Bilski Decision Likely To Narrow Patentable Subject Matter In US, Panel Says

For years, the United States has taken an expansive position on the types of inventions that are patentable. Software, medical tests, and business methods – for example – have all been granted patents. But that is likely to change when the US Supreme Court hands down its decision in Bilski v. Kappos, according to most members of a 19 November panel, Patentable Subject Matter After the Bilski Oral Argument, hosted by American University Law School and the Federal Circuit Bar Association.

The court will probably rule the business method claimed by Bernard Bilski is not patentable subject matter, but it’s unclear how much further the court will go, said one panellist, Randolph Moss, a partner in the Washington, DC office of WilmerHale who filed an amicus brief in Bilski on behalf of several financial institutions. Moss stated the Supreme Court might content itself with a narrow decision (that Bilski’s invention is an abstract idea which cannot be patented) or the court might want to make a more significant statement, possibly even creating a tough new legal standard for patent eligible subject matter which could deny protection not just to business methods, but to software and many other types of inventions.

That indeed seems to be the range of likely outcomes, agreed another panellist, Nancy Linck, a member of the Washington, DC firm Rothwell, Figg, Ernst & Manbeck. Linck, who filed an amicus brief in Bilski on behalf of the trade group Biotechnology Industry Organization, added that the Supreme Court seems likely to adopt a tougher standard than the “machine or transformation” test recently adopted by the Federal Circuit Court of Appeals.

Back in 1998, the Federal Circuit (which is sometimes called the country’s patent court) embraced a broad view of patent eligible subject matter. The court stated in State Street Bank & Trust Co. v. Signature Financial Group Inc. that any process – including a business method – is patentable so long as it produces a “useful, concrete and tangible result.” 

Bilski’s invention seems to satisfy this test. He claims a method of using hedge contracts to limit risk in commodities trading: The user sells options on a commodity at a fixed price and reduces the risk of price fluctuations by making a second set of hedging transactions at a second price. Bilski claims no methods of calculating appropriate hedge prices, nor does his invention use computers to help perform the hedging. Thus, Bilski is seeking a broad patent on the use of hedge contracts in commodities trading.

The US Patent and Trademark Office rejected Bilski’s application in September 2006, ruling it was merely an abstract idea and thus not patentable. Bilski appealed and, in 2008, the Federal Circuit also ruled [pdf] the invention was unpatentable.

However, the Federal Circuit went much further than the USPTO. The appellate court, acting en banc, explicitly repudiated State Street’s patentability standard of “useful, concrete and tangible result.” Instead, the court ruled, a process was patentable subject matter only if it utilised a machine to carry out specific procedures or if the process transformed matter or energy. This “machine or transformation” test was laid out in a series of old US Supreme Court cases, the Federal Circuit indicated, and that court announced it was compelled to follow the Supreme Court’s standard.

Bilski appealed, but his arguments seemed to be received coolly when the case was recently argued before the Supreme Court. “Our position … has been fairly absolute,” said J. Michael Jakes, a partner in the Washington, DC office of Finnegan, Henderson, Farabow, Garrett & Dunner who represented Bilski at oral argument and who spoke at the American University panel on Bilski. At the panel, Jakes explained that it was unnecessary and impractical to draw a line between useful inventions that were patent-eligible and those which were not. When the amici tried to draw a line, they were all over the place, as was the Supreme Court, Jakes stated at the panel discussion. “They are searching for that elusive middle ground that I really don’t feel exists,” he said.

During oral argument [pdf], a number of the Justices appeared sceptical about Jakes’ absolutist position. They seemed concerned it went too far by allowing patents on such things as speed dating (Justice Sonia Sotomayor), alphabets (Chief Justice John Roberts), methods for avoiding taxes (Justice Ruth Bader Ginsburg), a method of teaching antitrust law (Justice Stephen Breyer), and ways of training horses (Justice Antonin Scalia).

Defending the Federal Circuit’s ruling, the federal government argued that the machine or transformation test is sensible. “It is a fair representation of the types of technological processes that we have always granted patents on,” said Raymond T. Chen, solicitor for the USPTO, at the American University panel.

The federal government also argued that the test would have relatively little impact. The machine or transformation test is a fairly low bar, Chen said at the panel. He asserted that the test culls out only such things as methods of negotiating a contract, but comfortably accommodates software and medical methods. Those types of fields, he averred, fit within the machine or transformation test.

However, the boundaries of this test are unclear. For instance, could an unpatentable method suddenly become patentable if a computer is somehow involved? Chief Justice Roberts appeared worried by this possibility, but the government wasn’t. “When you do draft your claim as some kind of a computer-implemented process … you have taken a general purpose machine and infused within that some new functionality to convert it into a special purpose machine,” Chen explained. “When you’ve done that, you have a machine-implemented process that fulfills Section 101 [of the Patent Act, which sets out the standards for patentable subject matter].”

In any event, the government argued, the exact scope of the machine or transformation test could be determined in future cases. “We’ve urged for a narrow ruling,” Chen said, and the courts can decide other issues later.

The court is unlikely to leave these issues completely open, according to Moss. “The test they [the Justices] adopt has to at least consider … what the implications will be down the road,” he said.

However, the court will not completely resolve these issues in Bilski, according to Joshua Sarnoff, a professor of law at American University who co-moderated the panel discussion and who submitted an amicus brief on behalf of 11 law professors and the AARP, a powerful lobby which represents elderly persons. He stated that there would be plenty of cases in the future raising issues about what are machines and physical transformations for Section 101 purposes.

This view was largely echoed by the panel’s other co-moderator, Thomas Goldstein, an attorney in the Washington, DC office of Akin Gump Strauss Hauer & Feld who submitted an amicus brief on behalf of the American Bar Association. Goldstein stated that Supreme Court opinions tend not to delineate specific tests, but to provide an overall direction in which lower courts should take the law. He added, “The [Supreme] Court will … articulate a test … that will have sufficient layers of ambiguity … for the Federal Circuit to interpret.”

Goldstein also warned that the Supreme Court’s opinion in Bilski would likely have unexpected results. He said, “There will be dictum in the Supreme Court opinion that will have tremendous unintended consequences…. I would bet that the court is going to unintentionally provide guidance … about what a machine is and what an appropriate transformation is.”