By Drew Clark for Intellectual Property Watch
WASHINGTON, DC – The chief US appeals court that rules on patent disputes has squarely reconsidered whether the United States’ 1998 decision to allow greater berth for business method patents was the right intellectual property policy.

Adding heft to the position of changing course on business method patents was the US Patent and Trademark Office, which challenged a patent application on a method for financial hedging by inventors Bernard Bilski and Rand Warsaw.

The USPTO urged the court to reject the patent as ineligible subject matter. It offered a standard for invalidating the patent that demonstrated a dramatic change of course for the US government over the past 10 years.

A decision by the court, the Federal Circuit Court of Appeals in Washington, was expected by the end of the year. If the court denies Bilski and Warsaw the patent, the inventors might seek review by the US Supreme Court, setting up an even more intensive battle between proponents and critics of business method patents.

Raymond Chen, the attorney representing the USPTO, came close to rejecting the logic for granting software patents independent of computers. “If software doesn’t have a machine attached to it, then it has some issues that need to be corrected,” said Chen.

A decade ago, the USPTO welcomed the State Street Bank v. Signature Financial Services decision, which opened the doors to a vast increase in applications for business method patents.

Critics charged that the USPTO was soon granting patents on absurdly obvious inventions, such as Amazon’s “one-click” Web shopping, or Priceline’s reverse-auctions for hotels and airplane flights. Then-Patent Commissioner Q. Todd Dickinson defended the State Street decision as a logical evolution of the patentability on “processes,” permitted for centuries.

A wide variety of parties weighed into the new case. Among the combatants were the information technology, financial services, and pharmaceutical industries. The IT and financial services segments were split, with parties in both sectors taking positions either for or against the inventors’ arguments.

The financial industry was particularly vocal. One side made a strong pitch for business method patents and launching a fresh coalition for them dubbed NewEconomyPatents.org. Such a coalition generally signals the beginning phase of a Washington policy fight, as the parties eye the future of potential Supreme Court review – and legislation to overturn whatever results from the judicial process.

The push to overturn State Street “could throw out whole industries” involved in financial analytics, said Thomas Biemer, an attorney with Dilworth Paxson and co-author of a “friend of the court” brief with George Washington University law professor John Duffy. Filed on behalf of Regulatory Datacorp, Inc., a Goldman Sachs-licensee that engages in profiling potential terrorist money laundering, Duffy and Biemer supported the eligibility of Bilski’s patent.

Biemer, who argued on behalf of the patent applicant in the State Street case, was joined in a briefing on 7 May by Duffy and attorneys for Accenture and the Boston Patent Law Association. Additionally, American Express was supportive of the pro-Bilski position.

Other side of the debate of the financial industry were Bank of America, the Financial Services Roundtable, Lehman Brothers, MetLife, Morgan Stanley and Wachovia, which urged the court to overturn State Street, and also Bilski’s patent application.

The technology industry also occupied positions on a spectrum, with Yahoo! most supportive of business method patents, and IBM most constrictive on granting them. Non-profit groups generally agreed with the latter position.

Unusual Day in Court

In an unusual and grand day in court on 8 May, the Federal Circuit Court of Appeals in Washington sat “en banc,” with all 12 of its judges considering the Bilski-Warsaw patent application.

The application was rejected by the USPTO in 2006 by the Board of Patent Appeals, an administrative body with the USPTO. The case was dubbed In re Bilski because it is an appeal of the USPTO’s decision denying a patent; the official parties were the inventors, seeking to overturn a patent board decision; and the USPTO, urging the appeals court to sustain its denial.

In addition to the unusual move to hear the case “en banc,” after previously being assigned to three-judge panel which heard the case but decided that the entire court should review the matter, the court also actively solicited briefs from concerned parties. Of the 38 briefs submitted, the court selected Duffy and Bank of America attorney William Lee to make oral arguments, along with the USPTO and Bilski’s attorney.

The judges on the court peppered all sides with a wide variety of questions, including whether the court should overturn the key 1998 precedent, State Street. The decision sustained an invention on a computerised accounting system to manage a mutual fund as a valid process-based patent. The US Supreme Court declined to review that case.

“What would happen” if the appeals court were to overturn State Street, asked Judge Pauline Newman. Newman said that the ambiguous language of the patent act suggests that the court also needed to look beyond the strict letter of the law and consider public policy. “Would that benefit the economy? Is that we are doing, legislating?”

The attorney representing the USPTO did not directly address the question. He said that the court did not need to reconsider the precedent because Bilski’s invention, unlike the patent in State Street, was not tied to a computer.

Under US law, a patent may issue under one of four classifications: a “machine,” a “manufacture,” a “composition of matter,” or “process.” To be valid, patents must also meet other thresholds in law: they must be useful, they must be novel and they must be non-obvious.

Hence the four oral advocates effectively occupied a wide range: Bilski’s attorney argued that his patent was valid; Duffy argued that the hedge fund subject matter was patentable, but took no position on the patent itself; the USPTO urged the court to reject the patent on subject matter grounds, without upsetting State Street; and Lee, of Bank of America, urged the court to reject the patent and overturn State Street.

Comments by several of the other judges indicated that many remained firmly committed to upholding State Street. These judges asked questions suggesting that the critics of the Bilski-Warsaw patent should offer other reasons why the patent application should be denied.

Many of the judges were critical of the USPTO’s current position that, to be a patentable, a business method must be either embodied in a machine or engage in some transformation of matter.

COURT FILINGS:

Decision by the Board of Patent Appeals: http://www.eff.org/files/filenode/in_re_bilski/bilski-opinion-of-the-board.pdf
Court filings before the Federal Circuit Court of Appeals: http://www.neweconomypatents.org/court-filings/
Summary of and links to amicus briefs regarding In re Bilski: http://www.patentlyo.com/patent/2008/04/ex-parte-bilski.html

Drew Clark may be reached at drew@drewclark.com.