Internet Inventions Covered by Patent Law, Says Supreme Court

The Bilski case involved, potentially, a dramatic shift in U.S. patent law. It’s been awaiting decision by the U.S. Supreme Court since the fall of 2009, and earlier this week, the Court rendered its opinion. The case involved the scope of potential patents, and whether an invention must be tied to a machine to be eligible for patents. It could have impacted many thousands of technology and Internet-related patents. To explain the Bilski decision to us, we spoke with attorney and intellectual property expert Robert Kovelman, with the firm of Steptoe and Johnson in California.

Practical eCommerce: Please summarize the Supreme Court’s decision on the Bilski case.

Kovelman: “The Bilski decision is a significant case in patent law for several reasons. Mr. Bilski is an inventor and he had filed a patent application for various methods related to commodity buyers and the energy market and how they can hedge against the risk of price changing. During prosecution before the Patent Office (the procedure by which you get a patent), the examiner rejected Bilski’s claims by arguing that it was merely an abstract idea or a mathematical formula, and denied it as not being patent-eligible subject matter. After some back-and-forth between the patent examiners, Mr. Bilski went up the Board of Patent Appeals and Interferences, which is the body of Patent Offices for determining appeals from the examiner, and also determined that it was not patentable eligible subject matter.

“From the Patent Office, Mr. Bilski then filed with the Federal Circuit, which is an appellate court that hears appeals in these types of matters. The Circuit court did something that was fairly unexpected. They essentially came down and limited what was patent-eligible subject matter to what was called the machine-or-transformation test, meaning you have to tie your method claims to a specific machine, or you have to show some form of physical transformation, such as like in a chemical process from chemical A to chemical B. That was a big surprise to a lot of people and Mr. Bilski then appealed it up to the Supreme Court.

“The Supreme Court today issued their opinion, which the majority opinion found several important issues. One, business methods are subject to patent-eligible subject matter. Two, the Federal Circuit misapplied the Supreme Court’s precedence in making their determination that the machine transformation test is the only test–it is not. And three, the Federal Circuit misapplied statutory interpretation of Section 101, which says that any process is eligible for a patent if you satisfy the remaining requirements of the statute. So, in a sense, the Supreme Court essentially affirmed the [Bilski] decision, but at the same time they found that the test applied by the Federal Circuit was the improper test used in this area.”

PEC: Would Internet-related patents, such as search algorithms or Amazon’s 1-Click technology, fall into the business method patent category?

Kovelman: “I think the Supreme Court left it open, actually. They did say clearly that Section 101 read by its own definition is any process and that it needed to be a broadly stated statute in order to encompass technology that Congress is yet to envision. Justice Kennedy, who delivered the opinion of the Court, actually does talk about computers and algorithms and things of that nature. He says that, to limit the machine-or-transformation test as the only test (which is more applicable to maybe the industrial age as opposed to the information age), would essentially create a lot of uncertainty as to the patentability of software, diagnostic medical techniques, and inventions based on linear programs, data compression, manipulation of digital signals. So, what I think the Court is saying is machine transformation isn’t the sole test, but they didn’t quite provide enough information as to what is going to be the proper test. So, while the Federal Circuit did not follow precedent of the Supreme Court and limit it to the machine transformation test, the Supreme Court left it open for the Federal Circuit to add in additional restrictions or requirements or conditions in order to determine what is patentable subject matter in terms of business methods.

“So, I guess the short answer is business methods are clearly covered, based on the analysis of the Court. But, what really will constitute a process that’s more than an abstract idea, mathematical formula or natural phenomenon is going to be left to the Federal Circuit and probably will be a few years before people have any real certainty.”

PEC: Does Congress get involved to clear up any of that?

Kovelman: “The Supreme Court feels that Congress essentially came up with the best decision for them. They think 101 provides any process. Then the Supreme Court went on and said that Section 273 actually discusses business methods, and that if Congress did not intend for Section 101 to be covering business methods, then you would not have that language in Section 273. To construe it otherwise would essentially make 273 meaningless, which essentially is a statute that deals with a defense if you’re doing any methods which they say is a method of doing or conducting business with respect to somebody making an infringement claim against you for patent infringement.

“So, can Congress change this? They certainly can. As we have previously discussed, there’s the Patent Reform Act. If they disagree with the Court, they could come up with some new regulations and laws. But, frankly, I think they’re going to leave it for the Courts to make up their own decisions and see where this goes over the next couple of years.”

PEC: Does this opinion present any concerns that would affect Internet-related entrepreneurs, software programmers, and those sort of businesspeople?

Kovelman: “Well, again, I think it’s clear business methods are now patentable eligible subject matter. They may not be granted as patents, but I think it’s pretty clear that the Court has said that business methods are going to be patentable.

“The next question is what’s going to be the test. If somebody wants to put a patent on computer algorithms, email programs, or other various Internet applications, they should go ahead and file. They should try to draft their claims to the extent it’s not unduly limiting so that they can get past the Patent Office with the machine transformation test. Those people who have patents issued can breathe a sigh of relief that they still have a shot of having their patents to be enforceable and basically applicable towards potential infringers based on today’s decision. It left the door open.”

PEC: Are there any existing technology-related, business method patents that this decision would in any way threaten, in your view?

Kovelman: “I don’t really know if it would hurt them. The Court said this is the not the sole test, but left the door open. So, it’s not like they came down, as Justice Stevens did in his descent, and said, ‘I would be totally against business method patent. I think it’s something that’s excluded.’ And, he goes through a fairly tortured reading of legislative history and previous cases to come up with that decision.

“I think that the Court is where it was previously in that the Section 101, which defines patentable subject matter, is very broad and has to be dynamic and allow for new technologies to be applied. Broadly, there’s no patent out there, off the top of my head, that’s actually going to be hurt by this decision at this point.”

PEC: Anything in the decision that surprised you?

Kovelman: “I was surprised that Justice Kennedy actually wrote it. I expected to see Justice Stevens write it as one of his last opinions as a Supreme Court Justice. It also is surprising that the Court came out so clearly to say that business methods are patentable subject matter. And then finally the Supreme Court left it open and said this is not the sole test. They didn’t give any additional test. We didn’t think they would, but they left it open clearly that the Federal Circuit is not going to be restricted by anything the Supreme Court said, other than this is not the sole test, and left it open for the Federal Circuit to go back and see if they can get it right.

“The Justices have made it pretty clear they don’t like the broad scope of some patents. And, I think what happened, and part of the delay is, they were trying to get their heads around how to do this. They didn’t really like the way they had to come down, but again, it came down with a flexible approach because of what the statute says and they applied what the statute says. And, finally, Justice Stevens said if Congress doesn’t like it, it’s up to them. They can change this.”

PEC: So, Justice Stevens was against business method patents as a broad scope?

Kovelman: “[Yes.] He was very, very clear. I think he said, ‘More precisely, although a process is not patent eligible simply because it is useful for conducting business…’ He claimed it merely describes a method of doing business, and does not qualify as a process under Section 101. That’s his decision. Had he written the majority, we would have had a very different conversation.”

PEC: Anything else on your mind for our readers?

Kovelman: “Anybody who is interested in protecting their [patent] rights should proceed and assume that it’s kind of a status quo. We’ve gotten some clarification, but there’s definitely some instability and some unanswered questions. Depending on how you want to protect your technology, you should proceed as if method patents are going to continue [to be] around for a while.”