SCOTUS on Bilski

The Supreme Court of the United States decided a much-watched patent-law appeal on Monday, as part of its wrap-up of this term.

The Bilski case, as regular readers of this blog will remember, involves an effort to patent an "energy risk-management method" -- in essence, an application of the familiar idea of commodity hedging.

That would seem to fail under the non-obviousness test. But obviousness is the dog that hasn't barked here. The Bilski case has been litigated almost entirely with reference to what is or isn't a "process."

The Court of Appeals upheld the Patent Office. Both said that the law does not authorize the patenting of an abstract idea, and that the "process" Bilski has devised is a dressed-up abstraction. More specifically, the Court of Appeals said that a process becomes patentable only if it is tied to a "particular machine," or if it transforms a particular article into "a different state or thing." This is known as a matter of shorthand as the machine-or-transformation test.

The Supreme Court has now agreed with every other authority who has looked at the matter in rejecting the notion that Bilski should have a patent on commodity price hedging. But it also rejected the machine-or-transformation test as an answer to the question "why not?". Nor has it substituted any alternative test of its own as to what is a "process" in the relevant sense.

The brief the government -- via solicitor general Elena Kagan -- submitted to the Supreme Court on this matter, asked the court to uphold machine-or-transformation.

The software industry was concerned about this. Software is designed to run on a very general sort of machine, but to read machine to include any digital computer might allow for the patenting of very abstract ideas anyway, precisely what the phrasing is supposed to avoid. The Court of Appeals had refused to address that point: "We leave to future cases the elaboration of the precise contours of machine implementation, as well as the answers to particular questions, such as whether or when recitation of a computer suffices to tie a process claim to a particular machine."

Kagan's brief on appeal to SCOTUS acknowledged that the software industry was unhappy about the test she was embracing. But she took the view that reference to a digital computer is not enough to create patentability, so most software would probably not be patentable. The consolation prize for the software industry is copyright law, and "the other legal doctrines that protect non-technological commercial activities," trademark law, common law notions of contract and tort, etc.

Again: although SCOTUS ruled against Bilski, it did not do so for the reasons the circuit court, or solicitor general suggested. Referring to amici briefs it had received from the Business Software Alliance, the Biotechnology Industry Organization, and the Boston Patent Law Association, Judge Kennedy writing for the court agreed that the machine-or-transformation test would create unacceptable uncertainties in the software industry.

More generally, in the course of applying such a test, "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." Let's keep our eye on the ball, then! But Kennedy produces no alternative test, except that the courts below should reason by analogy to its various precedents such as Flook, Benson, Diehr, etc.

A group of four concurring Justices (Stevens, Ginsburg, Breyer, and Sotomayor) put forward their own views. They too agreed that Bilski tried to patent an unpatentable abstraction. They also agreed that machine-or-transformation is nopt a good rule for the meaning of "process." But they did want to give the lower courts more guidance than Kennedy had.

In an opinion written, as a cap to his judicial career, by Justice Stevens, these four argued for a bright-line rule against "business method" patents: "[A] claim that merely describes a method of doing business does not qualify as a 'process' under §101." This rule would overturn a good deal of what has been regarded as established law, going back to State Street.

The State Street case, a 1998 Circuit Court decision that SCOTUS did not review, and which has been very influential since, involved a patent for software used in administering a "hub and spoke financial services configuration." The spokes were investment funds that served as "feeders" of assets into one broader, master fund.

Although the decision in State Street can be read narrowly as upholding the patent on software, it has usually be read as if it upheld a patent on the hub-and-spoke system itself ... a business method. Stevens wants to put an end to that reading of State Street, at least, and to patents issued on that basis.

"If business methods could be patented," he writes, "then many business decisions, no matter how small, could be potential patent violations. Businesses would either live in constant fear of litigation or would need to undertake the costs of searching through patents that describe methods of doing business, attempting to decide whether their innovation is one that remains in the public domain."

The only thing wrong with that passage is the hypothetical construction. Business decisions can be patented, since they have been for several years and Stevens was unable toget the five votes to stop it. Furthermore, for this very reason, business in ther US do live in constant fear of litigation.