COMMENTARY: Business-Method Patents--Down But Not Out?

In 2006, after the U.S. Board of Patent Appeals upheld the examiner’s initial rejection of the patent application, Bilski and Warsaw sought relief from the courts. Last May, the Court of Appeals for the Federal Circuit, which handles all patent appeals, held a rare en banc hearing—that is, before all 12 of its judges—in which an astonishing 39 friend-of-the-court briefs were considered alongside the main arguments. The court’s decision, handed down at the end of October, lists 113 lawyers representing a cacophony of 36 organizations—IBM, American Express, Eli Lilly, Yahoo, Consumers Union, Philips Electronics, Red Hat, and Accenture among them.

As noted, the court determined that a process or method can be patented, but only if it’s tied to a particular machine or transforms some physical thing into a different thing or from one state to another. But as if that weren’t complicated enough, there were two caveats.

The first is that the process has to be really tied to a machine—the machine cannot be incidental to the process. For example, the Supreme Court has allowed a patent that covers both a mathematical formula used to determine when rubber was cured in a rubber-curing machine and also the primary components of the rubber-curing machine itself.

The second caveat is that a patentable transformation cannot apply to ”data gathering” as a precursor to making a decision based on the data. So we have an answer to the question about my hypothetical client’s stock-picking invention—it would not be patentable, whether I used a computer or not. While the patentable transformation can apply to data as well as physical substances and materials, it cannot apply to abstract concepts, like commodity trading or stock picks. This was at the heart of the court’s decision to uphold the Patent Office’s original rejection of Bilski’s application.

One judge, in dissent, argued that the caveats will create more problems than the rule. Another dissenting judge would have outlawed all business-method patents, period, saying, ”Before State Street led us down the wrong path, this court had rightly concluded that patents were designed to protect technological innovations, not ideas about the best way to run a business.”

Still another dissenting judge argued that the decision, while arriving at the correct outcome, went too far and was based on incorrect reasoning. He wrote: ”Innovation has moved beyond the brick-and-mortar world. Even this court’s test, with its caveats and winding explanations, seems to recognize this. Today’s software transforms our lives without physical anchors. This court’s test not only risks hobbling these advances but precludes patent protection for tomorrow’s technologies.”

And so, for now, that’s where things stand—firmly up in the air. The remaining uncertainty will impede the progress of ”science and the useful arts”—the very things the framers of the U.S. Constitution intended to promote in granting a right to patent innovations.