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The Bilski Case: It Could Have Been Worse!

Wealth of Ideas Newsletter, June 2010

At the eleventh hour – and after almost eight months of deliberations – the U.S. Supreme Court delivered its anxiously-awaited decision in the case of Bilski v. Kappos.

The country’s highest court affirmed the lower court’s decision – namely, that Bilski’s invention was not patentable. However, the Supreme Court stopped short of ending the practice of granting patents on business methods and software, which many observers feared might be the outcome.

The high court found it impossible to categorically exclude methods of doing business from patentable subject matter, which would clearly contradict the Congressional intent:

“Under §273(b)(1), if a patent-holder claims infringement based on ‘a method in [a] patent,’ the alleged infringer can assert a defense of prior use. By allowing this defense, the statute itself acknowledges that there may be business method patents. Section 273 thus clarifies the understanding that a business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting under §101.”

In saying so, the Supreme Court left the door ajar for the future of business method patents.

Although the high court agreed with the Court of Appeals for the Federal Circuit (CAFC) insofar as the unpatentability of the Bilski invention, it disagreed with the Federal Circuit’s application of the machine or transformation test.

“The Federal Circuit incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test. Recent authorities show that the test was never intended to be exhaustive or exclusive,” wrote Justice Anthony Kennedy. Sounds like a slap on the wrist: Ouch!

The Supreme Court’s decision in Bilski “did not provide much clarity of what is patentable,” observed Alexander Poltorak, General Patent Corporation’s CEO and chairman and also the founder and president of American Innovators for Patent Reform (AIPR). “The ‘machine or transformation’ test promulgated by the Federal Circuit was found by the Supreme Court to be too rigid, but it did not provide any alternative test to shed light on this question. Under this decision, methods of doing business, as well as software, get to live another day.” And that’s good news for innovators and those who support and finance innovation and bring new products and services to market.

The Court heard the case in early November 2009, and spent the next several months deliberating it while patent attorneys worried and bloggers speculated about the outcome.

“It is ironic that the patentability of business methods should even be in question,” observes Dr. Poltorak, “since business method patents have been issued by the Patent Office for over 200 years.” In fact, the first business method patent was granted on March 19, 1799 to Jacob Perkins of Massachusetts for an invention for “detecting counterfeit notes.”

With that in mind, Dr. Poltorak continues, “The ‘machine-or-transformation’ test promulgated by the Court of Appeals for the Federal Circuit (CAFC) shows a lack of appreciation of the evolution of the mechanical technologies of the Industrial Age to the software-driven innovations of the knowledge-based economy of the 21st century.”

The Supreme Court’s decision on Bilski points to an interesting tension between the U.S. Supreme Court and the CAFC, which is the highest patent court in the nation and the court that strives to achieve clarity in patent law by promulgating what are known as “bright line” rules – such as the rule that a permanent injunction followed automatically upon finding of infringement (MercExchange LLC v. eBay Inc.), or the rule that “Teaching, Suggestion or Motivation” (TSM) was the dispositive test for obviousness (Teleflex, Inc. v. KSR International). The latest machine-or-transformation test was the exclusive test for patentability (In re Bilski).

“These ‘bright line’ rules make the Supreme Court squint!” says Dr. Poltorak. “In eBay, the Supreme Court found that a permanent injunction does not necessarily follow a finding of infringement. In KSR, the high court stated that although useful, the TSM test is not a dispositive test of obviousness. And in its latest exercise of Zen consciousness, in the Bilski ruling, the Supreme Court once again slapped the CAFC on the wrist. So much for clarity in patent law!”

But there is a bright side for American inventors, businesses and patent owners. “In choosing such expansive terms, Congress plainly contemplated that the patent laws would be given wide scope,” wrote Justice Kennedy, in order to ensure that "ingenuity should receive a liberal encouragement." This is the first encouragement of innovation we’ve seen from the Supreme Court in more than a decade, and it sure brightened our day.