InsideCounsel » October 2007
Bilski's Battle
One man's struggle to protect his invention may decide the future of business-method patents.
Most people outside the IP community have never heard of Bernard Bilski. But among IP lawyers he is somewhat famous. That's because his struggle to patent an invention could determine the future of business-method patents.
Bilski's fight began more than 10 years ago when he submitted a patent application seeking exclusive rights to a method of using hedge contracts to reduce the risk that a commodity's wholesale price might change. His process is pretty simple: When a commodity seller makes a sale to a consumer at one fixed price, he or she then makes a second set of hedging transactions at a second price.
There are no calculations for determining appropriate hedge prices, no use of computers to help implement the hedging.
The U.S. Patent and Trademark Office ruled in September 2006 that this "method" is merely an abstract idea, not patentable subject matter. A patentable "process," the agency declared, must either transform matter or energy or use a machine to carry out specified steps. Bilski's invention does neither.
Bilski appealed this ruling to the Federal Circuit in early 2007, and the legal battle began. According to many experts, the PTO is using this as a test case to narrow the type of business methods eligible for patents.
"In re Bilski raises the compelling and arguably unanswered question of whether business methods and other inventions completely divorced from technology can be patented," says Dale Lazar, a patent attorney in the Reston, Va., office of DLA Piper. "The case may affect the validity of hundreds, perhaps thousands, of issued patents."
Defining Patentability
At first glance this case should be a no-brainer for the Federal Circuit. "If one goes merely by the clear and extensive past case law, the [PTO's] Bilski decision is wholly wrong and an easy reversal," says Jay Sandvos, a patent attorney at Bromberg & Sunstein in Boston.
Section 101 of the Patent Act defines what types of inventions are patentable: "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." The Supreme Court has construed this section broadly, stating it includes "anything under the sun that is made by man" with just three exceptions: "laws of nature, natural phenomena and abstract ideas."
In a landmark 1998 case, State Street Bank v. Signature Financial Group, the Federal Circuit held that ideas about how to conduct business aren't always unpatentably abstract. Any business method that produces a "useful, concrete and tangible result" can be patented as a "process" under Section 101.
In 1999 the Federal Circuit went further. The court held in AT&T v. Excel Communications that any useful process is patentable subject matter, even if it doesn't convert matter or energy from one state to another. Such conversion is evidence the process is useful and not merely abstract; still, usefulness can be shown even in the absence of such conversion.
