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November 11, 2009

Bilski, Business Methods, Software Patents, and the Supreme Court

In late 2008 the U.S. Court of Appeals for the Federal Circuit (CAFC) issued an opinion in the Bilski case holding that inventor Bilski's patent claims, which covered a business method for hedging risk in commodities trading, was not patentable subject matter. Ever since the CAFC's decision in Bilski, I have been asked by clients, other attorneys, and reporters about whether the CAFC's Bilski decision means that software is no longer patentable in the U.S. (For a few articles quoting me on the Bilski case, see these in National Magazine, CBS MarketWatch, and Software Development Times.)

In fact, many people have told me that other attorneys have informed them that software is no longer patentable in the U.S. as a result of the CAFC's Bilski decision. This is not true. I have continued to routinely obtain software patents for my clients since the Bilski decision was rendered. As I explain in more detail below, the CAFC did not hold in Bilski that software is not patentable. The CAFC did not even hold that all business methods are not patentable. Unfortunately, much of the misinformation that has been spreading about the Bilski case seems to stem from second- and third-hand reporting about the case by people who have not read the CAFC's opinion or who are not familiar enough with patent law to understand how to interpret the opinion.

Understanding the CAFC's Bilski decision requires first understanding the claims in Bilski's patent application. Although it is long, it is worthwhile considering claim 1 in Bilski's patent application:

1. 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 consumer;

(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.

The first, and arguably most important, feature of this claim is that it merely claims a "method," and does not state that the method is performed using a computer or any other machine. As a result, if this claim had been granted in a patent, such a patent could conceivably be enforced against people who performed Bilski's method, in whole or in part, using their minds, pencil and paper, oral conversations, or otherwise without the use of machine.

The CAFC could have issued a narrow ruling that such "pure" business method claims are not patentable subject matter. Such a decision, whether correct or not, would have had limited impact on the patent system as a whole. It would even have had a limited impact on business method patents whose claims require the use of computer software, hardware, or other machinery to carry out the claimed methods. A narrow ruling that pure business methods are not patentable would almost certainly have had little impact on software patents in general, and the press would not have been riddled with reports that software had been deemed unpatentable in the U.S.

It seems that the CAFC tried to achieve this result by announcing, in its Bilski opinion, that:

• "we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court"; and

• "the process claim at issue in this appeal is not, in any event, a software claim. Thus, the facts here would be largely unhelpful in illuminating the distinctions between those software claims that are patent-eligible and those that are not."

Such statements should make clear that the CAFC's Bilski opinion should not be interpreted to mean that software cannot be patented. Instead, it seems that the CAFC intended to leave the state of the law with respect to software patents unchanged.

So why all the fuss about Bilski and software patents? The reason is that the CAFC, instead of issuing a narrow opinion about the patentability of pure business methods, decided to use the case as an opportunity to announce a new legal test for determining whether processes are patentable. In particular, the CAFC held that a process only qualifies as patentable subject matter if it: (1) is tied to a particular machine or apparatus; or (2) transforms a particular article into a different state or thing.

Unfortunately, this "machine or transformation" test has raised questions about software patents which the CAFC could have avoided by writing a more carefully-worded opinion. For example, under the "machine or transformation" test, does a patent claim which merely states that a method is "computer-implemented" or "performed by a computer" mean that the method is tied to a "particular machine"? If not, then can adding additional details about the computer's hardware into the claim cause it to satisfy the "tied to a particular machine" test?

As I mentioned above, I have continued to obtain software patents for my clients even in the face of these questions. I have been finding that when a software patent application is well-written, patent examiners either do not raise objections to it under Bilski, or the objections they raise can be overcome using arguments about the meaning of the Bilski decision and possibly some amendments to the wording of the claims, if appropriate.

I have found, however, much variation in how patent examiners interpret the Bilski decision. As a result, I have found it to be more important than ever to talk to examiners in individual cases to understand the precise nature of their concerns so that I can address them, rather than applying a cookie-cutter approach every time I receive a rejection under Bilski.

My experience is consistent with the examples described by the AIPPI in its excellent amicus brief, which documents inconsistencies in decisions issued by the USPTO's Board of Patent Appeals and Interferences (BPAI) over the last year as it has attempted to apply the "machine or transformation" test. For example, the BPAI has not been able to reach internal agreement about whether reciting a "computer system" or "processor" in a patent claim is sufficient to satisfy the "machine" prong of the Bilski test.

Now the case is before the U.S. Supreme Court, which one can only hope will resolve such inconsistencies and issue an opinion which is clearer than the one issued last year by the CAFC. In particular, the Supreme Court should issue a decision which relates to the "pure business method" type of claim for which Bilski sought a patent, and leave the law with respect to claims for software and other computer-related technology unchanged. Although it is impossible to predict how the Supreme Court will rule, the significant interest in the case, including the the large number of amicus briefs which have been filed, leads me to believe that it is unlikely that the Supreme Court's opinion will have any significantly negative direct impact on software patents, particularly in light of the long line of cases from both the Supreme Court and the CAFC which support the patentability of software. The outcome that I consider more likely is one in which the Supreme Court's opinion does not explicitly affect software patents, but instead inadvertently contains language which is subject to interpretation. In such a case, it will be up to the lower courts and the USPTO to hash out the meaning of the decision over time.

The Supreme Court will likely issue its decision in the spring of 2010. In the meantime, I plan to continue filing and obtaining software patents and other computer-related patents for my clients. Neither the spirit nor the letter of the CAFC's Bilski opinion, which is currently the law of the land, rule out patents on software, provided that such patents are written correctly, based on a solid understanding of patent law as it applies to software. Although the confusion within the USPTO about the CAFC's Bilski opinion now sometimes causes some extra care and effort to be required to obtain software patents, including more frequent and detailed conversations with patent examiners to explain the state of the law to them, the death of software patents that has been reported by some in the press is greatly exaggerated. Stay tuned for further developments later this year and once the Supreme Court issues its much-awaited decision.

Posted by Robert at November 11, 2009 2:12 AM
category: Software Patents

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