Business Method Patents in the Wake of Bilski v.
Kappos
August 2010
Business method patents are heavily relied
on by some companies as a means to protect their intellectual property. The
viability of business method patents faced a serious threat in the Supreme Court's
recent Bilski v. Kappos decision. While the Supreme
Court's decision in Bilski left many questions
unanswered, it did affirm the viability of business method patents.
by Sanford
E. Warren Jr.
Akin Gump Strauss Hauer &
Feld LLP
On June 28, 2010, the Supreme Court issued a ruling on
Bilski v. Kappos addressing the viability of
business method patents. At issue was the patent application filed by Bernard
Bilski and Rand Warsaw that in essence, attempted to patent a method of hedging
risk in the field of commodities. The inventors outlined a method, which they
claimed would allow both consumers and sellers of commodities to insulate themselves
from the risks of price fluctuations in the marketplace.
In the majority opinion authored by Justice Anthony Kennedy, the Supreme
Court rejected the Federal Circuit's holding that a process is only eligible
for a patent if it is "tied to a particular machine or apparatus" or if it "transforms
a particular article into a different state or thing."
Bilski's Limited Holding
Instead of relying on the Federal Circuit's machine-or-transformation test
to affirm the rejection of the Bilski patent application, all nine justices
agreed, "the patent application here can be rejected under our precedents on
the unpatentability of abstract ideas … looking to the guideposts in
Benson, Flook,
and Diehr."
In sum, the Bilski holding stands for the
idea that there is no single test for the patentability of business methods.
The holding also maintains that business methods and software patents remain
patentable. Lastly, while the machine-or-transformation test is no longer recognized
as the exclusive test to determine patentability of a business method, the test
can be an important clue for determining whether a business method is patentable.
Are Business Methods Still Patentable?
In upholding the decision of the U.S. Patent and Trademark Office (PTO) that
Bilski's "process" was actually an abstract idea, and thus not patentable subject
matter, the Court refused to further define what constitutes a patentable "process"
beyond the definition provided by 35 U.S.C. § 100(b). The Court did, however,
reject the notion that there was a "business method exception" to patentability
much like there is for abstract ideas, natural phenomena, and mathematical algorithms.
Thus, business methods remain patentable subject matter.
While the Court did affirm the patentability of business methods, its failure
to articulate a test leaves it unclear as to whether a particular business method
will be patentable. The decision leaves open to future interpretation what exactly
is required for a business method to be considered patentable subject matter.
If the attitude of the four justices in the concurring opinion, who claimed
that the "potential vagueness [of business method patents] also invites a particularly
pernicious use of patents that we have long criticized," is any indication,
the breadth of patentable subject matter for business method patents may be
greatly limited in the future.
Are Previously Patented Business Methods Still Valid?
Because the Bilski decision affirmed the patentability
of business method patents and rejected the machine-or-transformation test as
the sole indicator of business method patentability, the
status quo for business methods has more
or less been preserved. That is, existing business method patents, like all
patents, are presumed valid. Nothing in Bilski
indicates that an existing business method patent is now invalid. In fact, existing
business method patents that may have failed the more stringent machine-or-transformation
test might still be valid under the Supreme Court's holding. Additionally, the
validity of an existing business patent is reinforced if it is tied to a machine,
or transforms an article.
Are Business Methods Worth Patenting?
While Bilski upheld the PTO's rejection of
a business method patent application, it also affirmed the idea of business
method patents. Accordingly, considerations regarding whether or not to patent
a business method remain as they were before the Federal Circuit's ruling in
In re Bilski. However, the rejection of Bilski's
business method application should reiterate to applicants seeking business
method patents that not all ideas are patentable, and that the decision might
represent the PTO beginning to define limits to business method patents.
Additionally, since "business method patents raise special problems in terms
of vagueness and suspect validity," the PTO may be more reluctant to allow business
method patents. Therefore, before deciding whether or not to seek patent protection,
potential patentees should understand that applications for business method
patents may face a reduced success rate. Furthermore, patentees should realize
that any business method patent applications that are filed should, where possible,
be catered to satisfy the machine-or-transformation test to give their business
method claims the best chance for patent protection.
Is It Worth It To License an Existing Business Method Patent?
The Bilski decision does not reject the idea
that business method patents are patentable. Therefore,
Bilski should not affect the decision of whether
to license a business method patent. Ultimately, the decision to license a business
method patent is based on a variety of variables specific to the licensee.
One factor companies should always weigh, however, is how important the practiced
method is to them or if there is an alternative. Sometimes companies may save
money by transitioning to a non-infringing method of doing business and thereby
avoid licensing fees. Also, potential litigation costs versus the cost of licensing
should be weighed. As we have said before, patent litigation is not cheap. If
a licensor has a strong patent and is willing to license it cheaply, then licensing
may be a viable option.
Conclusion
The bottom line is that business method patents continue to be patentable
after the Bilski decision. No specific test exists
for determining the patentability of a business method. In the interim, companies
should continue to treat their business methods as they always have while keeping
in mind the various costs associated with patenting or licensing a method. If
a company does decide to seek patent protection, it would be prudent to attempt
to tie business methods to a machine or the transformation of an article. Lastly,
the continued validity of business method patents means companies should be
prepared for the possibility of licensing a business method patent.
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