Alert November 10, 2009

Supreme Court Hears Oral Argument in Closely Watched Bilski Patent Case

The U.S. Supreme Court yesterday heard oral arguments in Bilski v. Kappos, a case that could reshape the scope of what can be patented and that will almost certainly have broad implications for the patentability of business methods. Nearly 70 amicus curiae briefs were submitted to the Supreme Court, underscoring the perceived importance of the case.

The case focuses on the validity of a patent that covers a commodities trading method. The question is whether the Court should uphold the “machine-or-transformation” test for determining the patent eligibility of process patents, including business methods, set forth by the Court of Appeals for the Federal Circuit (“CAFC”) in a much heralded en banc decision in 2008.

Bilski’s application for a patent on a method to hedge risk in commodities trading was rejected by the U.S. Patent and Trademark Office (“PTO”) on the grounds that purely abstract ideas are not patentable. Last October, the CAFC affirmed the rejection in an en banc opinion holding that process patents, including business methods like Bilski’s risk hedging method, must satisfy a “machine-or-transformation” test. That is, the process must either be tied to a particular machine or transform an article to a different state or thing. Given the nature of Bilski’s invention, the machine-or-transformation test is often associated with business methods, but the CAFC’s reasoning would apply the test to all process inventions, whether they be business methods, software processes, processes for making compounds, etc.

Bilski contended at oral argument that the CAFC’s machine-or-transformation test is too rigid because it fails to consider the innovations of tomorrow that we can only dream of now. Keeping this test, argued counsel, will be akin to “[r]ooting us in the Industrial Age.”

A majority of the Court seemed skeptical of Bilski’s position. Justice Breyer suggested that providing the ability for “every successful businessman” to receive a patent on their “good idea” would “stop the wheels of progress.” Justices Ginsberg, Scalia, Roberts and Kennedy appeared to agree, positing hypothetical patents and asking whether certain methods – each progressively more abstract than the one before – should be patentable. Justice Breyer asked whether a method of teaching antitrust law that kept 80% of law students awake in class, and which helped his students learn, should have been patentable. Justice Roberts asked whether a “buy low, sell high” method for maximizing wealth should be patentable. Justice Scalia asked whether a method of training horses by a horse whisperer should be patentable. And Justice Ginsburg asked whether a method of selecting a jury should be patentable. In each case, Bilski’s counsel refused to cede any ground, stating that these methods were all “patent eligible,” but cautioned that perhaps they may not be patent-worthy because they are not novel or non-obvious – separate requirements of the patent statute that must be considered apart from patent eligibility.

Two of the Justices asked about what the Framers of the Constitution considered patent eligible subject matter. Justice Breyer asked whether they would have wanted any “new” idea to be patentable. Justice Scalia asked if it was not true that the Framers understood the Useful Arts to mean the manufacturing and workman arts, as opposed to methods such as Dale Carnegie’s process for “How to Win Friends and Influence People”?

Justice Stevens focused on the Court’s precedent. Bilski’s counsel said that the Diamond v. Diehr opinion was the strongest authority for his position, based on its language that “[a]nything under the sun that is made by man” is eligible for patenting. Justice Stevens disagreed. The facts in Diehr were “nothing like this patent,” responded Justice Kennedy. In fact, asked Justice Stevens, isn’t it true that “none of our cases have ever approved a rule such as you advocate?”

The PTO’s argument was considerably more measured, even in the face of repeated attempts by the Justices to draw the PTO into taking positions going beyond Bilksi, especially with regard to software.  Whether software should be patentable, according to the PTO, is not at issue in Bilski. The PTO was firm in stating that, when patented as a machine (as opposed to a pure process), “software and medical diagnostic techniques” should not be subject to the CAFC’s machine-or-transformation test because “a computer is certainly a machine,” and a machine is one of the statutory categories of patentable subject matter. The PTO also said that it would be satisfied if the Court “decide[d] this case and [left] the unanswered questions unanswered.” Specifically, the PTO acknowledged that the CAFC’s machine-or-transformation test “doesn't answer all of the hard questions” because it should apply “only to processes [and not machine or apparatus claims].” In sum, the PTO advocated that the Court approve the machine-or-transformation test but “leave open the possibility” that a new invention could create an exception.

The Court appeared to appreciate the PTO’s tempered approach but struggled with whether it should take Bilski as an opportunity to go further and decide the patentability of software. Justice Breyer – the most vocal of all the Justices during the argument – equated software to “a set of instructions.” “That’s not good enough,” he said, asserting that running software does not cause an “old computer” to become a “new computer.” Justices Roberts and Kennedy, like Justice Breyer, appeared skeptical that software running on a computer was patentable.

Justice Ginsburg repeatedly asked both sides why the U.S. patent system should not adopt the approach taken by the European Union of banning all business methods not tied to technology. In fact, Justice Ginsburg asked why the U.S. could not adopt a similar standard to that in Europe, i.e., technical effect, the EU’s test to determine patent eligible subject matter.

The Justices were not entirely hostile to a broad definition of what is patent eligible. Justice Sotomayor, in particular, voiced concern that a too narrow definition would adversely affect fast moving technologies, and seemed to agree with Bilski’s counsel that patent applicants should not be “trapped in the Industrial Age.” Nevertheless, she questioned the value of business method patents, asking Bilski’s counsel to justify their value to the public and why they did not unduly restrict the free flow of ideas.

Predicting the result from the oral argument is difficult, as is whether the Court will seek to define the precise contours of the machine-or-transformation test, address the patentability of software or reach other issues not squarely presented by the case. The PTO specifically asked that the Court delay ruling on many of the difficult questions, such as how “tied” does a process need to be to a machine?  And what exactly need be transformed?  But many of the Justices seemed intrigued by these questions, the answers to which they no doubt recognize will have profound implications for our modern economy.