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Bilski v. Kappos: The beginning of the end for business method patents

The Supreme Court's Bilski v. Kappos ruling seriously mutilated the business method patent zombie that has stalked the software and Internet world for more than a decade.

In its June 28 Bilski v. Kappos ruling, the U.S. Supreme Court seriously mutilated but did not kill the business method patent zombie that has stalked the software and Internet worlds for more than a decade. All nine justices agreed that Bernard Bilski's method of hedging weather-related risk in energy trading was unpatentable, but they were unable to reach a broad consensus on why. However, the court's opinion does provide some guidance, as do the other opinions.

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How Bilski v. Kappos may define the future of business method patents

 The justices unanimously agreed that the patent application failed the smell test because it taught an abstract idea. Generally speaking, patents protect the application of an idea (assuming it is new, useful and nonobvious), but not an abstract idea or principle, law or phenomenon of nature, or mental process. Otherwise, a patent holder could preempt use of a mathematical formula or a simple software algorithm.

According to the Supreme Court, such concepts and processes are the basic tools of scientific and technological work and can't be appropriated by any one user. Therefore, a new technology that implements a hedging formula may be patentable, but a hedging formula itself (as the court saw Bilski's invention) is not.

The Supreme Court also rejected the holding of the appeals court that patent eligibility for a "process" under 35 U.S.C. §101 always depends on physicality, i.e., whether the process is tied to a particular machine or transforms a particular article into a different state or thing. However, the justices muddied the waters by commenting that the test is still relevant, although not the exclusive threshold test for patentability of a process.

The court's opinion called the machine-or-transformation test a "useful and important" clue or investigative tool, and suggested that it might be appropriate for evaluating the patentability of a traditional industrial process (as opposed to a software or Internet process without a brick-and-mortar locus). Justice John Paul Stevens' concurring opinion called the machine-or-transformation test a "critical" tool.

The court failed to come up with a new standard to replace the machine-or-transformation test. Consequently, the lower courts will have to improvise when evaluating software and Internet inventions, among other things. As for the critical question of whether business methods are patentable, the court's opinion leaves the door slightly ajar, although the days of "broad patentability" of business methods are clearly over. While business methods should not be categorically excluded from patent eligibility, competition might be chilled "if a high enough bar is not set when considering patent applications of this sort."

In his concurring opinion, Justice Stevens (joined by Justices Sonia Sotomayor, Stephen Breyer and Ruth Bader Ginsburg) argued that business methods are not patentable under any circumstance and that the court should have adopted this bright-line rule as the basis for rejecting Bilski's patent application. While Justice Stevens has retired (Bilski was his swan song), the other three concurring justices remain on the court, with one additional justice (Antonin Scalia) notably declining to join in the portion of the court's opinion granting a stay of execution for business method patents.

So that's three, and perhaps four, sitting justices willing to slay the business method patent zombie, and the other justices believing the zombie is smelling kind of rank. Finally, all of the justices pooh-poohed the 1998 State Street Bank v. Signature Financial Group ruling, which opened the door to the recent flood of business method patents, with Justice Stevens calling it a "grave mistake." So even if the lower courts are reluctant to do so, the Supreme Court may soon have another opportunity to slay the zombie, which would invalidate thousands of software and Internet patents.

While the business method patent zombie is still in its alive-dead state, it is now slower and weaker. This should increase the leverage that technology companies have against some patent trolls.

 In the wake of Bilski, expect the U.S. Patent and Trademark Office to get even more aggressive with business method and other patent claims that lack an essential and identifiable connection with technology. For example, if the real novelty and usefulness of a software or Internet invention derives from a pure algorithm or the use of common programming or network elements to execute a general business process more efficiently, the invention may be dismissed as an abstract idea or principle, accompanied by legally insignificant post-solution technological activity or limited to a single field of use. Businesses should allocate their patenting dollars accordingly.

While the business method patent zombie is still in its alive-dead state, it is now slower and weaker. This should increase the leverage that technology companies have against some patent trolls. Legal threats to invalidate the claimed patents may limit license fee extraction or even cause the trolls to back off and find weaker prey.

Bilski turned out not to be the end of business method patents, but it may be only the beginning of the end. The burden now shifts to the lower courts and Congress to strike an appropriate balance between rewarding inventiveness and avoiding costly unpredictability and limitations on competition.

Andrew M. Baer is a contributing writer based in Philadelphia. Let us know what you think about the story; email Follow @ITCompliance for compliance news throughout the week.

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