An End to Business Method Patents?

The United States Court of Appeals for the Federal Circuit, the chief patent law court in the United States, today issued an Order setting In re Bilski for rehearing en banc, which means that it will be reheard by the entire court.  The original hearing in Bilski was on October 1, 2007, in front of a three judge panel, which is how all cases start out at the Federal Circuit.  Occasionally, when an extremely important point of law needs to be decided, or when the Court is considering a modification to the existing patent laws, the Federal Circuit will sit en banc, with all of the judges hearing the case and participating in the written decision.  Requests for en banc rehearing are fairly common, but are routinely rejected by the Court.  The Court deciding among the Judges themselves to rehear a case when a rehearing has not been asked for is exceptionally rare, although not unprecedented.  This should be considered to be a signal of important things to come though, which likely will include the limitation on business method patents.

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The Federal Circuit in recent months has taken a number of cases that address whether a particular category of invention is one that should be patentable.  These cases ask whether under 35 USC 101 (i.e., the governing statute) whether a class of invention is capable of being protected by a patent assuming all other patentability requirements have been satisfied, such as the novelty and non-obviousness requirements.  In this sense, it is not enough that an invention be new and unique, it must also be one that the law says is capable of receiving a patent if it is new and unique.  In the Bilski case the question will be whether a so-called “pure” business method is something that can be patented.

Could this signal the end to business method patents?  The answer is probably not, but it could well signal the end to “pure” business method patents.  In this case Bilski attempted to patent a method of using hedge contracts to reduce the risk that a commodity’s wholesale price might change. His process was fairly straight forward.  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.  The rub is that this method does not require any calculations for determining appropriate hedge prices and no use of computers to help implement the hedging.  Therefore, it is what is referred to as a “pure” business method, or one that merely recites steps that can be performed in the real world and without technology to bring about a desired business related outcome.

Such “pure” business methods have long been the subject of concern because they have been believed to consiste of nothing more than abstract ideas, which cannot be patented.  Thus, one of the main questions the Federal Circuit will have to address is whether such business methods are abstract ideas.  If they are, then the law is clear and no patent can issue.

So what does this mean for inventors who have come up with a method for doing business.  Unfortunately, it is not as easy as using a computer or including a calculation.  The Federal Circuit closed that loophole recently.  So what you need to do is think in terms of a system for bringing about a desired result.  A true system will have system components, perhaps a computer, server and communications equipment.  The various components will be connected to form some type of overall architecture that can be defined, much as saying A is connected to C through the use of B, or something like that.  Such systems are also typically characterized by the presence of computer software that will be used to carry out the process, manipulate data or information and return some type of result, or perhaps control some other type of equipment that is connected to the system.  The key is that you need to think in terms of the technology that can be exploited in order to carry out the desired business objective.  Moving forward it is extremely likely, in my opinion, that merely reciting disembodied steps that may or may not require technology will not net you a business method patent.

With respect to the Federal Circuit’s Order in Bilski, the parties have been requested to file supplemental briefs that should address the following questions:

(1) Whether claim 1 of the 08/833,892 patent application claims patent-eligible subject matter under 35 U.S.C. § 101?

(2) What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

(3) Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?

(4) Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

(5) Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

The parties must file simultaneous supplemental briefs, which are due on or before March 6, 2008.  For those wishing to file amici briefs, such briefs will be due 30 days thereafter.  The oral argument will take place on Thursday, May 8, 2008 at 2:00pm in Courtroom 201.  I will follow this issue as it develops and file additional reports as appropriate.

About the Author

Eugene R. Quinn, Jr.
President & Founder of IPWatchdog, Inc.
US Patent Attorney (Reg. No. 44,294)

B.S. in Electrical Engineering, Rutgers University
J.D., Franklin Pierce Law Center
L.L.M. in Intellectual Property, Franklin Pierce Law Center
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Gene is a US Patent Attorney, Law Professor and the founder of He teaches patent bar review courses and is a member of the Board of Directors of the United Inventors Association. Gene has been quoted in the Wall Street Journal, the New York Times, the LA Times, CNN Money and various other newspapers and magazines worldwide


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