Monday, June 1, 2009 - The Progress & Freedom Foundation Blog

Supreme Court to Weigh in on Business Method (and Software?) Patents

The Supreme Court granted certiorari today in Bilski v. Doll.  (All of the court filings, as well as the docket and the Federal Circuit's decision below, are available here via SCOTUSblog.)  Accordingly, the Supreme Court will hear the case in its upcoming term that begins in the fall. This is significant, especially if the Supreme Court issues a ruling broader than did the Court of Appeals for the Federal Circuit when it ruled en banc in October 2008.  Specifically, the Federal Circuit avoided the question that parties and amici put to it:  whether and when software patents are allowable.
Bilksi was (and is) a patent applicant (i.e., inventor) whose patent claims were rejected by the U.S. Patent & Trademark Office.  The Federal Circuit appeal was Bilski's appeal of the administrative decision, and Doll is the acting director of the PTO.  Bilski's claims were for a method of hedging risk in commodities trading.  A representative claim follows:

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:
(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said
(b) identifying market participants for said commodity having a counter risk position to said consumers; and
(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.
′892 application cl.1.

This type of patent claim is fairly unusual.  Despite the fuss over business-method patents (i.e., patents that cover methods of conducting business), there are far more patents sought and granted on methods of controlling the operation of a computer.   Put differently, the Bilski patent claim above purports to cover activities that occur on or off a computer whereas there are far more patents that seek to protect the operation of computer software alone.

Without getting into the nitty-gritty history of business-method patents (or of section 101 of the Patent Act), their relative scarcity may be due in part to historical antipathy toward such patents by the law.  That changed about a decade ago as a result of the Federal Circuit's State Street Bank case, which for all intents and purposes allowed business method patents.  Tens of thousands of pages of commentary have been written about the merits and drawbacks of such patent protection, and the Federal Circuit narrowed the scope of allowable patentable subject matter in Bilski from what it had been in State Street.

The Supreme Court has not in the past always been clear about the exact scope of patentable subject matter, and the Federal Circuit in Bilski struggled to come up with a test.  In an odd sequence of legal reasoning, the Federal Circuit cobbled together portions of Supreme Court opinions, cleaved what it believed to be dicta from what it believed to be holding, and arrived at a test that covered the old cases.  That test is:  "A claimed process is surely patent eligible . . . if: (1) it is tied to a particular machine or apparatus or (2) it transforms a particular article into a different state or thing."   The Federal Circuit, realizing that all it had done was patch together a safe-harbor, disclaimed the forward-looking effect of its test: "We recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this test to accommodate emerging technologies.  And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied.  At present, however, and certainly for the present case, we see no need for such a departure . . . ."   How very unsatisfying!

That the Federal Circuit abdicated its decision-making function in favor of a case-by-case analysis was and is exceptionally troubling because of what's at stake.  Specifically all software patents that can run on a variety of computers and which, therefore, are arguably not "tied to a particular machine."  The Federal Circuit expressly dodged this question in Bilski:  "We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer [in the text of the claim] suffices to tie a process claim to a particular machine."  Judges Newman and Rader, in separate dissents faulted the majority for introducing such uncertainty to the law.  That the public expected the Federal Circuit to clarify rather than cloud the issue of software patents is reflected by the fact that the Business Software Alliance, the Computer & Communications Industry Association, Dell, IBM, Philips, Red Hat, SAP, the Software and Information Industry Association, and Yahoo! all filed separate amicus briefs in the Federal Circuit and have nothing to show for it.

Without getting into the pros and cons of software patents here, it would be in everyone's best interest for the Supreme Court to tackle the scope of patentable subject matter in a way that resolves what is and is not patentable for more than Bilski himself.  I don't hold out great hope for such a broad holding given the Supreme Court's recent track record in patent cases.  The last time the Supreme Court had a chance to resolve issues of allowable subject matter -- in the Metabolite case -- it played a game of chicken and flinched at the last minute, leaving the issue unresolved.  And the last time the Supreme Court had a chance to simplify another complex patent-law test, it only made things more complicated.  In KSR v. Teleflex (2007), the Supreme Court, while maintaining the jury's job of stepping back in time and analyzing scientific references as they would be understood by scientists with a particular level of skill in a particular field -- good luck with that! -- held that such analyses should "not be confined within a test or formulation too constrained to serve its purpose."  After the Supreme Court repudiated the Federal Circuit's test, it offered no legally adequate test of its own.

Maybe I'll be proven wrong and maybe the Supreme Court will provide broad guidance to broad swaths of the nation's industries.  I'll keep my fingers crossed.

posted by Sidney Rosenzweig @ 5:20 PM | IP