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Attorneys

Supreme Court Hears Oral Argument in Key Patent Case

December 3, 2009

Several weeks ago, on November 9, 2009, the United States Supreme Court heard oral argument in a key patent case. The case is Bilski v. Kappos (the USPTO). The issue before the Court was whether the Court should reverse the Federal Circuit’s “machine-or-transformation” test for the patentability of process inventions. The Supreme Court’s decision will determine the extent to which processes (or methods), particularly business methods, are patentable.

Bilski filed a patent application for a method of hedging the risks in commodities trading. The Patent and Trademark Office rejected the claims as unpatentable on the grounds that the invention was an abstract idea. The Board of Patent Appeals and Interferences affirmed the rejection. The Federal Circuit Court of Appeals, in an en banc decision in 2008, affirmed the rejection. The court established a new test for the patentability of process inventions called the machine-or-transformationtest. Pursuant to the new test, in order to be patentable, a process must either: (1) transform an article from one state into another state; or (2) be tied to a specific machine.

Bilski appealed to the Supreme Court. Over 60 amicus curiae briefs were filed.

At oral argument Bilski’s attorney, J. Michael Jakes, argued that the Supreme Court should reverse the machine-or-transformation test as being too rigid and not based on the statutes that define patentable subject matter (35 USC § 101). He argued that § 101 was intended to be read broadly to allow for inventions in new areas of technology. He emphasized that the machine-or-transformation test, which applies only to processes and not to other types of patentable subject matter, is not based on Supreme Court precedent or on the patent statutes.

Several Justices appeared skeptical that all processes should be patentable. They suggested that Bilski’s approach would result in every successful businessman having a patentable invention. The Justices asked what the limits on patentability should be.

Mr. Jakes argued that there are limits as to what is patentable. He said that, for example, the fine arts are not patentable. The Justices then asked whether human activities should be patentable. Mr. Jakes answered that they are patentable, and as an example, cited surgical methods performed by doctors. When pressed by Justices Breyer and Stevens as to what should be patentable, Mr. Jakes stated that the rule was set forth in Diamond v. Diehr. In that case, the Court specifically identified what is not patentable, such as abstract ideas. Justice Ginsburg asked Mr. Jakes why the Court could not adopt a system similar to that in Europe, in which business methods have been held not patentable. Mr. Jakes responded that the European system is based on a definition of “technology” that excludes business methods and that the U.S. cannot adopt.

The Justices challenged Mr. Jakes to explain the advantages of providing patent protection to inventions. Mr. Jakes explained that there are two advantages: the patent laws encourage people to invent and also force a disclosure of new inventions to the public. In response, Justice Breyer said that there are also two disadvantages to the patent laws: patents result in higher prices for products, which results in less use of those products, and the licensing process is too time-consuming.

The deputy Solicitor General, Malcolm Stewart, represented the PTO. He argued that the machine-or-transformation test is not rigid. He explained that the Court did not need to decide the harder question of what to do if part of a process is tied to a machine and part of a process is not.

Justice Sotomayor asked Mr. Stewart if it wouldn’t be safer to simply exclude all business methods from patent protection. Mr. Stewart replied that that would not be correct because it would eliminate claims to new machines or software that are patentable.

The Justices then questioned Mr. Stewart extensively about the State Street Bank case. Mr. Stewart explained that under the machine-or-transformation test, the result in State Street Bank would be the same. He said that the claims in that case were patentable because they were directed to a machine, not a process.

When pushed by the Justices, Mr. Stewart stated that Bilski was not the right case for the Court to address the “hard questions” concerning the patentability of software or medical diagnostics. He argued that these questions should be left unresolved for another case. Justice Ginsburg stated that the Federal Circuit had indicated that the machine-or-transformation test was sufficient for the invention before it and that other types of inventions could be addressed as the cases arose. She concluded that the Court could decide Bilski without addressing those difficult questions.

Mr. Stewart concluded by stating that the economic history of the United States would have been very different had people believed that process inventions like Bilski’s could be patented and that competitors could be precluded from using such methods.

On rebuttal, Mr. Jakes stated that the difficult questions must be faced now because the Federal Circuit has established the machine-or-transformation test as the proper test for all process inventions. He said that the proper question before the Court was whether Bilski’s invention is an abstract idea. He further argued that the test should not be whether an invention is transformed, but whether it is a practical application of a useful result.

The commentators do not agree on how the Court will decide Bilski. Some believe that the Court will strike down all business methods, while others believe that the Court will further modify the machine-or-transformation test to allow such patents.