Sunday, July 11, 2010

A Note on the Supreme Court's Decision on Business Method Patents -- Bilski v. Kappos

The  U.S. Supreme Court issued its decision in Bilski v. Kappos on June 28.  This case involved a "business method" patent application which the U.S. Patent and Trademark Office had denied.  The  application was "for a claimed invention that explains how commodities buyers and sellers in the energy market can protect, or hedge, against the risk of price changes."  All members of the Supreme Court agreed that the patent should be denied, but  otherwise the court was split.  To my eyes, the decision is a muddle and does not provide much guidance for future cases of this sort.

While this case does not appear to be one that would necessarily cause a split between the "liberal" and "conservative" members of the court, this is, in fact, what happened.  Justice Stevens, writing for himself and Justices Ginsburg, Breyer, and Sotomayor, concurred in the the judgment but argued that it should not be possible to patent business methods.  The majority opinion, written by Justice Kennedy, held that business methods can be patented, but that the application in question should be rejected because it presented an "abstract idea," which cannot be patented.  Complicating the decision is that Justice Scalia did not join in all of Kennedy's opinion, and joined most of a separate comment written by Justice Breyer.  Scalia, though, did not join  the Steven's opinion, but Breyer joined it in full.

This case reminded me of patent issues that I worked on while at Treasury.  During the Clinton Administration, Treasury Assistant Secretary for Financial Markets Lee Sachs was concerned about the increasing use of patents on financial products.  In conducting research on this issue, we learned from broker-dealers that there was a fear of being sued.  For example, there were entities that would take out patents on what would seem to be obvious ideas, and then sue firms for patent infringement.  The scheme was to to get a licensing fee from the firm for the patent.  Firms sometimes agreed to pay the licensing fee, since this would often be cheaper than going to court to argue either that there was no patent infringement or that the patent should never have been granted.  We also heard that some firms took out "defensive patents," i.e., not for getting licensing fees but as protection against suits for patent infringement.

Mr. Sachs was right that there was a problem in this area, but since there was no inclination to set up a senior-level meeting with the Patent Office to express concerns about inappropriately granted business method patents, Treasury did not have a big impact on policy in this area.  At one point, though, Treasury had the Justice Department file a brief in a court case involving a patent.  The brief argued against a requested preliminary injunction which would have reduced competition in the government securities market.

I am happy to see that the Patent Office seems to be giving business method patents more scrutiny and was willing to defend its position all the way to the Supreme Court.  The Supreme Court, though, appears to be really struggling in this area.  Congress should make the law clearer with respect to business method patents, but this is not the type of issue for which a lot of political points can be gained.  Unless a chairman of either the House or Senate judiciary committees takes an interest, nothing is likely to happen in Congress on this issue for some time, and the courts will somehow have to develop the case law.

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