Supreme Court Hears High-Stakes Patent Case

The U.S. Supreme Court heard oral arguments Nov. 9 in a closely watched case that could have a profound impact in several high-tech industries, including software and finance.

The case involves the issue of whether intangible inventions that do not necessarily involve the physical transformation of matter are patentable.

The U.S. Court of Appeals for the Federal Circuit had invalidated two inventors' patent application for a method of managing commodity trading risk. In re Bilski, 2008 WL 4757110 (Fed. Cir. Oct. 30, 2008).

The method included several steps involving transactions between commodity providers and consumers.

The appeals court said the invention was not patentable because it entailed a mental process that was not implemented by a machine or other tangible object.

Federal patent law allows for the patenting of "any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof."

Abstract ideas, laws of nature and natural phenomena are not patentable.

In his argument to the Supreme Court, J. Michael Jakes, the inventors' attorney, took issue with the Federal Circuit's interpretation of the patent law.

"The requirement that any and all methods must be either tied to a particular machine or transform specific subject matter doesn't find any basis in either the language of Section 101 or anywhere in the patent statute," he said.

Deputy Solicitor General Malcolm Stewart, representing the U.S. Patent and Trademark Office in the case, countered that innovations as to techniques may be valuable, but not patent-eligible.

"The basic principle is that some link to a machine or transformation is necessary," he argued.

Both attorneys were peppered with questions by the justices.

Justice Stephen Breyer questioned the inventors' argument that anything that helps a businessperson succeed, if it is new, useful and reduced to a number of steps, is patentable.

If so, Justice Sonia Sotomayor wondered, how does the court limit it to something reasonable?

Jakes suggested that there be a focus on "useful arts."

Several of the justices questioned Stewart on the level of substantiality the "machine or transformation" test must play.

Chief Justice John Roberts asked whether the most tangential and insignificant use of a machine was enough to make a process patentable.

"If you develop a process that says look to the historical averages of oil consumption over a certain period and divide it by two, that process would not be patentable," he said. "But if you say use a calculator then it is?"

Stewart acknowledged that simply using a calculator to crunch numbers might not be enough for patentability, but that if, for example, a computer is programmed with new software that gives it new functionality, that may be sufficient.

Justice Sotomayor mused on the question of whether exclusively relying on the machine-or-transformation test might preclude application of the patent law to "the things we can't imagine."

Many observers of the case say the consequences will be dire for some industries if the Supreme Court affirms the appellate court's decision.

"Unless the Supreme Court reverses the Federal Circuit or substantially limits the applicability of the rigid machine-or-transformation test, innovators in at least the electronics and software industries face continued doubt about which of their inventions are even eligible to be examined by the Patent Office," said Daniel Homiller, a patent attorney with Coats & Bennett in Cary, N.C.

"Patent holders across the world are wondering whether their inventions will be deemed too intangible to warrant patent protection in the United States," he said.

Homiller's concerns were echoed by Ed Hejlek, an intellectual property attorney with Bryan Cave LLP in St. Louis.

"The Federal Circuit's ... decision abruptly changed the standard of patentability for software and business methods and generated uncertainty as to the validity of some patents issued over the past decade," he said.

Hejlek referenced the Federal Circuit's 1998 decision in State Street Bank & Trust Co. v. Signature Financial Group, 149 F.3d 1368 (Fed. Cir. 1998), in which the appeals court established a "useful, concrete and tangible result" test for patentability.

Since the State Street Bank ruling, numerous patents have been issued for things such as automated trading systems, risk management models and tax-avoidance structures.

The court's recent decision abrogated the State Street Bank test, and Hejlek cautioned that competitors may be more tempted to challenge the validity of those patents if the Supreme Court affirms the decision.

Scott Bain, litigation counsel for the Software & Information Industry Association, which filed an amicus brief in the case, said the high court should overturn the Federal Circuit's ruling.

"A Supreme Court decision that confirms the patent eligibility of software inventions and clarifies the test for determining when an invention is unpatentably 'abstract' or a 'natural phenomenon' would provide much needed guidance in the software, IT, financial and other industries," he said in a statement.

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