Bilski Argument Puts Spotlight On Business Methods

By Jesse Greenspan

Law360, New York (November 09, 2009) -- The U.S. Supreme Court seems likely to affirm the rejection of a patent application filed by inventor Bernard Bilski, but it is grappling with exactly how to determine which business methods are patentable, according to lawyers who attended Monday's oral argument.

J. Michael Jakes, a partner with Finnegan Henderson Farabow Garrett & Dunner LLP who represented Bilski, argued before a packed house that the U.S. Court of Appeals for the Federal Circuit's “machine or transformation” test was too rigid and narrow.

But most of the justices challenged Jakes over exactly where the line should be drawn.

“I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake,” Justice Stephen G. Breyer said. “It was fabulous. And I could probably have reduced it to a set of steps, and other teachers could have followed it. That you are going to say is patentable, too?”

Chief Justice John G. Roberts Jr. added that one of the claims in Bilski's patent application — which covered hedging risks in commodities trading — seemed to be classic commodity hedging that had been going on for centuries.

“I mean, I could patent a process where I do the same thing,” Roberts said. “I initiate a series of transactions with sellers. I initiate a series of transactions with buyers. I buy low and sell high. That's my patent for maximizing wealth.”

Representing the U.S. Patent and Trademark Office, Deputy Solicitor General Malcolm L. Stewart argued in favor of the machine-or-transformation test but said this particular case should not be used as a vehicle for identifying the circumstances in which software innovations or medical diagnostic techniques would be patent-eligible.

“To say that business methods are categorically ineligible for patent protection would eliminate new machines, including programmed computers, that are useful because of their contributions to the operation of businesses,” Stewart added.

But the justices also seemed to take issue with many of his arguments. Chief Justice Roberts, for example, asked why the “most tangential and insignificant use of a machine” might be enough to take something from patentable to unpatentable.

“That's like saying if you use a typewriter to type out the process, then it is patentable,” Chief Justice Roberts said.

“All you do is just have a set of instructions for saying how to set a computer to do it,” Justice Breyer added. “Anyone can do that. Now, it's a machine.”

Meanwhile, Justice Sonia Sotomayor expressed some concern that the machine-or-transformation test would preclude future patent applications in things that we cannot yet imagine.

“So help us with a test that doesn't go to the extreme the Federal Circuit did, which is to preclude any other items, something we held open explicitly in two other cases, so we would have to backtrack and say now we are ruling that we were wrong, and still get at something like this,” Sotomayor said.

Steven M. Bauer, co-chair of the patent litigation practice at Proskauer Rose LLP, said it was probably safe to say there would not be a Bilski patent but that it was unclear how far the court would go in limiting business method patents.

“The justices got it,” said Bauer, who attended oral argument but did not represent any of the parties in the case. “They know what the issues are. They knew the impact and importance of what they're doing. And what they're struggling with ... is how far do they go in this case because they could screw it up.”

“It's clear that the court is really in a dilemma about what to do,” added Robert Greene Sterne, founding partner of Sterne Kessler Goldstein & Fox PLLC who filed an amicus brief on the side of broad patentability. “I've been to practically all the big patent cases over the last 25 years, and this was the most thoughtful oral argument I've ever seen in terms of the level of discussions going on between the advocates and the justices.”

He said it was clear the justices were really trying to figure out what to do, rather than coming in with their minds already made up.

“I don't think they have a simple solution like they did in eBay or KSR,” Sterne said, referring to the high court's rulings in eBay Inc. v. MercExchange LLC and KSR International Co. v. Teleflex Inc. “This case is going to take a lot of finesse to figure out. A misstep by the Supreme Court in an area that is this subtle could have a huge impact on commerce, especially startups and small businesses.”

Sterne said the oral argument had the highest attendance of any this term.

Stephen Schreiner, a partner at Goodwin Procter LLP who did not represent any of the parties in the case, said the most animated justice was Justice Breyer and that Justice Sotomayor also took on a prominent role.

“There were even times where [Justice Breyer] was almost raising his voice,” Schreiner said. “Not in an angry way, but he was really into it.”

He added that he was surprised the PTO took such a conservative position.

“The government was dancing all over the place to try to keep their decision away from software,” Bauer said. “The impression was that they got a lot of last-minute phone calls from people in the industry.”

The case is Bilski et al. v. Kappos, case number 08-964, in the U.S. Supreme Court.