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Bilski Decision Sets Back Business-Method Patents


The CAFC ruling on re Bilski limits the patentability of software. For technology brand owners, this makes it easier for good ideas to be stolen because process patents will be harder to get. For the FOSS community, even though the war is not over, a battle has been won.

When should a process qualify for patenting? According to a story by BusinessWeek legal affairs senior writer, Michael Orey, since the 1998 State Street Bank case that launched a flurry of business-method patent filings, patents have been issued for financial products, e-commerce Web site ordering methods, systems for conducting Internet auctions, and other "processes" that businesses big and small have claimed should be patent-protected. Now, a recent ruling by the Court of Appeals for the Federal Circuit involving a process developed by inventors Bernard Bilski and Rand Warsaw has narrowed the standards for the granting of process patents by simply changing the test to determine if a process should be patented.

In rejecting an attempt to patent a method of hedging risk in commodities transactions, the Federal Court abolished the "useful, concrete, and tangible result" test previously used to determine patentable software patents and substituted a new test. The Court ruled in the Bilski case that valid process patents either: have to be "tied to a particular machine" or apparatus or must "transform a particular article into a different state or thing."

This was bad news all around for many technology companies, which must now reexamine their patents to make sure they hold up under the new interpretation of the law or rework pending patent applications to make sure they pass muster. In a press statement, top intellectual property attorney John Harris stated, "This ruling makes it easier for some good ideas to be stolen, because process patents will be harder to get. Unless companies that specialize in data processing technologies immediately examine and adjust their patents and patenting strategies, their competitors can start using their ideas."

Regarding the two new tests to determine process patentability, he said that their effectiveness is debatable since, for example, it was not made clear whether the machine referred to a specific device such as cell phones, or something broader such as the Internet. Furthermore, according to Mr. Harris, the Court did not clarify which parts, if any, of modern information-age processes involving electronic signals and electronically manipulated data may be considered a patentable process. This leaves many technology patents (usually relating to data and services rather than p hysical objects) hard to enforce and easy to challenge. He fears that the Bilski ruling appears will therefore affect not just business-method patents but any process-oriented patents.

A recent post on the Patent Prospector also noted that the CAFC ruling, limiting process claims to being tied to a particular apparatus or transforming something, has no basis in statute, and questionable case law heritage. Dissenting Judge Newman is quoted as saying:

"The breadth of Section 101 and its predecessor provisions reflects the legislative intention to accommodate not only known fields of creativity, but also the unknown future. The Court has consistently refrained from imposing unwarranted restrictions on statutory eligibility, and for computer-implemented processes the Court has explicitly rejected the direction now taken."

Section 101 of Title 35 U.S.C. sets out the subject matter that can be patented:


Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.

Judge Newman pointedly added, "For the thousands of inventors who obtained patents under the Court's now-discarded criteria, their property rights are now vulnerable."

The case drew the attention of and inspired amicus brief filings by many large corporations and NGOs. According to Orey's article, some, like IBM Corp., applauded the ruling that would provide tighter standards and limit what it called "runaway issuance of non-technological process patents." Others, like technology services and consulting giant Accenture, argued for a broader view of patentability and defended patents from financial services and other areas as central to 21st century innovation. As expected, the free and open source software community (FOSS) heralded the decision. The Free Software Foundation (FSF) sees the ruling as "a victory on the path to ending software patents." Red Hat, a leading open source technology solutions provider, hailed it as "good news for FOSS" and a step in the right direction and vowed to present their best legal arguments o finally settle (i.e., "end") the issue of software patentability.

The case could be appealed to the Supreme Court. In the meantime, as Mr. Harris says, many more patent applications in the IT space, will likely be denied by the Patent Office. In an information age economy, this could really be bad news.

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