Court case could redefine business method, software patents

About a decade ago, a federal appeals court issued a ruling that prompted thousands of new applications for patents on so-called "business methods," ranging from Amazon.com's "1-click" ordering system to Priceline's auction technique for selling tickets.

But at what point are such processes too "abstract" to be worthy of patent protection? That's one of the key questions that was set to be argued Thursday afternoon before an atypical 12-judge "en banc" panel at the U.S. Court of Appeals for the Federal Circuit in Washington.

Called In re Bilski, the case involves an application for a patent on a process for managing the risks of bad weather in commodities trades. The U.S. Patent and Trademark Office rejected the petition from applicants Bernard Bilski and Rand Warsaw because it decided the process described was not confined to a particular machine and amounted to patenting a "mental step" or an "abstract idea"--something the Supreme Court has ruled is not worthy of a patent, the Patent Office held. The Federal Circuit agreed to have a special panel hear what's widely viewed as a momentous appeal.

Prominent software and Internet companies are closely watching the case--though many aren't claiming to take sides--because they stand to lose big if clear rules don't exist for what's patentable and what's not. Among the long list of names that has filed friend-of-the-court briefs in the weeks leading up to Thursday's oral arguments are IBM, Microsoft, Dell, Symantec, Red Hat, Yahoo, and a number of trade associations representing major Silicon Valley firms. (The blog Patently-O has an exhaustive collection of the documents.)

Although their positions have some fundamental differences, there seems to be at least some measure of agreement among most of the high-tech interests: The scope of inventions eligible for patents shouldn't be overly expansive.

The worry seems to be that such a set-up could block development of new technologies, lead to an explosion of expensive litigation bred by inadvertent infringement, and--since a patent is an exclusive right to an invention that can be licensed at the patent holder's pleasure--stifle competition.

IBM, which boasts one of the largest patent portfolios, was especially pointed in its brief. The company that took heat years ago for patenting a method to determine who uses the bathroom next--an idea it ultimately dropped--argued that processes should be patentable only if they produce "technologically beneficial results."

For instance, there's nothing wrong with companies obtaining patents on "mechanical, electrical, and computer-implemented inventions as card readers, touch screens, cash dispensers, statement printers, and antitheft mechanisms" for automated teller machines (ATMs), IBM wrote in its brief. But if someone is allowed to patent "abstract business methods, (such as) an inventor's claim to a process of performing teller-free transactions," others are arguably choked off from devising new methods within that space, which IBM contends harms "social welfare."

Software patents: Yea or nay?
Beyond that, the recommendations seem to be all over the map, with many of the companies using the case as a platform for voicing their views on the ever-thorny issue of software patents.

One Free Software Foundation-backed group--aptly called the End Software Patents Project--is using the case as a platform to argue that no form of software should ever qualify for a patent. Red Hat also argued that the "exclusionary objectives" of software patents conflict with the nature of the open-source system and open up coders to myriad legal hazards.

Others, like Microsoft, Dell, and SAP, argued that the court should hold that software and business methods deserve to be considered for patents--but only if they're more than just an abstract idea or concept and "operate upon something physical, be it uncured rubber, or electrical circuitry, or signals made up of electrons or photons or electromagnetic impulses." That in-between stance isn't exactly surprising, as all three companies said they own business method patents and are also frequently embroiled in lawsuits alleging they've infringed others' patents.

The Business Software Alliance, of which Microsoft and Dell are members, argued for an even broader reading. Software and "similar legitimate inventions" should remain patentable because overturning "settled" law in that area would "upset expectations in an area of rapid technological growth that is critical to our economy as well as our country's global competitiveness," the BSA wrote. If questionable patents arise, there are other aspects of patent law--that is, the requirement that inventions be novel, non-obvious, and useful--that can be used to weed them out, the group said.

Patenting "abstract ideas"
The attorneys for Bilski and Warsaw, for their part, argue that the patent in question does, in fact, include physical and tangible steps, not just ideas or mental processes. The inventors' supporters, including Accenture and American Express, also contend that an "open and neutral" patent system--including, for example, software patents--has allowed the U.S. economy to flourish and that jettisoning business-related patents will undermine that progress.

