Supreme Court Ruling Keeps Door Open for Software Patents

Business methods, including software, are not excludable from patents

Waiting until the last day of the 2009-2010 term, the Supreme Court of the United States (SCOTUS) handed down its ruling on Bilski v. Kappos today, a case that narrowly focuses on the patentability of a method to hedge weather risks for consumer energy prices, but more broadly represents the patentability of software.

Unfortunately, while the SCOTUS opinion upheld the lower courts' decision to not allow the specific patent in this case, it did not agree with the reasoning the lower courts came to their decision, and has left open the door for continued software patents for the time being.

Bilski is the result of the 1998 Court of Appeals for the Federal Circuit (CAFC) decision in State Street Bank v. Signature Financial Group, which had the effect of broadening patents to cover algorithms and abstract concepts. This decision was quickly interpreted in a way to allow software in the US to be patented, which has led to an ever-mounting patent semi-cold war of threatened and applied litigation.

Bilski was the longest outstanding case for the term, having been argued in November. The case got its start in 1997, when Bernard Bilski tried to patent his method of hedge trading, which was initially rejected by the US Patent and Trademark Office, because there was no way such an idea would apply to a machine or pass the so-called ”machine-or-transformation” (MoT) test.

Based on State Street, Bilski and his lawyers believed this rejection no longer seemed to apply, so they challenged the ruling.

In 2008, the CAFC upheld the rejection of Bilski's patent, indicating that the MoT test is the only test that should be applied for patentability, and the broader State Street test was not a reliable method.

This is significant, because the State Street criteria is a major rationale for many (though not all, I'm told) of the software and business-method patent applications that, as mentioned before, hit the US Patent and Trademark Office (USPTO) after 1998.

Today's ruling upheld the previous decisions that Bilski's method was unpatentable, but disagreed with the idea that the MoT test was the only method to apply patent eligibility.

"Finally, the Federal Circuit incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test. Recent authorities show that the test was never intended to be exhaustive or exclusive," the ruling states.

This leaves open that there are still processes that can be patented, even if they don't use the MoT test. In its ruling, the SCOTUS seems to specifically shy away from any broad definition of a process that should be excluded from patents. In fact, it even seems to touch on software patents a bit in the majority opinion:

"The Court is unaware of any argument that the 'ordinary, contemporary, common meaning,' Diehr, supra, at 182, of 'method' excludes business methods. Nor is it clear what a business method exception would sweep in and whether it would exclude technologies for conducting a business more efficiently."

If I read this right, this would mean that, disappointingly, the scope of the Bilski ruling is limited to this particular patent, and the SCOTUS does not rule out the possibility that other business practices, including software, can be patented. Indeed, in Justice Kennedy's opinion for the majority, the effectiveness of the MoT test for software is directly addressed:

"The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age--or example, inventions grounded in a physical or other tangible form. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals...

"In the course of applying the machine-or-transformation test to emerging technologies, courts may pose questions of such intricacy and refinement that they risk obscuring the larger object of securing patents for valuable inventions without transgressing the public domain. The dissent by Judge Rader refers to some of these difficulties. 545 F. 3d, at 1015. As a result, in deciding whether previously unforeseen inventions qualify as patentable 'process[es],' it may not make sense to require courts to confine themselves to asking the questions posed by the machine-or-transformation test. Section 101’s terms suggest that new technologies may call for new inquiries. See Benson, supra, at 71 (to 'freeze process patents to old technologies, leaving no room for the revelations of the new, onrushing technology[,]... is not our purpose').

"It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck."

So there you have it: Bilski will not be the defining case for the patentability of software after all, and there won't be any relief from the patent wars coming from the SCOTUS. Time to write your congressperson.

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