On February 15, 2008, the United States Court of Appeals for
the Federal Circuit issued an en banc Order stating that the
full Court will rehear the appeal of In Re Bernard L.
Bilski and Rand A. Warsaw, originally argued before a
three-judge panel on October 1, 2007. In U.S. Court of Appeals
practice, an en banc rehearing is typically granted only where
a case is considered unusually important. Here, the patent
application at issue, on appeal from the United States Patent
and Trademark Office, Board of Patent Appeals and Interferences
(USPTO), claims a "method for managing the consumption
risk costs of a commodity." In its ruling, the USPTO had
objected to issuing a patent for the method on the ground
(among others) that it was not restricted to performance by
machines and/or did not contain any limitation to prevent it
from covering a purely mental process by individuals.
The implications of the Court's order
In the en banc Order, the Federal Circuit requested supplemental briefs on five questions:
- Does claim 1 of the patent application claim patentable subject matter?
- What standard determines if a process is patentable subject matter?
- Are the claims not patentable because they cover an abstract idea or mental process; and at what point does a claim for both mental and physical steps become patentable subject matter?
- Must a method or process result in a physical transformation of an article or be tied to a machine to be patentable subject matter?
- Should State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999) be reconsidered in this case and, if so, should they be overruled in any respect?
Any reconsideration or clarification of the State Street and AT&T v. Excel decisions would have a significant impact on U.S. patent law. These landmark decisions have been used to support the U.S. patent law doctrine that transformation of data by a machine, business methods and software are all patentable subject matter. These decisions have remained controversial, especially in light of the relative ease of obtaining software patents in the U.S. as compared to other jurisdictions, and (as is often argued) the frequent issuance of U.S. patents for non innovative ways to implement known methods using computers. The myriad software patents issued during the dot-com boom (and the high dollar values of many successful and high profile claims) are testament in part to the broad influence these decisions have had on U.S. patent law, so any reconsideration of them could conceivably have a similarly broad impact.
Is the pendulum swinging back against business method patentability?
Just as State Street itself was seen as the start of a long swing towards acceptance of business methods as patentable subject matter, recent events suggest that the pendulum may be swinging back.
On September 20, 2007, in its In re Comiskey, 499 F.3d 1365 (Fed. Cir. 2007) ruling, the Federal Circuit affirmed with respect to an automated method of arbitration that mental processes themselves are not patentable subject matter (incidentally, the Court could have rejected the Bilski and Rand patent application on this basis without having to reconsider State Street or AT&T v. Excel).
Also, on January 24, 2008, the U.S. Senate added section 14 to the Patent Reform Act of 2007 (Bill S.1145) to limit the damages and other remedies of financial institutions with respect to patents for methods of complying with the U.S. government's "Check 21" check imaging rules. This situation is seen as a rare case of Congressional intervention in ongoing litigation. At issue are patents currently licensed by DataTreasury Corporation to some banks and allegedly infringed by others, against whom lawsuits are pending. The Congressional Budget Office estimates that the federal government's cost of compensating DataTreasury for the "taking" would be at least $1 billion, noting a "high likelihood" that the patent holder would succeed in a suit against the government.
Implications beyond the U.S.
In re Bilski and Warsaw may be part of a broader U.S. trend towards tightened standards for obtaining and enforcing patents. Like the Patent Reform Act of 2007 itself, this trend would bring U.S. practice more closely into line with that of other jurisdictions. For Canadians and those doing business in Canada, it would be expected that Canadian patent policy towards patentable subject matter (as set out in MOPOP amendments in early 2005) is unlikely to move any closer to the current U.S. model: i.e., that in order to be a patentable art, software or business methods must claim "act or series of acts performed by some physical agent upon some physical object and producing in such object some change either of character or condition" and there must be an "essentially economic result relating to trade, industry or commerce."
Oral arguments in the rehearing are to be heard May 8, 2008.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.