Patent Protection for Business Methods Left in Murky Waters after Supreme Court’s June Decision
Posted: Monday, July 26, 2010
by Phillip Vales
Patent CEO
The nation’s top court has issued its long anticipated opinion rejecting the patentability of the controversial Bilski case. The decision is both surprising for what it does and for what it does not do. The Justices did not offer a clear interpretation as to what constitutes patentable subject matter in the narrow classification known as ‘business methods.’ But they did clarify certain points of the lower court’s ruling. Inventors and businesses seeking patent coverage are well advised to study the oracles emanating from the Supreme Court in order to get a patent that can pass muster in the existing case law.
Since the advent of the web, a rainstorm of patents claiming financial transaction processing began to arrive at the doors of the USPTO forcing a change in direction. The patent office was compelled by the deluge to examine numerous cases having both a technological application as well as crossing the line into financial processes that it would have preferred not to. As a matter of daily practice, the office simply instructed examiners not to evaluate a patent application to determine if it could be a business method or not. This would change when the Federal Circuit Court decided the landmark State Street Bank decision (1998).
This decision swung open the gates of what could be patented generating a chorus of complaints against State Street even though many informed observers point out that it may not have been entirely responsible after all. In any case, the Federal Circuit did indeed indicate that an invention would be eligible for a patent if it involved some practical application and produced a useful, concrete and tangible result. The US Patent Office responded by making it part of their official policy to require a technological connection for the method to be patentable. In doing so, the agency overstepped the bounds of its constitutional mandate since it could not be proved that these requirements existed in the current body of law (Ex Parte Lundgren, BPAI 2005).
In the year 2008 business methods hit a brick wall with the Federal Circuit’s Bilski decision wherein business methods were rendered patentable only if they passed certain tests. In particular, the Federal Circuit indicated that processes transforming an item from one thing into another are patentable and that those processes not having a transformative step may be granted a patent if attached to a machine. This nebulous two-prong test left many patent attorneys scratching their heads since what items could be considered transformable was left clouded in mystery.
The transformation of minerals with the application of mercury into silver dust was clearly a patentable item but how about the manipulation of financial information in a computer register through a complex financial algorithm? Could this be considered an item under transformation? Additionally, what constituted a machine that could render non-transformative processes into patentable processes? Nor was there an answer to the most basic question of whether or not the machine itself had to be unobvious or would the blending of the machine with the non-transformative process be sufficient to permit patentability?
All of these questions were in play when the highest court prepared to decide Bilski. To some observers its recent decision to reject the patentability for a method of hedging risks because it represented an abstract concept left many unanswered questions. In doing so it modified the Federal Circuit’s opinion in a variety of ways. In particular and most importantly, the Supreme Justices ensured that the lower court’s test involving a machine or transformation was utilized only as a test of patentability, not as a general rule for denying protection. Inventions that do not pass this test may still be patentable under the new decision; as a consequence, inventors having an idea that neither is attached to a machine nor transforms an item still might be eligible for a patent grant.
Adding to the confusion were four Justices who indicated that they believed that historically speaking, business methods were not favored with a patent and that the practice of not patenting them should continue. Another four of the Justices contradicted the first set by stating that the opposite was true; that indeed certain methods of doing business could be granted patent protection. However, in indicating this they did not provide a coherent methodology of how to determine this nor did they offer examples to guide the community. Absent legislation or further guidance from lower courts the system will muddle on in the penumbra of abstractions so typical of legal rulings.
The US patent system is presently choking with an enormous backlog of cases many of which are directed to this very same subject matter. When guidance will come from the legislature or lower courts only Heaven knows.
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