Bilski v Kappos

Copyright 2010 Gardner Groff PC 1

BUSINESS METHOD PATENTS AFTER BILSKI v KAPPOS.

WHERE DO WE GO FROM HERE?

JACKSONVILLE, FLORIDA

27 AUGUST 2010

Clark A. D. WilsonGardner Groff Greenwald & Villanueva, PC2018 Powers Ferry Road, Suite 800Atlanta, Georgia 30339(770) [email protected]/IN/CLARKADWILSON


WHY DO YOU CARE ABOUT THE BILSKI CASE?

• Your business client contacts you with a new process for performing an aspect of their business that improves both efficiency and accuracy.

• And, the client wants to know if and how they can publicly use this innovation without fear that it will simply be copied.

• Is it possible to protect something as intangible as theoretical steps for performing business processes?


A BRIEF BACKGROUND OF WHAT IS “PATENTABLE”

• Any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof (35 USC 101)

• What is NOT patentable?– Natural phenomena

– Abstract ideas

– Laws of nature

– Diamond v. Chakrabarty, 447 U.S. 303, 309 (1980)


BUT, HOW ARE BUSINESS METHODS PATENTABLE?

• Gottschalk v. Benson, 409 US 63 (1972)

• Invention: an algorithm that converted binary-coded decimal numerals into pure binary code

• Rule: Pure mathematical algorithms are not patentable without practical application.



• Parker v. Flook, 437 US 584 (1978)

• Invention: an oil-refining and petrochemical based procedure for monitoring catalytic conversion conditions

• Sole innovative feature was a “reliance on a mathematical algorithm”

• Rule: Even if a practical use, if the sole innovative aspect is an abstract algorithm, then not patentable.



• Diamond v. Diehr, 450 US 175 (1981)

• Invention: a previously unknown, and practical, rubber-molding process that relied on a mathematical formula and a computer

• Rule: As long as an abstract mathematical formula or law of nature is used to affect a tangible process, it is patentable


HOW ARE BUSINESS METHODS PATENTABLE?

• State Street Bank & Trust Co. v. Signature Fin. Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998)

• Invention: A data processing system for implementing a hub-and-spoke investment structure in which mutual funds pooled their assets in an investment portfolio is patentable

• Rule: As long as it is “useful, concrete and produces a tangible result” it is patentable


CONFUSED? SO WERE PATENT ATTORNEYS.

• And, the Supreme Court did not hear any process cases between 1981 and the Bilski case– The determination of patentable subject matter was left to the CAFC

– The decisions in the CAFC determined the patentability of inventions from wide ranging scope of “technologies”

• But, between 2002 and 2009 86,119 patent applications were filed for innovative methods of conducting business– Amazon.com “One-Click” (US Patent No. 5,960,411)

– Priceline.com “Name Your Own Price” (US Patent No. 5,797,127)


Amazon.com “One-Click”

• A method and system for placing an order to purchase an item via the Internet. – 1. A method of placing an order for an item comprising:

under control of a client system, displaying information identifying the item; and in response to only a single action being performed, sending a request to order the item along with an identifier of a purchaser of the item to a server system; under control of a single-action ordering component of the server system, receiving the request; retrieving additional information previously stored for the purchaser identified by the identifier in the received request; and generating an order to purchase the requested item for the purchaser identified by the identifier in the received request using the retrieved additional information; and fulfilling the generated order to complete purchase of the item whereby the item is ordered without using a shopping cart ordering model.


Priceline.com “Name Your Own Price”

• Method, apparatus, and program for pricing, selling, and exercising

options to purchase airline tickets– 1. A data processing apparatus for determining a price of an option to purchase an airline ticket,

comprising: a central controller including a CPU and a memory operatively connected to said CPU; at least one terminal, adapted for communicating with said central controller, for transmitting to said central controller option pricing information including departure location criteria, destination location criteria, and travel criteria; said memory in said central controller containing a program, adapted to be executed by said CPU, for calculating a price of an option to purchase within a future period, for a particular ticket price, an airline ticket satisfying the departure location criteria, destination location criteria, and travel criteria; wherein said central controller receives said criteria from said terminal and calculates the option price based upon the criteria.


ALRIGHT, WHY IS BILSKI SO IMPORTANT?

