28 was the day the U.S. Supreme Court was to decide the patent case of the
century, Bilski v. Kappos, and bring clarity to the debacle of the 1998 State
Street Bank decision. In
State Street, the Court of Appeals for the Federal Circuit (which hears
all patent appeals) had upended centuries of tradition that assumed that
patents were for technology and a hundred years of judge-made law that
explicitly excluded “methods of doing business.” That decision also appeared to abolish all limits on
software patents, fueling a land rush in patenting that helped create the
backlog of 1,200,000 applications the Patent and Trademark Office faces
State Street created an instant constituency
for business method patents that wasn’t there before. Before State Street, everybody knew that business
methods were not patentable. It
was understood and accepted. It
was rarely litigated.
Street, Bilski would have gotten his patent for a risk-hedging scheme for
energy costs – no questions asked.
But it has become clear that business method patents – which might have
seemed like a great idea in those go-go years – are deeply problematic. They are hard to evaluate for novelty
and inventiveness, often sweepingly broad in scope, difficult to interpret, and
very controversial. (Would we
really want just one airline offering frequent flyer miles?) By abolishing the well-established and
uncontroversial business method exclusion, State
Street radically extended jurisdiction of the patent system to cover not
only business practices such one-click ordering and tax avoidance strategies,
but an apparently limitless range of human activities, such as athletic moves
and playing with cats. Perhaps the
largest professional land grab in modern history.
State Street, the Patent and Trademark Office wisely denied
Bilski’s application – not by attacking State Street head-on but by
pointing to another test that the Supreme Court had used in earlier cases: The
principle that a patent for a process must be tied to a particular machine or
involve a transformation of matter.
Without directly touching State Street, the Federal Circuit
agreed, atoning for its reputation as an inveterate booster of patents. Then, to the surprise of many, the
Supreme Court took the case – and now has muddied the waters further.
Kennedy’s decision rejected “the machine or transformation” test as
determinative while nonetheless praising its probative value, but declined to
reinstate the business method exclusion because some processes that could be
described as “business methods” may be patentable. Joined by four justices, Kennedy embraced a more amorphous
test, the exclusion of “abstract ideas,” citing language on algorithms in
Flook, and Diehr, the Supreme Court’s last and only word on
computer programs, dating back to the 1970s. Kennedy’s affirmation of Benson and Flook
suggests that software patents remain problematic, but he adds nothing to the
old language that he cites, leaving it to further litigation to determine what
an “abstract idea” is in different contexts. Maybe it’s like obscenity: you know it when you see it.
Only worse: How do you make concrete something
characterized by its lack of concreteness?
all the justices rejected the patent – five on the basis that it was an
abstract idea; four would have done so on the basis that it was a business
method. Justice Stevens’s long and
eloquent concurrence shows that patents have historically been limited to
technology, as eventually articulated in the business method exclusion. Stevens and three other justices would
have reinstated the exclusion, explicitly overruling State Street.
to the Rescue
There is irony to how this came about.
State Street’s abolition of the business method exclusion was so sudden,
unexpected, and retroactive, that it looked like financial firms could see
their private inner workings patented out from under them. Congress was already embroiled in a
drawn-out battle over patent reform (yes, another one; it seems to happen every
decade). To fix this apparent
inequity, Congress enacted “prior user rights” for “methods” with “method”
limited to “a method of doing or conducting business.” But this referred to the
traditional exclusion that State Street had just said did not
exist. Members of Congress
scrambled to read their own definitions into the Congressional Record, some of
which included manufacturing processes.
of the business method exclusion was that it was understood, accepted, and
rarely litigated. Nobody was
petitioning Congress for patents on business methods. But by suddenly handing out a new competitive weapon,
Street created a stampede.
Fatigued by years of contentious and emotional debate over reform,
Congress passed a greatly diminished reform package in 1999, but it included a
stopgap for the upended expectations that State Street created, naturally
without taking on the big question of where to draw the limits of
stopgap measure simply opened the door to complete confusion over what business
methods were and whether Congress, by mentioning them in this fix, had intended
to validate them, whatever they were.
