Bilski Case to Change U. S. Internet Patents?

Innovation on the Internet depends on the ability by entrepreneurs to protect intellectual property. Google, Amazon and other Internet companies have received many U.S. patents that protect, seemingly, processes or methods of doing business. But that protection could be threatened by a case pending at the U.S. Supreme Court. It’s known as the Bilski case, and the issue, loosely, is whether patents can be applied to inventions not tied to physical products or not tied to transformations of physical products. To help us understand the importance of the case as it applies to the Internet and ecommerce, we spoke with Robert Kovelman, an intellectual property attorney and an expert in U.S. patent law.

Practical eCommerce: There is a case awaiting decision by the U.S. Supreme Court that some think will stifle Internet innovation. Could you tell us a little about it?

Robert Kovelman: “The case is called In re Bilski and it relates to a method of hedging risk in the field of commodities trading. The reason that it’s an important case is the [patent] examiner during the application had determined that all the Bilski invention was doing was manipulating an abstract idea and only solving a purely mathematical problem. Mr. Bilski, after that exchange with the examiner, appealed to the patent board, who likewise found that the claims do not involve patent-eligible subject matter and was really just manipulation of an abstract idea.

“This is an important question in the federal circuit, which is responsible for hearing appeals on patent matters. It took up the case and overturned a long stream of precedent both for the federal circuit and the Supreme Court and eliminated what was called the useful, concrete and tangible test for patent-eligible subject matter and replaced it with what was called machine-or-transformation test, which is a much more rigid test for patentable eligible subject matter. The reason this is important [for ecommerce and Internet purposes] is this goes to a fundamental or gatekeeper question, that is, ‘What is patent-eligible subject matter?’ And the Supreme Court is about to decide that issue.”

PEC: Why does this case matter to ecommerce merchants?

Kovelman: “Because Section 101 of the Patent Law, which governs what is patent-eligible subject matter, essentially says that any new and useful process, machine, manufacture and the like is patentable. The Supreme Court, however, despite the written precedent, has been making oral comments that it’s not necessarily willing to extend or overprotect patents at the risk of, if you will, avoiding a diminished incentive to inventors. So, it’s an important question for ecommerce people because they need to know what is patentable subject matter. Is software going to maintain its current status as being patentable? Are business methods going to maintain their current status as patentable? As Justice Breyer has stated from the Supreme Court, he doesn’t necessarily believe that the Supreme Court had addressed that issue and that the Court is operating under the assumption that software is patentable, but it’s not a settled question. So, it’s an issue about what in the future is going to be patentable.

“The section really should be a dynamic provision. The founding fathers I don’t think intended for Congress to limit inventions to the 1700s and 1800s. The definition needs to be broad enough so that it can encompass new technology, software, medical techniques and the like as technology advances. So, it’s a very important question about what will and will not be entitled to protection going forward.”

PEC: If the Supreme Court validates the circuit court’s decision and has a very restrictive view of the issuance of patents, is there any innovation on the web that can be patentable?

Kovelman: “I think the answer would be ‘yes,’ although the machine transformation test is more restrictive than the test that was applied before, namely useful, concrete and tangible. You need to have some form of transformation of physical object or you need to have the invention or method tied to a specific structure. And if you tie your inventions (you have a method for exchanging emails, if you will, or security protocols but it’s tied to a specific memory and a specific network configuration or something like that) you have a better chance of being able to obtain the patent. So, I don’t think it will eliminate these entirely unless the court comes right out and says that these are not patent-eligible. But I think it would make it a bit more difficult in order to obtain protection.”

PEC: So, are patents such as the ones for Google’s search algorithms or Amazon’s one-click technology threatened by Bilski?

Kovelman: “I think they do have a sense of risk here.

“[Tne Bilski case] raises an interesting question. Will the patents that have already issued be subject to some form of correction if the Bilski test is either maintained, or is more restrictive? Currently, pending applications can be amended. In our practice, we’re finding the examiners are allowing us to amend the claims to add in a more specific structure machine portion of the test and get the cases to allowance and allow the patent’s issue. If the patent’s already issued while there’s a presumption of validity, there is a question of how to correct that. Perhaps what we call a reissue proceeding might work, but the problem with that is the applicant would have to then have his patent reviewed form the outset under all the rules. It’s not just an issue of changing the claim to have more structure. [There’s] a danger that they could lose their patents by having it reissued.

“So, it is something that’s going to impact current patents perhaps more than current pending application and it’s going to send some messages, if you will, to the ecommerce community in the next couple of days. Justice Roberts stated that they expected the Bilski decision to come down before the end of the spring term, which is June 28. So, it should come out anytime.”

PEC: So, what do you anticipate is going to happen?

Kovelman: “First of all, Justice Roberts made a comment about a year-and-a-half ago that the federal circuit was not necessarily following a Supreme Court precedent. That tells me that’s one of the reasons the Supreme Court took the decision; they weren’t happy with what the federal circuit did. Now, in the oral arguments, the judges expressed some very healthy skepticism towards software and business method patents on whether they should be patentable in the first place. However, if you look at some of the more major decisions that have come down recently, first of all, the delay for major decision is above the average time between oral hearing and rendering decisions for these major decisions that have fundamentally changed patent law or clarified it and Bilski has been over 220 days to this point and that’s consistent with the delay for important cases.

“Now, despite the oral argument comments that were made by the judges . . .I think there’s a good chance that the Court’s going to come down with something a little more flexible than the limited transformation-or-machine test.”

PEC: And, if they don’t, do you see congressional action?

Kovelman: “You have to have a living, breathing definition and it’s not just the definition of Section 101 or what is eligible patentable subject matter, that’s only the first step. I think everything should be eligible if it satisfies the definition. There’s nothing about transformation or linkage to a machine in Section 101. It’s just any new and useful process machine, and the courts have frequently stated that anything made by man under the sun is patentable and I think the definition works.

“The issue with Bilski, for example, is the patent office and the federal circuit rejected it saying it’s an abstract idea, though if it’s an abstract idea, a law of nature or a natural phenomenon, that wasn’t made by man. That is something that was discovered by man, but it’s not made by man. So, I think the definition continues to work.

“I think that Congress is likely to overturn the decision in some level. In the 1952 Act, Congress changed the word ‘art’ to ‘process.’ That’s all they said, ‘any process.’ They didn’t put in any of these restrictions. Likewise, the Patent Reformation Act has been pending for a number of years and no one really can say when it’s going to issue, but handling some of the tough questions Congress is looking to in that Act, it’s quite possible that Congress will also clarify what it deems to patentable eligible subject matter if the Court goes in the direction Congress does not like.”

PEC: Tell us about yourself and your firm and your practice.

Kovelman: “I’ve been practicing for about 20 years now and I’m currently with the law firm Steptoe & Johnson in the Century City, Calif. office. I manage the intellectual property in this office for the firm. I’m very familiar with Internet-based technology and software encryption, security and the like and I also have experience with litigation both as testifying as an expert witness as well as running cases. I can see how this fundamental question can really impact the ongoing nature of ecommerce for people now and at least the short-term future.”

PEC: Anything else on your mind for our readers, who are mainly ecommerce merchants?

Kovelman: “Just that the case definitely needs to be reviewed. I think we’re in for some interesting times with perspective at least to this issue as to what’s going to continue to be patent-eligible subject matter.”

PEC Staff
PEC Staff
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