In re Bilski: Will It Be a Blockbuster?

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Argument was heard before the United States Supreme Court on Monday, November 9, 2009, in the potential landmark patent case, In re Bilski. (appeal from 545 F.3d 943, 88 U.S.P.Q. 2d 1385, Fed. Cir. 2008). Disappointed patent applicant Bernard Bilski appealed the USPTO's denial of patent protection to his claimed method of managing the consumption risk in commodity trading. Bilski's method, involved no software, no hardware, and no algorithms. The USPTO Examiner rejected the patent claims stating that "the invention is not implemented on a specific apparatus and merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application, and therefore, the invention is not directed to the technological arts." In other words, it is not a thing!

"The Federal Circuit's rigid and narrow machine - or - transformation test for all patent - eligible methods should be reversed." Such began the argument on behalf of the Petitioner, Bilski. "The reason that Alexander Graham Bell's method was patentable, was that it operated in the realm of the physical." Such began the argument on behalf of the Respondent (the USPTO).

Much has been written about In re Bilski which, on the one hand, seems like a fairly simple and straightforward legal issue, but on the other seems a complex, nuanced and multi-faceted legal conundrum. The Federal Circuit appeared poised to frame and resolve a few straightforward issues, but instead went further to review, rewrite, revamp, re-up or redo (depending on your perspective) a fairly long history of Supreme Court and Federal Circuit review of "process" claims. One such seemingly straightforward issue was framed as follows: "Thus, the issue before us involves what the term 'process' in §101 means, and how to determine whether a given claim - - and Applicants' claim 1 in particular - - is a 'new and useful process.' Drilling down, the Federal Circuit framed another issue as follows: "The true issue before us then is whether Applicants are seeking to claim a fundamental principle (such as an abstract idea) or a mental process."

The Supreme Court oral argument was fascinating. No sooner did J. Michael Jakes, Esquire begin his argument on behalf of Petitioners, by declaring the Federal Circuit's ruling "rigid and narrow", did Justice Ginsberg chime in, with some incredulity:

Justice Ginsberg: "but you would say tax avoidance methods are covered, just as the process here is covered. So an estate plan, tax avoidance, how to resist a corporate takeover, how to choose a jury, all of these are patentable?"

Mr. Jakes: "They are eligible for patenting as processes, assuming they meet the other statutory requirements."

Justice Bryer: "And your view would be - - and it's new too and it's useful, made him a fortune - - anything that helps any businessman succeed is patentable because we reduce it to a number of steps, explain it in general terms, file our application, granted?"

Mr. Jakes: "It is potentially patentable, yes."

Justice Bryer: "Do you think that the framers would have wanted to require anyone successful in this great, vast, new continent because he thinks of something new, to have had to run to Washington and to force any possible competitor to do a search and then stop the wheels of progress unless they get permission?"

The questioning of Petitioner was highly suggestive of a skeptical court. Justice Bryer, invoking humor on a couple of occasions, said at one point,

Justice Bryer: "you know, I have a great, wonderful, really original method of teaching anti-trust law, and it kept 80% of the students awake. They learned things... (laughter from the courtroom). It was fabulous, and I could probably have reduced it to a set of steps and other teachers could have followed it. That you are going to say is patentable, too?"

Mr. Jakes: "Potentially."

Even the great inventions by Bell and Morse were brought into the discussion. Take this colloquy between Justice Scalia and Mr. Jakes.

Justice Scalia: "Sound - - sound is not physical, and electric current is not physical?"

Mr. Jakes: "I think electric current is physical."

Justice Scalia: "Yes, I think so."

Mr. Jakes: "Yes."

Justice Scalia: "Sound is, too."

Mr. Jakes: "It can be, but when it's transmitted over a wire, it's not. It's something else. It's an electric current then."

Justice Scalia: "Sound is not transmitted over the wires. Sound has been transformed into current, and current is transmitted over the wire and then transformed back at the other end into sound."

It was on that note that Malcolm Stewart, on behalf of the Government argued in response.

Mr. Stewart: "The reason that Bell's method was patentable was that it operated in the realm of the physical."