In this way, Congress’s stopgap measure, designed to remedy one
particular risk created by
seems to have breathed eternal life into the underlying problem. Deferring to Congress, Justice Kennedy
declined to conclude that all business methods were unpatentable.
end up with in
All “business methods” are not necessarily unpatentable, the
machine-or-transformation test is useful but not fully determinative, and no
new guidance on abstract ideas.
Instead, Kennedy’s opinion pulls back from the disciplined guidance that
the Federal Circuit was trying to reinstate, regurgitates language from the
1970s, and says, in effect, “try again.”
The Law of
of 2009, CCIA, Duke Law School, and the Brookings Institution co-sponsored a
“abstract patents.” Our notice
began: “Abstract ideas are not patentable, but what are abstract ideas – and
how can judges draw a line around them?”
The question reverberates anew after this (non)decision in Bilski. The Supreme Court -- offering “clues”
but no guidance -- has just handed this conundrum back to the Federal Circuit,
inviting it to develop a concrete law of abstraction that the Supreme Court can
then take another shot at.
Patent Failure, law and economics experts Mike Meurer and Jim
Bessen point to the problem of
fuzzy boundaries and the attendant failure of disclosure function. Drawing from empirical research by
themselves and others, they show that while patents work reasonably well for
pharmaceuticals, chemicals, and possibly other very tangible inventions, they
work poorly for abstract subject matter such as software and business
methods. They attribute this to
the nature of the patent claims, which are well-defined for molecules but
subject to considerable interpretation else. This makes it risky and costly to define boundaries, whether
in litigation or more generally in identifying, evaluating, and navigating
patents. (In comparison, consider
how easy and inexpensive it is to survey and get title insurance for real
estate.) At the same time,
software and business method patents do not require the large investment in
research and validation that new drugs do.
Kennedy adopts a rhetorical framework that distinguishes the Industrial Age
from the Information Age. Of
course, it is not possible to separate one age from another. We still have an industrial sector and
will continue to have one. Yes,
the information sector has been radically expanded. So shouldn’t we perhaps investigate whether information
sector needs or wants a system designed for industrial use? (And could we perhaps ask those who
actually make the technology work, not just the patent lawyers?)
problem is that the patent system remains one-size-fits all. We are stuck treating software the same
as pharmaceuticals. Once business
methods (or computer programs or diagnostic information) are inside the patent
system, there is no escape. Middle
managers are forced to live with high-priced patent lawyers at their side.
Kennedy zeros in on a core issue of patenting in the Information Age: “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.”
concludes the paragraph with the ultimate disclaimer: “Nothing in this opinion
should be read to take a position on where that balance ought to be
struck.” At least he acknowledges
State Street did
not. Its answer was not to
describe a balance or draw a line, but to let it all in.
Supreme Court has now charged the Federal Circuit with developing a law of
abstraction, a body of law that divides the world between abstract ideas and
non-abstract (and so patentable) ideas – based on
Bilski and three examples from 1972, 1978, and 1981.
the fuzzy boundary challenge on a grand scale: A vast twilight zone of possibly patentable business
methods, software, and diagnostic information. You would be crazy (or at least irresponsible to your
shareholders) not to go for as many as you can get. A questionable patent, while not always as good as a solid
patent, is a valuable weapon that can be used to threaten and bludgeon
competitors, as well as anyone else willing to pay a licensing fee “reasonable”
enough to avert the astronomical costs of litigation. The odds of the patent being contested on subject grounds
have a huge backlog of patent applications, because the U.S. Patent and
Trademark Office devotes scarce resources to managing patents in areas where
standards are difficult and costly to apply – and where patents are
controversial and used frequently for ambush and ransom. The USPTO’s limited resources – and the
resources of U.S. industry – should be focused on areas where patents are
needed for innovation and the system works by consensus. They should not be used for regulating
business practices – let alone tax avoidance, athletics, and the enjoyment of