Bilski for the rest of us

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It seems like everyone’s got a take on Bilski v. Kappos, the biggest US Supreme Court ruling on patents since KSR. The blogs and tweets are out in full force trying to determine exactly what the decision means. For people without a law background, much of this can be confusing and nuanced. We’ve asked Michael C. Rau, Esq. to explain Bilski in layman’s terms, and what he presented to us gave us a new insight into this big moment in patent law history. Mr. Rau is the Director of Computing and Business Methods for Landon IP. Mr. Rau’s background includes stints as a registered and practicing patent attorney, and several executive positions within the media and communications industry.

Patent Resources Group (PRG), our sister company, is providing an exhaustive course entitled “The Bilski Impact: Procuring and Enforcing Software, Business Methods & Bioinformatics Patents” that goes beyond “What does Bilski mean?” and delves into “How can I apply Bilski to my patent related business efforts?” This three day course will be taught from October 3-5 as part of PRG’s October Advanced Courses in Palm Springs, CA. For more information about the course and how to register, go to The Bilski Impact course page on PRG’s website.

Without further ado, here’s Mr. Rau’s explanation of the Bilski decision:

You may have seen in the newspapers this morning a story on the Supreme Court decisions released Monday. One of these was an important patent-related decision dealing with the extent of subject matter that may be considered patentable – what kinds of processes are patentable and what kinds are not. “Important” because there are not very many Supreme Court decisions that deal with patents or patent law. It was a long-awaited decision, and probably will be remembered more for what it did not do than what it actually did. The decision is Bilski v. Kappos.

The primary issue in Bilski is the extent to which “business method” subject matter may be patented. For example, let’s suppose someone developed a new way to search for patents. Could such a method be patented? What sorts of business methods are patentable and what are not? A method of grocery shopping? A method of operating a dry cleaner? What about software – software is a “method” isn’t it … step 1, step 2….step n?

35 U.S.C. §101 defines the universe of subject matter that may be patentable. It is like a gatekeeper, and a patent applicant must insure that the subject matter desired to be patented is “patentable” before even getting to the familiar issues of novelty, inventive step and sufficient description. The statute reads:

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore….

Over the years, U.S. Courts have read a bit more specificity into this broad language. One cannot patent a “law of nature,” or a mathematical algorithm, or an abstract idea. One cannot patent a naturally occurring living thing, or naturally occurring material, like a rock or mineral. Patentable subject matter must be directed to a “machine” (some new widget); a “manufacture” (combination of parts or materials, such as a computer chip or new tool); a “composition of matter” (chemical or material); or a new method of doing something — a “process.” It is this last category that is the subject of Bilski and a fair amount of controversy and debate: the issue is not an easy one – for example, if software is considered a “process” — to what extent is software patentable — even though software is a mathematical algorithm? Like the questions above…what about processes that are new ways of doing business?

There are some outer markers to the territory of subject matter considered patentable. Software, standing alone and in and of itself — software “per se” – is not patentable. But, a PC programmed with software to execute a method – such a method is likely directed to patentable subject matter under §101, as long as it is not abstracted. In contrast, a method where every step may be performed entirely in the human mind would likely not be patentable.

Another outer marker pertains to business methods. We know that a “business method” cannot be patentable in and of itself if it pre-empts an entire field of commerce. It was the Statute of Monopolies in 1623 that outlawed monopolies on business methods. The King of England had been granting monopolies for the provision of particular services by his buds – only one cleaner, one cobbler, one bricklayer etc. One cannot patent a business method if it is abstracted to the point where, if granted, it would pre-empt its entire field of commerce. It is much trickier where the business method is tied to a computer or device.

A method of operating an assembly line of a manufacturer? Patentable. A method of calculating square roots of numbers? Not patentable. A method of bringing buyers and sellers together, facilitating a transaction? Hmmmm. The problem is, where is the line drawn between a PC programmed with software to execute a method that is patentable, and a PC programmed to execute a business method? The Supreme Court did not answer these questions….. they remain difficult questions. No one knows where the lines are actually drawn; the best that can be done is to stick to safe harbors of claim construction, as much as possible.

So what was this case about and who was Bilski?

Bernie Bilski was the CEO of a small company called “Weatherwise.” He filed a patent application (08/833,892) claiming a method of hedging a financial transaction. In condensed form, claim 1 reads:

1. A method for managing the consumption risk costs of a commodity sold by a commodity provider … comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers ….;

(b) identifying market participants for said commodity ….; and

(c) initiating a series of transactions between said commodity provider and said market participants …..

USPTO rejected this claim, saying it was directed to unpatentable subject matter. The USPTO was affirmed by the U.S. Court of Appeals for the Federal Circuit, and Mr. Bilski appealed to the U.S. Supreme Court, which granted certiorari almost one year ago.

The Federal Circuit, in affirming the USPTO rejection, had specified a “machine or transformation” test as an attempt to answer the questions above and distinguish patentable method claims from unpatentable ones. Under this test, the method claim needs to meet at least one prong of a two prong test. First, is the claim “tied to a particular machine”? Or, does the claim “transform a particular article into a different state or thing.” The terms “particular machine” and “particular article” were undefined. However, the Federal Circuit further noted that “electronic data that represents a physical object or substance” can serve as a “transformed article”. After the Federal Circuit decision, the USPTO began to allow claims of methods that are embodied as software running on a computer. The USPTO permitted a PC programmed for a specific purpose to be considered a “particular machine” and therefore would be directed to patentable subject matter under the Federal Circuit decision in Bilski.

Applying the “machine or transformation test”, the Bilski claim is unpatentable, as on its face – it not tied to any machine, nor does it “transform” electronic data.

Monday, the Supreme Court affirmed the unpatentability of Bilski’s claims. However, it refused to endorse the “machine or transformation” test as the single test for patentability. More importantly, however, the Supreme Court did not rule that business processes, or software, are unpatentable, and as a result did not appear to decrease or shrink the boundaries of what may be considered patentable under §101. While some commentators this morning are saying “much ado about nothing,” there was genuine concern on what the Supreme Court might have done. The Court could have ruled that software is unpatentable, for example, being based on mathematics; further, the Court could have trimmed back on what sorts of business methods could be patentable. In either case, the patentability of business innovations that are technology based would have been jeopardized. As it turned out, however, no real direction was provided, except for one important aspect: it is possible that a great deal of patenting activity had been held in abeyance in order to await the Supreme Court’s decision. Now the decision is out, we may start to see much greater activity with respect to software and business method patents…as if a cloud has lifted, and while perhaps not a purely green light for “go,” there is no longer a yellow light, either, for business method patent applicants.

Michael C. Rau, Esq.

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Patent Resources Group

This post was edited by Intellogist Team member Chris Jagalla.

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3 Responses

  1. Nice Bilski primer. The Court’s ruling is actually growing on me. Nevertheless, it’s pretty easy to see that the issue of defining the limits of an “abstract idea” will likely be the focus of much patent litigation in the near future. I do rather wish that the Court had made more of an attempt to address this. Lacking guidance from above, lower courts will have to address the issue case-by-case, and we’ll likely end up with some kind of piecemeal, undefined, “I know it when I see it” means of determining which inventions are too abstract. I wouldn’t be surprised if the issue ends up going back up to the Supreme Court again very soon.

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