And then, just when it seemed that a skeptical court was ready to eliminate from patentability, any business method, process, idea or anything short of a mechanical device itself, the reins were pulled back, surprisingly, in the Government's argument. The Government tried to convince the court that their argument was meant to be narrow, and that the Government was not seeking a sweeping ruling which would effectively eliminate business method and similar process patents. Mr. Stewart argued:

Mr. Stewart: "all that the Federal Circuit has really said is that to have a patent-eligible process you have to identify some link to a machine or a transformation of matter."

In distinguishing the famous State Street Bank case from the instant case, Stewart further argued that:

Mr. Stewart: "the innovation that was held to be patent-eligible in State Street Bank was not a process. The Federal Circuit was not construing the statutory term 'process.' It was construing the statutory term 'machine.' And it said, in essence, a computer that has been programmed to perform various calculations in connection with the operation of this business is a machine."

He summed up one of his early narratives by arguing:

Mr. Stewart: "So to say that business methods are categorically ineligible for patent protection would eliminate new machines, including programmed computers, that are useful because of their contributions to the operation of businesses. And similarly, the court - - the Federal Circuit in other cases has held that a claim to new and innovative computer software may be held patentable as a process, as a method of accomplishing particular tasks through the use of a computer and those might be business-related tasks. So to say that business methods were ruled out would itself be a fairly sweeping holding."

At this point the argument shifted, and the Supreme Court appeared to begin searching for a middle ground, perhaps in an effort not to overrule State Street Bank.

Mr. Stewart: "Well, I guess there - - there were two different places, I believe, at which we (the Government) identified ways in which this sort of hedging scheme (the claimed Bilski innovation) might be patent-eligible. The first is we described a hypothetical interactive website in which people - - parties and counterparties could essentially find each other by the computer and could agree to terms on that basis. And in that situation, the - - the computer would be at the heart of the innovation."

Chief Justice "No, no. That's just saying instead of looking at the

Roberts: - - in the yellow pages, you look on the computer; and that makes all the difference to you?"

Justice Sotomayor: "So help us with a test that doesn't go to the extreme the Federal Circuit did, which is to preclude any other items, something we held open explicitly in two other cases, so we would have to backtrack and say now we are ruling that we were wrong, and still get at something like this?"

Mr. Stewart: "Well I think the court could say - - could do essentially what was done in Benson and Flook, namely acknowledge that there had never been a case up to this point in which a process had been held patent-eligible that didn't involve a machine or a transformation. It could leave open the possibility that some new and as yet unforeseen technology could necessitate the creation of an exception."

That theme of searching for a "non-sweeping" ruling carried through much of the remainder of Mr. Stewart's argument time. He urged the court to adopt the Federal Circuit ruling (preserve the machine or transformation test), but to leave open the door to the possibility of some day affirming a Patent as a pure idea that meets the "Wow" factor test, without meeting the machine or transformation test. Stewart later seemed to sum up his argument in that regard when he argued:

Mr. Stewart: "we would say that the claimed hedging method here is not the sort of Space Age innovation that might cause Justices to say, 'this is just different in kind from anything the drafters of the patent statute could have imagined."

Hedging bets in the commodity market just does not meet the "Wow" factor test, according to Mr. Stewart. In the end, it appeared that the Government's position, in seeking to uphold the Federal Circuit ruling, was that the machine or transformation test is the appropriate test, and that under the nuances of that test, the Petitioner's "method for managing the consumption risk cost of a commodity sold by a commodity provider at a fixed price..." cannot be patent-eligible because it does not "transform any article to a different state or thing." In the end, Stewart relied essentially on what sounded like a "public policy" argument when he spoke his final argument words:

Mr. Stewart: "and the third thing I would say is that in a sense, there is a strong dog that didn't bark in the night quality to our argument. That is, even though the court has never said in so many words that a method of allocating risk by contract is a patent-eligible process, the economic history of this country really would have been fundamentally different if it had been believed from the outset that innovations of this character could be patented and potential competitors could be foreclosed from engaging in the same method."

There is potential here for a landmark decision, but apparently equal potential for a "hedging" of the bet, and the rendering of a middle ground opinion by the Supreme Court. It will be fascinating reading when it arrives.