The high court says the test for business method patents is too rigid. The software industry, among others, is poised to benefit.
In a ruling delivered Monday, the U.S. Supreme Court opened the door for innovation by easing restrictions for acquiring business method patents, with the software, biotechnology and gambling industries the most likely to benefit.
The court ruled in Bilski v. Kappos that the test for business method patents – of which Amazon.com's "one-click buying" may be the most famous – is too rigid. Under the test, the patented invention needs to involve a machine or a transformation in which a particular article is transformed into a different state or thing. The court did not provide any new guidelines, however, leaving companies with no clear idea of what business methods could be patent-protected.
Still, unless subsequent cases force the court to hand down specific rules, the decision will likely make it easier for companies to protect innovations.
The court heard arguments in the case on November 9, but waited until the last day of its 2009-2010 term to issue a ruling, a sign of a struggle to make a decision. The case has been closely watched in multiple industries, including software and biotechnology, which hoped for lots of leeway on what can be patented because they license processes. The gambling industry was also highly interested, because patents give casinos exclusive use of a product for 20 years.
"Most of my clients are relieved," Robert Plotkin, a patent attorney representing software clients, told the Boston Globe.
Bernard Bilski and Rand Warsaw founded a Pittsburgh company called WeatherWise USA and attempted to patent a method for calculating how weather factors might impact energy prices. They landed in court after the patent office denied their 1997 application. The Washington Appeals Court ruled the process couldn't be patented because it wasn't tied to a machine or apparatus. The Supreme Court unanimously upheld the decision to refuse the patent, but took issue with the patent requirements.
"The patent application here can be rejected under our precedents on the unpatentability of abstract ideas," Justice Anthony Kennedy wrote in the Supreme Court decision. He added that the court is not going to "adopt categorical rules that might have wide-ranging and unforeseen impacts."
"The machine-or-transformation test may well provide a sufficient basis for evaluating processes similar to those in the Industrial Age – for example, inventions grounded in a physical or other tangible form," he wrote. "But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age."
Kennedy specifically highlighted the patent eligibility of "software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression and manipulation of digital signals."
Warsaw told the Pittsburgh Tribune-Review that Monday was "a very bad personal day" but said that the court's ruling is a big win for innovators.
"The patent office was trying to use 19th century standards for 21st century technologies," Warsaw said. (Bilski is no longer with the company.) The pair's lawyer, J. Michael Jakes, told the New York Times that they aren't giving up on their patent, though: they plan to rework and resubmit it to the patent office.
The U.S. is one of the few countries that grants business method patents, so the case also has been watched closely from overseas.
"This will likely lead to increased uncertainty among industry professionals and practitioners," said John Collins, a partner at the London law firm of Merks and Clark. "The floodgates have been opened, but it is far from clear where the waters will settle."
Inc. contributing editor COURTNEY RUBIN was for five years a London-based staff writer for People magazine. Rubin, a former senior writer for Washingtonian magazine, has written for the New York Times magazine, Time, Marie Claire, and other publications. She is the author of The Weight-Loss Diaries.