In 1997, two inventors, Bernard Bilski and Rand Warsaw, filed a patent application titled ”Energy Risk Management Method” that focused, among other things, on how organizations like power companies could hedge the ”consumption” risk (the fact consumers might use more or less energy) due to external factors like the weather. They formed a company to provide that sort of risk hedging in the energy marketplace, and their patent wended its way through the U.S. Patent and Trademark Office (PTO)—that is, until the office’s Board of Patent Appeals picked their invention as a test case to drastically scale back the patentability of so-called business methods. The PTO decided not to grant Bilski and Warsaw a patent on their business method, and now the case is pending before the nation’s appeals court for patent issues, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C., also known as the Federal Circuit.
The decision by 12 judges of the Federal Circuit in the Bilski case is expected any moment now. As the judges weigh their decision, they should consider the impact the court’s decision will have on the future of innovation and competitiveness in the United States. Through Bilski , the PTO threatens to reverse our nation’s long-standing practice of patent neutrality by eliminating an entire class of innovation—business methods—from patent eligibility.
Industrial engineering and management science are at the core of business methods. They have been technological areas of expertise, study, and inquiry—and patentable in the United States—for more than 100 years. Ironically, the PTO even recognizes industrial engineering as a field of study that qualifies a person to take the patent bar examination. Yet the agency now wants to deny industrial engineers the right to patent innovations if they are not carried out by a machine or do not change a substance from one state to another—artificial distinctions that make little sense in our economy today.
Be it Frederick W. Taylor’s theory of scientific management, which led to rapid increases in productivity in the late 1800s, or Henry Ford’s assembly line, innovations in industrial engineering have for more than a century been central to our economic vitality and competitiveness.
Limiting the patentability of an innovation to that which can be tied to a physical transformation or to a certain type of apparatus—as the PTO suggests—might have been appropriate for the industrial revolution of the 19th and perhaps even the 20th centuries, when the cutting edge was developing new heavy machinery or changing the form of substances, such as smelting ore or dyeing fabric, but not in the information age, when the U.S. economy is less dependent on agriculture and industry and more focused on knowledge and services. The PTO should deal with our idea- and information-based present and future, not our industrial past.
Thomas J. Watson, Sr. started the IBM Corporation using ”business statistics maintenance” patents that he bought from inventor and businessman Herman Hollerith in the early 1900s. People and companies are developing new uses for drugs and new methods for growing food in which the key innovative step is often an intangible business method. Limiting the incentives for these kinds of inventions just because the methods would be performed by humans, and not by a machine, runs contrary to centuries of patent practice, congressional intent, and judicial precedent.
The reasoning behind the PTO proposal step is even more absurd. For years, the agency has been struggling with a patent examination system that is overburdened and understaffed, resulting in a backlog of more than 750,000 applications. Instead of hiring new examiners, employing the very fruits of management science, and reducing the high volume of attrition, the PTO is attempting to ”fix” the problem by refusing to examine business method patents, which are only a small subset of their pending backlog.
There is no doubt that the current review process needs to be changed. The agency has been criticized many times for awarding trivial patents to things like a crustless peanut butter sandwich and an automated system for lavatory tickets on airplanes. But the solution lies not in the elimination of the category but in giving examiners more time for review of each application and making decisions based on individual merit. That is why the agency exists.