OPINION: The Federal Circuit Must Uphold Patent Protection for Business Methods

The decision in the Bilski case will have major implications for business method patents

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.

Accenture, which filed an amicus brief in Bilski , is a ”new economy” company keenly interested in protecting its own intellectual property and often employs and advances the fruits of industrial engineering and management science. At the close of our last fiscal year we had over 1700 patent applications pending globally and had been issued nearly 350 U.S. patents in areas ranging from goal-based educational simulation to computerized multimedia asset systems.

The Supreme Court ruled decades ago that ”anything under the sun” invented by man was patentable, so long as it had a practical application that produced a useful result. Ten years ago, the Federal Circuit repeated that analysis in its famous State Street Bank decision, holding that anything new and useful that had a ”concrete, useful and tangible result” was patentable. And Congress, indeed, has also clearly recognized the patentability of business methods. In fact, the patent statute now expressly provides patent protection for them. When revising the patent statute in 1999, partly in response to the Federal Circuit’s decision in State Street Bank , Congress, far from disputing that result or overruling it, enshrined it into the patent statute but provided a special prior user right for companies that had ”mistakenly believed” that such things were not patentable. Basic rule of legal interpretation: you can’t have a prior user right for something that doesn’t exist.

Changing the rules of the game now would have a significant impact on companies whose focus is on innovation in the information and services industry. It would breed secrecy, as inventors of such methods would go underground to protect their inventions as trade secrets rather than publish and reveal their innovation and allow others to build upon their insights, which is the main point of the patent system. Without an open and transparent registry of past inventions, PTO examiners cannot properly examine new related claims. Inventions, once filed for patent and published, become public knowledge and serve as the basis for further technological innovation.

Innovation, defined as ”the introduction of something new,” is usually unforeseen and unpredictable; each innovation should be considered on its merits, not its type. The genius of the U.S. patent system is that it plays no favorites and has successfully adapted to each new wave of innovation. It is striking, especially in the devastation of our financial markets and the rise of other global manufacturing powerhouses, that the United States would even consider diluting the industries in which it still excels: information and services. The PTO has not studied the repercussions of the radical changes it proposes; the Federal Circuit absolutely must, before making its decision.

About the Author

Wayne P. Sobon is associate general counsel and director of intellectual property for Accenture, a global management consulting, technology services, and outsourcing company. He is the founder of NewEconomyPatents.org, a forum for the advocacy of an open and neutral U.S. patent system.

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