The Federal Circuit finally delivered its long-awaited opinion on business method patents today: In re Bilski No 2007-1130, Oct. 30, 2008. On May 8, the court had heard the case en banc, asking for extensive briefing, including on the question of whether the court should reconsider the test enunciated in the State Street Banking case for business method patents. State Street was a precedent breaking/precedent setting case, since it was the first case to clearly permit patenting of business methods that are not tied to machine developments, so long as the method produces "useful, concrete and tangible" results. The question at issue in Bilski was the patentability of a method for hedging.
The State Street case, as it happens, was also a case dealing with the patentability of a tax patent, and the issue of tax patents has garnered considerable attention in the last few years. Much has been written about the problems connected with these patents--see, e.g., my own article, Tax Patents: At the Crossroads of Tax and Patent Law, 2008 Journal of Law, Technology & Policy. The ABA created a task force, chaired by Dennis Drapkin and Ellen Aprill, of which I am a member, and the task force has spent time at meetings educating other tax lawyers about the issue and providing comments to Congress and the Treasury about issues related to tax strategy patents.
The Bilski case decision today did not completely tear up the ground of patent subject matter but did provide a ruling that will impact business method decisions. See, e.g., Nixon Peabody, Patentability of Computer Software and Business Methods: the Bilski Case, Oct. 30, 2008. The Bilski decision seems to overrule the "easy" test for process patents used in State Street (anything that provides a "useful, concrete, and tangible result"): that test seemed to permit almost any process to be treated as a patentable invention, so that it was extraordinarily difficult to predict where the line should be drawn between mental constructs and patentable processes. The Bilski opinion, by a 9-member majority, references the Supreme Court's cases concluding that purely mental processes do not merit patents and draws from one of the cases an exclusive test for patentability, concluding that processes are eligible for patenting only if either (1) they are tied to a particular machine or apparatus or (2) they transform an article into a different state or thing (a "machine or transformation" test).
There remains much to be determined about the meaning of the Bilski decision (about which i will write more on a future posting). The court did not completely overrule State Street, leaving it unclear what the "tied to a particular machine" language may encompass. As the Nixon Peabody blog post illustrates, the decision will likely lead to a change in the way patent applications are framed (attempting to claim a requirement for computerization, for example, or emphasizing the "transformative" nature of the process described in the patent application). Suffice it to say for now that this will undoubtedly have an immediate impact on businesses, especially those that have taken out a large number of business method patents for proprietary computer programs. (It has been suggested that Microsoft has patented an entire arsenal of business methods since the State Street decision. See, e.g., this post.) It is likely that a substantial number of business method process patents that have been obtained since State Street would not qualify under the Bilski decision--maybe even the State Street process itself. For example, the SOGRAT patent--involving determinations in respect of stock options in a grantor trust-- has been widely discussed by tax attorneys as a process that should not have qualified even under the other prongs of the patentability tests, since no sophisticated tax lawyer would consider the idea nonobvious. It might also fail to be upheld under the Bilski test.
One of the big winners from the Bilski decision might be technology consultants. As a patent agent specializing in tax patents, one of the strategies I’ve emphasized for financial professionals seeking a patent is for them to spend a little extra money to hire a technology consultant (e.g. actuary, IT professional, etc.) to spec out the technical implementation of their inventions. We then include the tech implementation in the patent application with the tech consultant as a coinventor.
The strategy has been very successful and with Bilski taking such a strong stand on the importance of tying a new financial invention to a “particular machine”, it should be even more so in the future.
Posted by: Mark Nowotarski | November 01, 2008 at 04:24 AM