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"LOOKS BAD FOR BUSINESS METHODS" -- A note by Erwin J. Basinski

The Bilski case before the US Supreme Court came up for oral argument on November 9. After a couple of reads, My initial impressions are:

1. Most of the questions from the Justices (primarily Scalia, Breyer, Roberts, Sotomeyor, Stevens, Kennedy, Ginsburg) seemed focused on a concern that a) if they upheld the machine or transformation test they would interfere gravely with existing software, biotech and other patents as well as kill all business method patents; and b) if they negated the machine or transformation test but only killed business method patents, how would that square with BM processes that DO have a valid machine element or DO have an acceptable transformation involved.

2. Malcomb Stewart, Esq., Deputy Solicitor General, spoke for the US Patent Office and said that they fully believed that the hedging claim of Bilski was basically an abstract process with no physicality, and that they would be happy if the court so ruled. Chief Justice Roberts asked why the court shouldn’t so rule and avoid the issue of whether the machine or transformation test is OK. Justice Sotomayor asked “How about if we say something as simple as patent law doesn’t cover business matters instead of what the Federal Circuit has begun to say, which is technology is tied to a machine or a transformation of the substance, but I have no idea what the limits of that ruling would impose in the computer world, in the biomedical world, all of the amicii who are talking about how it will destroy industries? If we are unsure about that, wouldn’t it be safer to say it doesn’t involve business methods?” [I am not sure what this really means.] But Solicitor Stewart responded that this wouldn’t work because of the State Street Bank case , pointing out that the innovation in State Street was a “machine” whereas the Bilski case relates to “processes”. This led to a long and confused discussion between Stewart and several of the Justices about machines made to be unique by a specific computer program, etc., etc. Justice Ginsburg reminded Mr. Stewart that the PTO had proposed the machine or transformation test to the Federal Circuit and was now saying this test should not be supported by the Supreme Court because of the ambiguities about “what is a ‘machine’? and what exactly is an acceptable transformation?” She quoted Justice Meyer in the Federal Circuit Bilski opinion as saying ” . . . it has a simplicity to it. It says, if its technology, then its within the realm of patent, and if its not technology, it isnt, if it is based on science or technology, and that seems to be what is used in other places [i.e. she means countries]? Mr. Stewart said focusing on whether technology is involved would not make the patent eligibility argument any easier, and moreover such a test would not allow a court to avoid the difficulties that it has identified with the machine-or-transformation test.

3. Chief Justice Roberts, and Justices Kennedy, Stevens, Breyer and Ginsburg found difficulty in Mr. Stewart’s argument that State Street was decided correctly and would be today because it was claimed as a machine and was deemed by the Federal Circuit (and agreed by the PTO) to be a computer changed into a new machine by the computer program involved. All of them felt that State Street’s claim was merely a business process programmed to run on a general purpose computer in which the focus should rightly be on the “process,” and seemed to imply that it should have been rejected as a business method process. Mr. Stewart argued it would pass the machine or transformation test. So Justice Breyer summed up by saying – well all of the hypothetical business methods we seem to have excluded from patentability sound like that could be patented if we simply programmed a computer to execute the process according to the PTO. [These Justices appear to be leaning towards denying the patentability of business methods whether or not a computer is used to execute the process.]

4. Mr. Stewart said that the PTO would be happy if the court would affirm the machine-or-transformation test without trying to define what a machine or transformation is [sounds like the Europeans and their happiness with no court trying to define what technology is].

A majority of the Justices seem to be against the patenting of business methods in general but some worry about the impact on the Internet and new and emerging technology, including medical diagnostic methods.

My guess is that the Supremes will rule somewhat as follows:

A Business Method defined as a process of abstract steps of doing something NOT tied to any technology is NOT patent eligible. Implementing the process on a general purpose computer, whether claimed as a machine or process, does not make the business method patent eligible.

The “machine-or-transformation” test for determining patent eligibility for a process is not affirmed, but some non-trivial physical steps or elements must be included in a claim for a process to be patent eligible.

The fact that Congress has recognized some business methods as patentable in section 273 regarding prior user defenses, seems to be a nettlesome issue for the court here but I suspect they may find some way around this.

The Bilski claim at issue will likely be deemed a business method having abstract steps not tied to any technology and is therefore deemed not to be eligible for a patent.

The Court might even overturn the State Street Bank case.

Erv Basinski

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