2009 Issue

17 L AST YEAR THE PATENT OFFICE itself attempted to make significant changes to the rules by which patents are obtained. 2 But, that ef- fort was found to be widely unpopular 3 and fortunately, in my opinion, was reversed. 4 Even President-Elect Obama supports patent reform. 5 However, I believe that “change” will come next year at the earliest. Not to be left off of the pat- ent reform bandwagon, the judicial branch of our government has always had a significant impact on patent law with its patent-related decisions. While it is true that Engineers and others may find the nuances of patent law shaped by our federal courts to be a cure for insomnia—not so for pat- ent attorneys! Youmay have heard that theUnitedStates Court of Appeals for theFederal Circuit releaseda contro- versial enbanc decision relating to thepatentability of business method patents, In re Bilski . 6 At issue was thepatentability of amethod for hedging risk in the trading of commodities. In a 9-3 decision, with five separate opinions, the Federal Circuit sharply curtailed the availability of patents for processes. In sodoing, the court substantially steppedaway from its 1998 decision in State Street Bank 7 , the decision that condoned business method patents in the first place. However, in view of the Bilski majority opinion and its three dissentingopinions, there are many unanswered questions. The Bilski opinions themselves illustrate substantial differences about the role of patent policy in fostering innovation in today’s economy. Both State Street Bank and Bilski construe section 101 of the Patent Act, which provides that “[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title.” That seems simple enough, and the majority opinion in Bilski emphasizes that patentability is limited to inventions that constitute a “process, machine, manufacture, or composition of matter.” State Street Bank opened the patentability of business method patents by emphasizing that section 101 itself sets out no subject matter or field restrictions so long as the invention can fit into the process, machine, manufacture or composition of matter formulation. It has always been the case that mere math- ematical algorithms are not patentable. However, practical applications of such algorithms are pat- entable. In State Street Bank , the Federal Circuit distinguished themutual funds pooling algorithm invention from a meremathematical algorithm, in that it produced “a useful, concrete and tangible result”, which has been the test for patentability under section 101 up until now. The State Street Bank decision was widely viewed as a patent-friendly decision and there was a rush to file business method patents im- mediately thereafter. Since then patent law has become increasingly controversial. There are many who are quite critical of the current patent system 8 . The judicial pendulum appears to be swinging back in response. The Supreme Court has already started to make it more difficult to obtain patents 9 , and the Federal Circuit in Bilski is following suit. The relevant patent claim, i.e., claim 1, in the Bilski patent application recited: A method for managing the consumption risk costs of a commodity sold by a commodity pro- vider at a fixed price comprising the steps of: (a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumer; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and (c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions. The Bilski majority noted that this is just a method for hedging commodity risks. It does not depend on any special machine. However, it is common knowledge that computers are heavily involved in establishing most hedging positions. Is claim 1 of Bilski a patentable process? The Bilski majority opinion offers a relatively technical answer, namely that a patentable process must be tied to a particular machine or apparatus or must “transform[] a particular article into a different state or thing.” 10 The majority opinion extracts this “machine-or-transformation test” from a group of prior SupremeCourt cases. In Gottschalk v. Benson 11 , the Court expressly left open the possibility that a patentable process could exist outside of the confines of the machine-or-trans- formation test, and also did so again in Parker v. Flook 12 . However, three years later in Diamond v. Diehr , 450 U.S. 175 (1981), the Court omitted the express language of patentable processes that do not meet the machine-or-transformation test. This omission in Diamond hardly seems disposi- tive, but for the Bilski majority it was enough to embrace the machine-or-transformation as “the test” for determining the eligibility of a process for patenting. 13 As for claim 1 in Bilski , no machine was claimed necessary for the invention, and there was no transformation of any article, either. As stated by the Bilski majority: “applicants here seek to claim a non-transformative process that encompasses In re Bilski: Is that Obvious? PAUL C. OESTREICH, MORRISS O’BRYANT COMPAGNI I am often asked, “So, what’s new in the world of patent law?” One response to that question is that there has been much talk about legislative attempts at patent reform—however, stay tuned for actual results. 1 1 See, e.g. , S. 1145: 2007-2008 Patent Reform Act of 2007 (A bill to amend title 35, United States Code, to provide for patent reform), <http://www.govtrack.us/congress/bill.xpd?bill=s110-1145> , Last Action: appears to be abandoned, November 6, 2008. 2 U.S. Federal Register, Vol. 72, No. 161, pp. 46717–46843, 21 August 2007. 3 See, e.g ., Robert D. Gunderman and John M. Hammond, “How the U.S. Patent Office’s New Patent Rules Affect You”, IEEE Sprectrum Online, <http://www.spectrum.ieee.org/oct07/5664 >, 2007. 4 Paul McDougall, “Court Blocks Patent Office From Instituting Controversial Rules”, Information- Week, <http://www.informationweek.com/news/management/showArticle.jhtml?articleID=20280079 8>, October 31, 2007. 5 “Obama Supports Patent Reform But Bill May Face Delays”, FDAnews Drug Daily Bulletin, Vol. 5 No. 224, <http://www.fdanews.com/newsletter/article?articleId=112216&issueId=12142 >, Nov. 14, 2008. 6 http://www.cafc.uscourts.gov/opinions/07-1130.pdf. 7 I, 149 F.3d 1368 (Fed. Cir. 1998). 8 See, e.g ., Adam B. Jaffe and Josh Lerner, “Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and Progress, and What to Do About It”, Princeton University Press, 2004; James Bessen & Michael J. Meurer, “Patent Failure: How Judges, Bureaucrats, and Law- yers Put Innovators at Risk”, Princeton University Press, Princeton NJ. & Oxford, 2008. 9 See, e.g., eBay Inc v. MercExchange, L.L.C. , 547 U.S. 388 (2006) (ruling that an injunction should not automatically issue based on a finding of patent infringement); KSR v. Teleflex, 550 U.S. 398 (2007) (broadening the obviousness test for patents). 10 Bilski majority op., p.10. 11 409 U.S. 63, 71 (1972). 12 437 U.S. 584, 589 n.9 (1978). 13 Bilski majority op., p. 14. continued on page 18