In re Bilski and the future of business method patents

For both personal and professional reasons, my blog has been quiescent for a month now. But everyone is talking about yesterday's In re Bilski decision, and it's a good time to get back in the saddle.

So what exactly happened to the storied and controversial business method patent yesterday? It looks like the Federal Circuit has ruled that "pure" business method patents are out. But it's also clear that some types of business method patents are still acceptable, and most software patents will likely be fine.

At this point, I'm skeptical this decision will have much impact on the overall patent litigation scene, or even the more, ah, controversial corners of patent litigation that I'm most interested in.

Previously, to patent a process you needed to describe a "useful, tangible, and concrete" subject matter; now, you have to describe a process that's either 1) machine-implemented or 2) transforms some kind of matter. So, that is bad news for some plaintiffs with a certain kind of patent, and good news for defendants under attack by those patents. But which ones? Hard to say. And how many BM patents will survive? ... Some.

"Patents with either no ties to technology or very weak ties" are in danger, says Jim Myers, a patent litigator at Ropes & Gray. "A lot of those made it through in late 90s and early 2000s. They  simply used the word "Internet" or used the word "computer.'" For such patent-holders, "I can't think this decision would feel warm and fuzzy," he says.

Michael Barclay of Wilson Sonsini adds: "The controversy in business method patents has been exactly this: they've been claiming something that accountants do, or traders do, or banks do. It's a process flow of doing something in the regular course of business. No computer is required or necessary. Someone could be doing it on Microsoft Excel—or by hand on a piece of paper—and infringing a business method patent." Patents with little or no technical language are pretty common, Barclay noted, and may even make up a majority of business method patents.

Some patent claims do seem clearly threatened by the Bilski decision. For example, take claims on a method of legal arbitration, like those described in the Comiskey case, or the "pure business method" claims pondered by Scott Harris and his friends in late-night brainstorms (see In re Ferguson). But claims like that were already in danger, already living on the controversial edge of patentability.

So the court's majority created a new test, but declined to give much indication at all of the new test's parameters. Is the mere mention, (or "recitation" as the patent lawyers say) of a computer enough to save your patent? Maybe, maybe not. The court's majority refused to clarify that point, saying only: "We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine." I wouldn't be surprised if that non-statement ends up being the most-quoted sentence of this 132-page decision.

The court punted on this issue, noting that it may "refine or augment" the machine-or-transformation test in the future. Such a narrow decision suggests an even narrower goal: simply avoiding another rebuke from the Supreme Court, in the wake of four such smackdowns in the past few years, all limiting the power of patents. (Those would be eBay v. MercExchange, KSR v. Teleflex, Microsoft v. AT&T, and MedImmune v. Genentech.)

That's not to say the decision is insignificant. But any decision that the Federal Circuit makes en banc is bound to be significant one way or the other. (Consider what we'd be writing today if the court had done nothing to the State Street test, a position advocated by Judge Newman in her dissent. Arguably, that would have been more surprising and newsworthy than what we have before us today.)

"It's a huge issue, but it's not a huge decision," says John Dragseth of Fish & Richardson. "They played it fairly down the middle… The patent office was already shutting down these pure business method patents." He expects some software claims will need to be re-written, but with only slight modifications. Only half-joking, Dragseth suggested that "B.S. patents" are going to make it, while the "B.A. patents" will be thrown out: "Patents by people with liberal arts degrees are all invalid!" That's a funny line, but it actually cuts close to the real situation. The Federal Circuit isn't doing much more than insisting that patents include more technical language, without much guidance as to how much or what to include.

The vagueness of the decision will allow patent maximalists to spin away any real consequences of Bilski and preserve the profits that flow through their slice of the "patent community." It's already happening. Thursday evening, the patent consultants/auctioneers at Ocean Tomo sent out a media email announcing "Bilski Decision Unlikely to Alter Business Method Patents Value." Handy that—especially since Ocean Tomo has sold a heap of such patents at its auctions, the most recent one just this week. On a conference call quickly arranged for the media by pro-business-method-patent group New Economy Patents, speakers downplayed the significance of the decision.

"I think many, indeed most, or almost all, of the things that are used in real-world modern business are put on computers and machines and are intimately related with electronics and computer technology," said George Washington University Prof. John Duffy. "I don’t think this is very much of a limitation."

Duffy stressed that the patent at issue in State Street, the 1998 decision that gave the OK to software and business method patents, would be fine and dandy under the new test—it's just the test itself that changed. The court maintained the "core holding" of State Street, said Duffy, merely changing the "verbal formulation" required. (And the number of BM patents that will still be strong?—Many! Most! Almost all!)

Call participants included IP chiefs at two other stridently pro-BM-patent companies: Accenture (which sponsors the New Economy Patents group) and Goldman Sachs. They said the Bilski decision wouldn't hurt their patent strategy at all. AIPLA chief and former PTO director Todd Dickinson chimed in: "This helps [companies] like Accenture and Goldman Sachs, who take a lot of care in how they write their applications, and know what their invention is."

When I asked what kind of patents would be thrown out by this decision, Dickinson answered: "Patents like Bilski's."

These are dedicated patentists rushing to protect their portfolios from even the suggestion of Bilski-inspired erosion—it's spin of the "our patents good, their patents bad" variety. But it might end up being prescient spin. The damage will probably spread a bit farther than Bernard Bilski's poor little patent... but perhaps not much.

I suppose Mr. Bilski's company, now run by his old partner Rand Warsaw, will have to keep making its money the old-fashioned way: allegedly, by helping power companies overcharge consumers with dubious billing schemes.

For more Bilski coverage see The Recorder, Legal Times, AmLaw Daily, BusinessWeek, WSJ, AP, Bloomberg, Techdirt, Patently-O, and Peter Zura. In a future post I'll take a look at the most interesting part of this decision: the dissents.

Photo: Flickr / Smabs Sputzer

Comments

[Brett Trout]

Great Article. Post-Bilski I see the term "Business Method Patent" being reserved for use by accused infringers as a pejorative jab at those "naked" business method patents they are trying to invalidate.