• Bernard Bilski filed a patent application for:– A method for instructing buyers and sellers of commodity in the

energy market how to hedge against the risk of price fluctuations by:

– (1)initiating a series of transactions between said commodity provider and consumers of said commodity;

– (2)identifying market participants for said commodity having a counter-risk position to said consumers; and

– (3)initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.


THAT CANNOT BE PATENTABLE…

• The Patent Office Examiner and the Board of Patent Appeals rejected Mr. Bilski’s application based on lack of patentable subject matter and labeling it an “abstract theory”

• Mr. Bilski then appealed the decision to the Court of Appeals for the Federal Circuit (CAFC), a court specially designed to hear patent cases


CAFC AFFIRMS…WITH GUIDELINES.

• The CAFC affirmed the rejection of the Bilski application

• In the opinion the CAFC abandoned the prior test:– i.e., Patentable process produces a useful, concrete, and tangible

result from State Street Bank

• And held that the sole test for determining process patent eligibility requires that the process:– (1) is tied to a particular machine or apparatus; or

– (2) transforms a particular article into a different state or thing.

• And the “machine-or-transformation” test was born…


BUT BILSKI DID NOT GIVE UP…

• Through outside backing and amicus briefs, Mr. Bilski appealed the CAFC decision to the US Supreme Court– Many biotech companies did not like the CAFC machine or

transformation requirement because limits assay inventions• An assay is a procedure in molecular biology for testing or measuring the activity of

a drug or biochemical in an organism or organic sample.

– Software companies wanted to eliminate such process patents

– The Supreme Court heard oral arguments in November 2009 to a packed courtroom; abnormal for patent cases

– 68 amicus briefs were filed (e.g., IBM, Microsoft, Bank of America)

• 26 of which did not advocate for either side at all


AND, AFTER 8 MONTHS…

• The Supremes unanimously affirmed the ruling of the CAFC with respect to the patentability of the Bilski application

• But, the court disagreed with the patentability of business methods


NOW I AM REALLY CONFUSED…

• Justice Kennedy delivered the majority opinion

• Business method patents are patentable– “Times Change” & Technology Advances

– American Inventors Protection Act: Method of Doing Biz defense

• While the machine-or-transformation test is a “useful and important clue” it is “not the sole test”.– Court should not place limits on the Patent Law

– It would create uncertainty for software, advanced diagnostic medicine techniques, and linear programming, data compression, and the manipulation of digital signals

• So, just comply with State Street “Useful, tangible, concrete”– The specifics are to be determined by the CAFC


NOT SO FAST…

• Justice Stevens delivered the concurring opinion– Joined by Ginsburg, Breyer and Sotomayor

• Strongly disagreed that business methods are patentable– Cited 17th century English patent law and patent law as

designed by those who wrote the Patent Act

– Would discourage new business due to intangible patent thicket

• Scalia uncharacteristically failed to explain why he did not agree with Stevens, but also did not fully agree with Kennedy


SO, HOW DO I KNOW IF IT IS PATENTABLE?

• The court declined to impose limitations on patentability beyond the Patent statute 35 USC 100(b) and those discussed in Benson, Flook and Diehr

• So basically, as long as it is not a natural phenomena, abstract idea or a law of nature AND it provides some practical use it might be patentable

• USPTO issued guidelines to examiners day after ruling:– If satisfies M-O-T, then ok unless abstract

– If does not satisfy M-O-T, not ok, unless not abstract


CLARK, I AM STILL WAITING FOR THE RELEVANCE TO MY PRACTICE…

• This ruling is mixed for startup companies

– Until the CAFC determines otherwise, give it a shot and file a patent application

– Why? 70% of VC firms and 50% of Angel investors seek out investment opportunities with companies that have some patent protection

– So, your startup clients can continue growth by hopefully gaining some financing based upon their valid-until-told-otherwise patent applications

– On the other hand, can stifle new businesses that are concerned about infringing unknown intangible process patents


THANK YOU!

Clark A. D. Wilson

Gardner Groff Greenwald & Villanueva PC

2018 Powers Ferry Rd, Ste 800

Atlanta, Georgia 30339

770.984.2300

[email protected]

LinkedIN.com/in/clarkadwilson

mailto:[email protected]

Documents

Bilski v Kappos