In weighing how to rule, the Federal Circuit judges will be returning to a 1998 appeals court case from their own court called State Street Bank & Trust v. Signature Financial Group, which concerned a patent for a mutual fund data processing system. That decision established that an invention is patentable if it produces a "useful, concrete and tangible result" and has some practical application.

Meanwhile, the number of applications for business method patents has grown by about 1,000 each year since 2005, the U.S. Patent and Trademark Office has reported. Last year, the office issued 1,330 business method patents. But about 85 percent of the applications received during the past three years have been rejected because they don't meet the standards of patentability, Patent Commissioner Jon Dudas told CNET News.com in a March interview.

An opinion in the Bilski case is expected during the second half of this year, although many legal experts predict the case won't end at the appeals court level. After all, the U.S. Supreme Court has displayed a fondness in recent years for snapping up patent-related disputes and could very well take on whatever outcome emerges in this case.

Some Supreme Court justices have already approached business method patents with a degree of skepticism. In their concurring opinion to the 2006 decision in a high-profile patent case involving eBay, Justices Anthony Kennedy, Stephen Breyer, David Souter, and John Paul Stevens seemed to be issuing a warning to courts to be on the look out for "the potential vagueness and suspect validity" of some business method patents.

[eng.dan]

all very interesting

[helroth]

karora and eng.dan, you have both violated my patent on a method of coming to the conclusion that an article is "interesting." Please cease and desist.

[jer4590]

It's not just software companies that have a stake in this decision. Many small companies have capitalized on the blurriness of the line between patenting a technology and asserting a property right over an idea that - as Ms. Broche points out - can be as mundane and commonplace as the "method" for going to the bathroom. Bilski will have some important ramifications for future patent litigation.

[drkF]

I don't care whether it is the Supreme Court or Congress, but somebody has to save American companies from being destroyed by the so called "business method patent." There was a recent study done showing that these are much more likely to be litigated - primarily because it is becoming a frequent practice for patent-trollers to patent some common-business practice which nobody ever thought about patenting (mainly because that's not what patents are for!), and then suing anyone and everyone who ever thought about using that particular practice even though the companies who are getting sued didn't derive an ounce of benefit from the patent trolls.

An example of this is the Data Treasury Case where a two-man company has as its whole purpose suing bigger companies for ideas that it didn't create but merely patented. Right now Data Treasury is trying to sue American Banks for billions and are thereby threatening the financial well being of all Americans (with the exception of the two data treasury employees!

[marty_s]

yea, Data Treasury is more than an "example" though. It is the prototype of business method patents gone wrong. I am sure we all realize the point of patents: to promote innovation and reward inventiveness. The problem with BMPs is they achieve none of this. Instead, they are the key for companies to get rich quick at the expense of the economy and society.

Data Treasury's patent, for example, is on a process they didn't invent. The process behind electronic check transfers was in use by the financial industry for years before DT secured a patent on it. This is exactly the sort of vague and unconscionable patent the Supreme Court warned about in eBay. Of course most BMP (if not all) fall into this category, so hopefully the court will use Bilski to overturn State Street.

The damage of the patent held by DT is clear. Once a 100 person company, DT laid off 98 of their employees when they decided to make suing banks their full time business. Meanwhile, their aggressive litigation has prevented many banks from utilizing electronic check processing, even after Congress passed Check 21 (which encourages banks to use this technology)

This is a company that contributes nothing to the economy, or society. And it is, I fear, representative of business method patents as a whole.

[DATS REDEMPTION]

Hey Marty...aka: Tokyo Rose, your acknowledgement that Check 21 encouraged banks and not mandated them to use Datatreasury's technology is the only part of your piece that resembled any truth. Fortunately for Datatreasury and their investors your fallacies won't fly in a courtroom...only the facts will!

[benjaminstraight]

Let's see what comes out of this.