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Can a Business Method Be Patented?

One of the most eagerly watched cases pending before the Supreme Court is Bilski v. Kappos, which will shape the scope of patent law in profound ways. Bernard Bilski and Rand Warsaw created and sought to patent a way of using complex math to hedge against demand-driven commodity price risk -- for example, helping a school system cope with heating oil prices spiking because an extra cold winter creates unusually high demand, or helping a fuel dealer handle the opposite situation. The Bilski/Warsaw idea is a "method of doing business by evening out risk among those in an ongoing economic transaction," as SCOTUSblog put it.

Of the four categories of ideas that can be patented, Bilski/Warsaw sought a patent under the first, asserting that their method was a "new and useful process." Relying on existing case law, the patent office rejected the patent on the grounds that the idea -- however bright -- was merely an abstract concept, and not a process. The current case asks the Supreme Court to consider the definition of process created by the Federal Circuit Court when it decided the Bilski/Warsaw case, which is known as the "machine or transformation test." (The Federal Circuit's definition controls unless the Supreme Court speaks because of its special patent jurisdiction.)

The "machine or transformation test" seeks to strike a balance between keeping abstract ideas and scientific principles that "are the basic tools of scientific and technological work" in the public domain, and allowing patents on specific, new and useful applications of those ideas and principles. Though conceptually clear, the distinction is difficult to make in practice, as the Bilski case illustrates. Is the Bilski/Warsaw method merely an untethered abstract idea (a reasonable supposition, given that all mathematical constructs are abstract principles) or is it a process that involves such a specific and narrow application of that math that granting a patent on it doesn't deprive the public or the scientific community of unfettered access to a fundamental principle?

The machine or transformation test distinguishes the principle from the application by focusing on a physical definition of process: Is the process tied to a specific machine or apparatus? If so, that would sufficiently limit its scope. If not, does the process transform something into a different state or particular thing? Again, if the process effects such a transformation, then it is a sufficiently specific application to get a patent. The Federal Circuit's test, by tying a "process" to the physical world, fundamentally limits the patenting of many intangible processes, such as business methods. But is that appropriate in the knowledge economy of today's information age?

Given that fostering innovation is the policy justification for patents, the key underlying policy issue is this: Will limiting patents to ideas linked to the physical world help or hurt innovation? In general, I'm for patent limitations, and so instinctively support the patent office, but the ramifications of this case are so profound, I'll admit I haven't thought them through well enough to have an ideal test in my own mind.

Reflecting the enormous stakes in this case, a huge and diverse range of "friends of the court" offered their two cents in the matter, with 18 supporting Bilski/Warsaw (plus one in support of reversal), 19 in favor of the patent office (plus five in support of affirmance), and 24 addressing the issues but not picking sides. The case was argued last November: It's now one of the "oldest" cases to remain undecided. The next likely date for the announcement of a decision is June 1.

And in the Business of Law...

• Rebranding happens at law firms too; the American Lawyer reports that Cooley, Godward and Kronish has just renamed itself the more sleek Cooley LLP. In the era of twitter, texting and generally shorter communications, perhaps more firms will similarly shake off the staid, old-school texture of overstuffed law libraries inherent in multi-partner names.

• Above the Law has some good news regarding the legal market for a change: Morris Manning of Atlanta has restarted its summer associate program after canceling it last year.

• In the annals of greed, the ABA Journal reports that some plaintiffs attorneys are trying to get BP's oil spill victims to agree to contingency fees as high as 50% plus 10% for expenses. That goes beyond adding insult to injury.

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