Cyberlaw Cases

Case and Court:

In re Bilski (Fed. Cir.), on appeal to the Supreme Court as Bilski v. Kappos.

Background:

In 1997, Bernard Bilski and Rand Warsaw filed a patent application claiming to have invented a novel method of hedging risks in commodities trading. In the primary claim, the only steps employed consist of (1) identifying market participants and (2) initiating various series of financial transactions. The claim does not require any specific technologies or physical methods of implementation.

The Patent and Trademark Office (PTO) examiner rejected the Bilski claim under Section 101 of the Patent Act, finding that because the method lacked any specific grounding in an apparatus, it was not tied to the “technological arts” and thus unpatentable. The PTO Board of Appeals also rejected the patent under Section 101 but focused its reasoning on the lack of physical transformation resulting from the method. Both the PTO examiner and Board also claimed Bilski’s method was too abstract to be patentable.

Upon review by the Federal Circuit Court of Appeals, the case was decided en banc. In the somewhat fractured set of opinions, the majority held that Bilski’s application failed because it did not pass Section 101’s “machine-or-transformation” test. The Court identified this test after reviewing numerous Supreme Court and prior Federal Circuit opinions, concluding that the trigger for patentability for a method was either its implementation on a machine or that it somehow transformed matter into a different state or thing. Bilski subsequently petitioned for certiorari, which was granted for the 2009-2010 term.

A little history:

In the 1970s and 1980s, the Supreme Court took on the challenging issue of patentable subject matter for methods, deciding three key cases – Gottschalk v. Benson (binary decimal conversion methods),¹ Parker v. Flook (a method for updating alarm limits on a catalytic converter),² and Diamond v. Diehr (a method of determining the ideal temperature and time for curing rubber).³

In those cases, the Court struggled with the difference between so-called “abstract” mathematical algorithms and pragmatic methods of improving technology that used newly discovered algorithms as their key advancement. In Benson and Flook, the Court rejected the methods at issue, but in Diehr, it allowed them, claiming that because the purpose of the method was to transform rubber, a quite tangible thing, it was patentable.

After Diehr, the Federal Circuit (and its predecessor court) also struggled with limits in this area issuing numerous conflicting decisions with numerous tests. Finally, in 1997, the Court decided State Street Bank v. Signature Financial,⁴ where it held that Section 101 applied broadly to method patent claims, and that as long as the method produced some “useful, concrete, and tangible result”, it was patentable. This case was particularly controversial because it involved a so-called “business method” patent that claimed a financial investment strategy.

Since then, the Supreme Court has largely been silent as to patentable subject matter for methods. The only exception was Lab. Corp. v. Metabolite,⁵ where after granting certorari, the Court dismissed the case as improvidently granted after discovering the Section 101 issue had been waived below. In dissent, however, Justice Breyer (joined by Souter and Stevens) argued they should take the case and decide it because of the lack of grounding in and uncertainty arising from the Federal Circuit’s State Street Bank decision and its progeny.

What’s at stake:

Simply put, the future of method patentability. In Bilski, the Supreme Court has a daunting task ahead of it. It must somehow decide where to draw the line between invention and abstract idea. The placement of this line could have a dramatic effect on any number of industries, from software to financial to pharmaceutical.

Some argue that for this reason, Section 101 should be defined as broadly as possible and that the PTO and the Courts should use the other requirements for patents (such as novelty and nonobviousness) as gatekeepers on patent quality. Others argue there must be limits and Section 101 plays an important and required role in imposing them. Some agree with the “machine-or-transformation” test; others don’t.

One thing is for certain; given the Court’s recent history of reviewing and rejecting the Federal Circuit’s attempts to set patent policy, it is likely that the Court will fashion its own standard for Section 101, much like in the KSR v. Teleflex⁶ case on obviousness.

See also:

• Peter Zura, Bilski at the BPAI – What a Mess (Part 1) , The 271 Patent Blog (Jun. 16, 2009).
• Dennis Crouch, Bilski v. Doll: Reconsidering Patentable Subject Matter, PatentlyO (Jun. 1, 2009).
• Joe Mullin, Method Men? Handicapping Bilski at the Supreme Court, The Prior Art (Jun. 1, 2009).
• Kevin E. Noonan, The Supreme Court, In re Bilski and the Lingering Question of Labcorp v. Metabolite, Patent Docs (Jun. 1, 2009).

Footnotes

1. Gottschalk v. Benson, 409 U.S. 63 (1972). [↩]
2. Parker v. Flook, 437 U.S. 584 (1978). [↩]
3. Diamond v. Diehr, 450 U.S. 175 (1981). [↩]
4. State Street Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (Fed. Cir. 1998). [↩]
5. Lab. Corp. of Am. Holdings v. Metabolite Labs., Inc., 548 U.S. 124 (2006). [↩]
6. KSR Int’l Co. v. Teleflex Inc., 550 U.S. 398 (2007). [↩]