaningful test under Section 101.
The oral argument transcript is also telling in that it suggests that members of the Supreme Court are not clear on the distinction between patent-eligible subject matter and claims which are patentable. Patent-eligible subject matter is a threshold issue under 35 U.S.C. § 101, while a claim only merits receiving a patent (patentable) if it meets the other requirements of Title 35, specifically 35 U.S.C. § 102/103 and § 112.
Justice Breyer asked if his “great, wonderful, really original method of teaching antitrust law” that keeps “80 percent of his students awake” could be patented. Mr. Jakes, the attorney for the petitioners, responded that it may be “patent-eligible.” The subtle distinction seems to have been lost on Justice Breyer. “Let’s take training horses,” Justice Scalia said. “Don’t you think that some people, horse whisperers or others, had some, you know, some insights into the best way to train horses? And that should have been patentable on your theory.” Once again, the Justices were confusing the subtle distinction between subject matter that is patent-eligible and claims that are meritorious of a patent.
Arguments In Favor of Bilski
Perhaps the best argued and most thought out analysis in favor of the Supreme Court reversing the Federal Circuit decision in Bilski and removing or redefining the machine-or-transformation test comes directly from the Federal Circuit itself. Dissenting in the Bilski opinion, Judge Randall Rader takes the majority to task for what he calls the invention of “several circuitous and unnecessary tests.” According to Judge Rader’s analysis, the majority relied on “dicta taken out of context from numerous Supreme Court decisions dealing with technology of the past.” That is not to say that Judge Rader would have upheld the patentability of the claims presented by Bilski and Warsaw. In fact, Judge Rader would have preferred a one sentence opinion, “Because Bilski claims merely an abstract idea, this court affirms the Board’s rejection.” Regardless of the fate of the Bilski claims, Judge Rader bases his dissent on the fact that the court “links patent eligibility to the age of iron and steel at a time of subatomic particles and terabytes.”
Judge Newman, also dissenting in the CAFC opinion, criticizes the majority for imposing restrictions that redefine the word “process” in the patent statute to “exclude all processes that do not transform physical matter or that are not performed by machines.” Judge Newman writes at length, citing page after page of historical and judicial precedent that runs counter to the reasoning espoused by the majority in offering the “machine-or-transformation” test. “In sum,” she writes, “history does not support the retrogression sponsored by the concurrence.”
Justices Breyer and Sotomayor, in the oral arguments before the Supreme Court, expressed the sentiments of many in favor of an expansive view of patentable subject matter by characterizing the Federal Circuit’s “machine-or-transformation” test as “extreme” as well as by expressing their discomfort with just how far the Federal Circuit went with the new test. Professor Mark Lemley of Stanford Law School, in a group of 20 law and business professors, presented a brief amici curiae to the Supreme Court in the Bilski case critical of the “machine-or-transformation” test. “A rule that freezes the definition of patentable subject matter in time will hobble new areas of innovation.” In the amici brief, they offer a simpler test for patentability. “Where an idea is claimed as applied, it is eligible for patentability, but if it is claimed merely in the abstract it is not.”
The most vociferous arguments against the “machine-or-transformation” test come from the technology sectors that fear this test will hamper innovation in future, cutting-edge areas.
“It is clear that the future economic strength of the United States will rely greatly on cutting-edge technologies — such as artificial intelligence, genetic programming, and human-machine communications — that in the broadest sense are not ‘physical’ or ‘tangible.’ But the ‘machine-or-transformation test’ set forth by the Federal Circuit gives cause for serious concern that patentability will be statically limited to ‘physical’ or ‘tangible’ implementations of technical developments, largely excluding innovations in such cutting-edge technologies.”
In fact, Professor John Duffy feels confident that technological innovations themselves will provide the impetus for the inevitable obsolescence of the “machine-or-transformation” test. “As engineering and applied science develops new fields that are not tied to physical articles, physical machines, and physical sciences, the Bilski en banc court’s rule can be expected to follow the path toward obsolescence that no prior rule of patentable subject matter has escaped.”
Arguments Against Bilski
The arguments against Bilski, those in favor of affirming the Federal Circuit and the “machine-or-transformation” test, mostly center on the philosophy that patents should only cover material which is “technological” in nature. According to Professor Robert P. Merges in the Berkley Technology Law Journal, “[e]veryone knew that manufactures and machines were at the core of the patent system.” Professor Merges makes the historical argument that against the backdrop of colonial America, “it would have been seen as absurd for an entrepreneur to file a patent on a new finance technique such as publicly traded corporate shares, techniques for obtaining private financing for a bridge to compete with an existing bridge, or a security interest in uncut timber.” In addition to laying out the foundation to historically invalidate business method patents, Professor Merges sees these “non-technological” patents in the light of a greater evil; that of perpetuating poor patent quality and of pushing the patent system into crisis due to the increased volume of patent applications stemming from this newly patentable subject matter.
Echoing Professor Merges’ view, Professor David S. Olson of Boston College Law School lauds the Federal Circuit’s approach to patentable subject matter, especially in their handling of Bilski. Professor Olson writes, “until the recent Bilski case, the courts had largely abandoned their role as gatekeepers of subject matter patentability. The result has been a flood of new patents drawn to subject matter that formerly were unpatentable.” Olson also characterizes business methods in an “evil” light, describing business methods as a “prime example of a type of subject matter for which allowing patentability makes society worse off.”
Professor Olson’s view that patent law should return to its utilitarian roots (namely that patent protection should exist in order to provide incentives for innovation) is shared in some sectors of the corporate world as evidenced by the amici briefs against Bilski from companies such as Google and Bank of America. These amici argue that claims such as those presented by the Bilski and Warsaw patent application, are not “inventions” that need incentivizing and the abstract ideas are presented “not to make productive use of them, but to extract licensing fees from businesses that apply and improve those ideas and methods in real-world products and services.”
Hopefully the Supreme Court will rely on stare decisis and continue to favor their expansive view of patentable subject matter that they have supported for the past thirty years. The patent system should be like a funnel with a wide mouth but a narrow exit. While it is likely that the Court will find the Federal Circuit’s “machine-or-transformation” test to be too inflexible; however, it is not likely that the court would venture to offer a test of their own.
As for the claims in the Bilski patent, it is unlikely that any analysis by the Supreme Court would find that the purely mental process, as claimed, recites patentable subject matter. Finally, with regards to a wholesale exclusion of business methods from being eligible under 35 U.S.C. §101, it is a fair bet to heed Justice Sotomayor’s admonition that “no ruling in this case is going to change State Street” and that business method patents will live to see another day.
Then again, the Supreme Court could go the other way… you never really know.