Cyberlaw Cases

Bilski, Bilski, Bilski. You coulda been a contender.

When the Supreme Court granted cert on Bernard Bilski’s business method patent application for hedging risks in commodities trading, most commentators thought we would finally get some clarity on the future method patentability.  Some, like myself, hoped that the Court would draw a defining line, such as a rule that patentable methods must be technologically-based or, at a minimum, that human activities and business methods, by themselves, were unpatentable. Others wanted the Court to hand down a definitive ruling that method patenting was wide open, with the main constraints lying in other requirements under the Patent Act such as novelty, nonobviousness, and specificity.

What we got, however, was a mess – a mess of clues and hints as to what is patentable, but no clear line or test. While all nine members of the Court agreed that Bilski’s method was unpatentable and that the Federal Circuit’s exclusive “machine-or-transformation” test was too limited to determine the entire universe of patentable processes, the Court was deeply divided as to the right approach to the issue.

Justice Kennedy’s five-vote majority opinion – which reads more like a concurrence and is quite short (16 pages) for a case that took 231 days to decide – argues that Bilski’s application fails because it is an “abstract idea” and thus not allowed to be a “process” under Section 101 of the Patent Act. Yet Kennedy does not provide much explanation as to why the Patent Act prohibits abstract processes or how one tells the difference between an abstract process and a concrete process. For example, we leave the opinion without any sense of whether or not Judge Sotomayor’s famous “speed dating” example or Justice Breyer’s new method for teaching antitrust law are abstract or concrete. Instead, Kennedy merely states that “[c]oncerns about attempts to call any form of human activity a ‘process’ can be met by making sure the claim meets the requirements of §101” without explaining which requirements would do this or how.

Later, in a part of the plurality opinion that Justice Scalia did not join, Kennedy suggests that “i[f] a high enough bar is not set when considering patent applications for [business tasks], patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change.” Kennedy then suggests that the “abstract idea” concept can establish a limiting principle on business method patents “if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas.” Again, ironically, Kennedy’s approach is rather abstract itself and offers little if any guidance.

So what can we take away from Bilski? Well, besides Justice Stevens’ 47-page tour-de-force concurrence arguing to uphold the historical exclusion of business method patents, here are my top four:

1)   State Street Bank’s “useful, concrete, and tangible result” test is dead.

In the 1998 State Street Bank v. Signature case, the Federal Circuit Court of Appeals opened the floodgates to an explosion of questionable patent applications by allowing patents to cover any subject matter as long as they produced a “useful, concrete, and tangible result.” This was far too broad and part of what lead to the Supreme Court taking Bilski in the first place. In the Bilski decision, four justices explicitly advocate against this standard and the majority opinion goes out of its way to state that nothing in its holding “should be read as endorsing” the State Street interpretation of Section 101: a clear message to the Federal Circuit that this test should go quietly into the history books.

2)   Abstract ideas likely include “basic concepts” and methods that can be reduced to a mathematical formula.

While most of the Bilski opinion is vague about how to define an abstract idea or the appropriate test to use, Justice Kennedy does provide a few more clues when he analyzes the Bilski claim directly. There, he describes the claims at issue as covering “the basic concept of hedging or protecting against risk” – “a fundamental economic practice.” He then writes: “The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea.” Thus, we are left with the suggestion that anything “conceptual” or that can be reduced to a mathematical formula is an unpatentable abstract idea. This may well be a defendant’s best argument when challenging a patent claim in court on these grounds.

3)   Parker v. Flook’s “field of use” and “postsolution activity” limitations are alive and well.

In 1978, Justice Stevens wrote Parker v. Flook, a case about a mathematical algorithm used to update alarm limits for a catalytic converter. In the case, the Court held this was unpatentable because an algorithm was a law of nature, even when the applicant attempted to limit it to a specific field of use or to add insignificant post-solution activity (such as triggering an alarm). In 1981, however, the Court decided Diamond v. Diehr, and called some of Flook’s holdings into question. Some commentators then speculated that Flook’s limitations on patentable subject matter were dead or at least diminished and that Diehr had essentially quietly overruled Flook.

While Kennedy cites to both Flook and Diehr in the Bilski opinion, he emphasized Flook much more heavily and suggests that its two major limitations could be among the most useful for the PTO or courtroom defendants who want to challenge patent claims as abstract ideas and especially those merely hitched to a concrete term here and there. So there is no question, Flook is alive, well, and good law.

4)   Expect more Section 101 challenges, especially at the early stages of patent litigation.

Under the State Street Bank test, very few patent litigation defendants had incentive to bring a challenge under Section 101 to a method claim, as it was almost impossible to prove that a patent had absolutely no “useful, concrete, and tangible result.” Now, even with the vague formulations offered by the Court’s opinion in Bilski, there will be more hope for patent litigation defendants to challenge broad method claims in court as abstract ideas. Two key reasons to do so are cost and timing. In patent litigation, defendants are often dragged through courts for years, even on bogus or bad patents, because proving a patent was obvious or that someone else had invented it first is expensive, time-consuming, and fact-intensive.

Arguing that a patent claim is an abstract idea, however, could be much simpler. While litigants might want to include some facts and expert testimony, others might simply want to challenge the patent claims as abstract on their very language. This is certainly how the Court in Bilski decided the abstractness question, and how the courts in Flook and Diehr did as well. Under this approach, defendants could even bring a motion to dismiss the case at the initial pleading stage, before any burdensome discovery and other litigation costs are incurred. This could also result in more decisions that interpret Bilski coming out at a relatively fast pace and providing the additional guidance litigants will need to navigate this new approach.

For others’ analysis, see here, here, here, and here.

One last note: As a result of the Supreme Court’s ruling, we will be moving this case off the Top Ten list. However, given that the Court left so many issues open and raised so many new questions, I still think the issue of method patentability for technologies such as software, medical diagnostics, and other information innovations is still very much up in the air and in play. We will be watching cases such as Prometheus v. Mayo to see how the Federal Circuit and other courts respond. But I anticipate this issue taking years to work out.

Today was the deadline for amicus (”friend of the court”) briefs in support of the Obama Administration’s position in the Bilski case. On behalf of the U.S. Patent Office, they argue that patentable processes must be limited to technological processes, which include but are not limited to those that are tied to a particular machine or that transform matter into a different state or thing. Because the Bilski application does neither, they argue it is unpatentable.

Prof. Pamela Samuelson and I filed a brief in support of this position on behalf of the Kauffman Foundation, EFF, Public Knowledge, MIT business professor Eric von Hippel, and several well-known technology entrepreneurs. The brief urges the court to affirm the rejection of the Bilski application for three reasons: (1) the history and structure of § 101 limit the construction of “process” to technological processes (which we define), (2) allowing patents on non-technological processes such as those in the business and service industries is unnecessary and harmful to innovation, and (3) removing the long-standing technological limit on § 101 processes would undermine the institutional competence of both the PTO and the federal courts to protect innovation.

EFF has done a blog post on the brief and the case here.

Briefs in support of Bilski’s position can be found here.

I will try to post links to various briefs as they come in.

To start, you can find the Redhat brief here.

UPDATE: Patently-O has most of the amici supporting the USPTO here.

The Solicitor General has filed its brief on behalf of the Patent and Trademark Office in the Bilski v. Kappos case before the Supreme Court.

In sum, it argues that United States patent law only protects “industrial and technological” processes and not methods, like Bilski’s method of hedging financial risk, that are “untethered to technology.” Amicus briefs in support of the PTO’s position are due this Friday, Oct. 2. I plan to file one and will post a link to it and others when they are public.

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. Continue Reading »