The following post comes from Prof. Jay Dratler, Jr.:
The case of Bilski v. Kappos, argued yesterday before the Supreme Court, 2009 Term, No. 08-964, addresses a question vital to the survival of our free enterprise system. (Number citations are to pages and lines of the oral argument transcript.)
Can anyone with a new and nonobvious business idea (or business “model,” in current parlance) patent it and exclude competition for twenty years from the patent’s application date? Twenty years are an eternity in many innovative businesses today, so the “limited Time” of the patent grant has limited practical effect.
Since Parliament adopted the Statute of Monopolies in 1623, England’s and others’ free-market economies have answered that question “no.” In 1998, a panel of our own Federal Circuit—our primary patent appeals court—answered it “yes.” See State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). See generally, Jay Dratler, Jr., Does Lord Darcy Yet Live? The Case Against Software and Business-Method Patents, 43 Santa Clara L. Rev. 823 (2003).
Now the patentee-petitioner in Bilski wants the same “yes” answer for slightly different facts. Yet this time the en banc Federal Circuit said “no,” in a limited way. Our Deputy Solicitor General supported the Federal Circuit’s ruling in his oral argument.
There are some technical subtleties. The Bilski patent claims abstract steps in a process for consummating certain commodities-trading transactions. The Federal Circuit, sitting en banc, rejected that process as unpatentable subject matter for being insufficiently tied to a physical machine or transformation. See 545 F.3d 943, 963-64 (Fed. Cir. 2008). Its limitation has become known as the “machine-or-transformation” test. (3-12)
But as five Justices acknowledged in oral argument yesterday (see below), upholding that limitation will have no discernable effect, except on the parties to Bilski and others with already-issued patents whose claims cannot be amended.
The reason is simple. Our patent law explicitly provides for patents on both a “process” and a “machine.” 35 U.S.C. § 101. If Bilski wins, patent applicants can circumvent the age-old prohibition against general business monopolies by patenting business ideas in the abstract, step by step, as “processes” or “methods.” As Chief Justice Roberts helpfully illustrated (10-7 to 10-8): “I initiate a series of transactions with buyers. I buy low and sell high. That’s my patent for maximizing wealth.”
But if Bilski loses, his successors can reach the very same goal by a slightly more circuitous route. They can write a computer program to perform the desired process or method, load it into a computer, call the computer-cum-program a “machine,” and patent it. In Justice Breyer’s words (46-20 to 46-24), “all you do is you get somebody who knows computers, and you turn every business patent into a setting of switches on the machine because there are no businesses that don’t use those machines.”
Thus any decision in Bilski, for which the patent bar has waited 28 years (since Diamond v. Diehr, 450 U.S. 175 (1981)), will be a practical, commercial and economic nullity, except perhaps for poor Bilski and those like him. Heads Bilski wins and the public loses. Tails the public loses and those who can still claim business ideas as programmed computers win. As Justice Sotomayor sagely observed, “No ruling in this case is going to change State Street.” (30-1 to 30-2; see also, Kennedy, 40-2 to 40-10)
Here’s the math:
Seven Justices (all but Alito and Thomas) expressed unease with both the current state of the law and any decision for Bilski that would reject the machine-or-transformation test. (Breyer, 6-5 to 7-4; Ginsburg, 5-22 to 6-1, 12-21 to 13-1, 39-17 to 39-22; Kennedy, 10-21 to 11-9, 18-4 to 18-9, 21-25 to 22-10; Roberts, 9-23 to 10-10, 22-16 to 22-18; Scalia, 16-1 to 16-17; Sotomayor, 7-7 to 7-12, 8-9 to 8-13, 14-5 to 14-9, 18-18 to 19-3, 20-17 to 21-11; Stevens, 14-24 to 15-8, 44-1 to 44-14)
Five Justices worried that a decision upholding the machine-or-transformation test might have unintended consequences for specific industries. (Alito, 27-16 to 27-22; Breyer, 31-8 to 32-4; Ginsburg, 47-18 to 48-3; Scalia, 30-22 to 30-24; Sotomayor, 28-3 to 28-12, 36-23 to 37-4).
Five Justices noted that future Bilskis could circumvent a decision against petitioner Bilski by using the computer-program-machine three-step outlined above. (Breyer, 46-10 to 46-23; Kennedy, 40-2 to 40-10, 44-15 to 44-16; Roberts, 33-8 to 33-18; 35-13 to 35-18; Sotomayor, 30-1 to 30-4; Stevens, 44-11 to 44-14, 45-19 to 45-22) Deputy Solicitor General Stewart admitted as much. (42-1 to 42-12; 43-13 to 43-21; 45-11 to 45-18).
Two Justices asked for a better test than the Federal Circuit’s machine-or-transformation test and got no answer. (Breyer, 9-1 to 9-17; 19-8 to 20-12; Sotomayor, 37-19 to 37-24)
So the Bilski math produces the following result, strange as it may seem:
7 + 5 + 5 + 2 = 0.
Apart from Bilski and those like him (who cannot now write computer programs and add new machine claims to their patents), nothing the good Justices may decide in Bilski will save our free-enterprise system from patent cancer.
Yet there is hope. The five Justices who noted or described the easy “machine” circumvention of any decision in Bilski seemed not to like the idea. So a definitive ruling on business-method and computer-program patents, which are intimately related, awaits the next case. In the meantime, patent lawyers will continue to claim business ideas one way or the other, and the scope of freedom in our free-enterprise system will continue to shrink.
