June 2010

Bilski v. Kappos: Does the Horse Whisperer Spell Doom for Business Method Patents?

9 min

Nearly eight months after it had been argued before the Supreme Court, many wondered whether Bilski v. Kappos would ever be decided.  Some speculated that the Court would decide that certiorari had been improvidently granted.  Others mused that it would be a book end opinion by the soon-to-be-retired Justice John Paul Stevens.  Few could have guessed that it would come down to the thoughts of a horse whisperer.

Justice Antonin Scalia had as much to say as most any other member of the Court during oral argument, but his question to Petitioners' counsel brought the house down with laughter.

JUSTICE SCALIA:  You know, you mention that there are all these -- these new areas that didn't exist in the past because of modern business and whatnot, but there are also areas that existed in the past that don't exist today.  Let's take training horses.  Don't you think that -- that some people, horse whisperers or others, had some, you know, some insights into the best way to train horses?  And that should have been patentable on your theory.
 MR. JAKES:  They might have, yes.
 JUSTICE SCALIA:  Well, why didn't anybody patent those things?
 MR. JAKES:  I think our economy was based on industrial process.
 JUSTICE SCALIA:  It was based on horses, for Pete's sake.  You --
 JUSTICE SCALIA:  You would really have thought somebody would have patented that. 1

No one there could have predicted that the patentability of business methods potentially swung in the balance of this curious dialogue.

The unanimous opinion of the Court was that the method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price invented by Bernard L. Bilski and Rand A. Warsaw was an abstract idea.  As a result, it was not eligible for patent protection under 35 U.S.C. § 101.  The Court's unanimity, however, went one step further.

In their petition for a writ of certiorari, Petitioners asked:

Whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. § 101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for "any" new and useful process beyond excluding patents for "laws of nature, physical phenomena, and abstract ideas."

Whether the Federal Circuit's "machine-or-transformation" test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect "method[s] of doing or conducting business."  35 U.S.C. § 273.

Justice Anthony Kennedy, delivering the opinion of the Court, answered Petitioners' first question in the negative.

The Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test.  It is true that Cochrane v. Deener, 94 U.S. 780, 788 (1877), explained that a "process" is "an act, or a series of acts, performed upon the subject matter to be transformed and reduced to a different state or thing.  "More recent cases, however, have rejected the broad implications of this dictum and, in all events, later authority shows that it was not intended to be an exhaustive or exclusive test.  Gottschalk v. Benson, 409 U.S. 63, 70 (1972), noted that "[t]ransformation and reduction of an article 'to a different state or thing' is the clue to the patentability of a process claim that does not include particular machines."  At the same time, it explicitly declined to "hold that no process patent could ever qualify if it did not meet [machine or transformation] requirements."  Id., at 71.  Flook took a similar approach, "assum[ing] that a valid process patent may issue even if it does not meet [the machine-or-transformation test]."  437 U.S., at 588, n. 9.

This Court's precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101.  The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible "process." 2

In admonishing the Federal Circuit yet again, the Court avoided answering Petitioners' second question and gave little guidance in determining whether inventions claiming business methods are patentable.

Justice Scalia is the unknown element.  As noted above, Justice Kennedy delivered the opinion of the Court, which Chief Justice Roberts and Justices Thomas and Alito joined in full.  Justice Scalia also joined, except for Parts II-B-2 and II-C-2.  Justice Stevens delivered his "book end" opinion (concurring in the judgment), which was joined by Justices Ginsburg, Breyer, and Sotomayor.  Justice Breyer delivered a third opinion (also concurring in the judgment), which Justice Scalia joined, but only as to Part II.

Why Justice Scalia seemingly avoided the issue of business method patents altogether is curious.  Perhaps he — or the horse whisperer for that matter — recognized the inconsistencies in Justice Kennedy's opinion.  In part II-C-2, for example, Justice Kennedy wrote:

Interpreting § 101 to exclude all business methods simply because business method patents were rarely issued until modern times revives many of the previously discussed difficulties.  See supra, at 8–9.  At the same time, some business method patents raise special problems in terms of vagueness and suspect validity.  See eBay Inc. v. MercExchange, L.L.C., 547 U. S. 388, 397 (2006)(KENNEDY, J., concurring).  The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks.  If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change. 3

Justice Scalia may have been merely asking, sotto voce, whether issues of patentability under 35 U.S.C. § 101 should be confused by considerations under 35 U.S.C. §§ 102, 103, or 112.

Or, it might be the case that Justice Scalia thought a proper balance could be struck between protecting inventors and not granting monopolies on business method patents.  For example, in part II-B-2, Justice Kennedy wrote:

It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.  This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law.  With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles.  Nothing in this opinion should be read to take a position on where that balance ought to be struck.

What seems clear is that Justice Scalia did not want to say, as Justice Breyer said:

I agree with JUSTICE STEVENS that a "general method of engaging in business transactions" is not a patentable "process" within the meaning of 35 U. S. C. §101.  Ante, at 2 (STEVENS, J., concurring in judgment).  This Court has never before held that so-called "business methods" are patentable, and, in my view, the text, history, and purposes of the Patent Act make clear that they are not.  Ante, at 10–47.  I would therefore decide this case on that ground, and I join JUSTICE STEVENS' opinion in full.

That is, he did not want to side in favor of an outright prohibition of business method patents.

To be fair, Justice Scalia wasn't the only member of the Court to engage in fallacious argument.  The newest member of the Court asked:

JUSTICE SOTOMAYOR:  So how do we limit it to something that’s reasonable?  Meaning, if we don't limit it to inventions or to technology, as some amici have, or to some tie or tether, borrowing the Solicitor General's phraseology, to the sciences, to the useful arts, then why not patent the method of speed dating? 4

Justice Breyer followed:

JUSTICE BREYER:  So you are going to answer this question yes.  You know, I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake.  They learned things --
 JUSTICE BREYER:  It was fabulous.  And I could probably have reduced it to a set of steps, and other teachers could have followed it.  That you are going to say is patentable, too?
 MR. JAKES:  Potentially. 5

Even the Chief Justice chimed in:

CHIEF JUSTICE ROBERTS:  What -- I'm looking at your claim 1, in Joint Appendix page 19 to 20.  How is that not an abstract idea?  You initiate a series of transactions between commodity providers and commodity consumers.  You set a fixed price at the consumer end, you set a fixed price at the other end, and that's it.
I mean, I could patent a process where I do the same thing.  I initiate a series of transactions with sellers.  I initiate a series of transactions with buyers.  I buy low and sell high.  That's my patent for maximizing wealth.
I don't see how that's different than your claim number 1.
MR. JAKES:  If that was a novel and unobvious method, then it should be patentable, but it's eligible as subject matter -- 6

But only Justice Scalia avoided the clear cut choice of whether inventions claiming a business method are patentable.

Justice Stevens, whom many thought would be the likely author of the Court's opinion in Bilski v. Kappos, had been the most openly hostile member of the Supreme Court to the concept of patentability of computer-implemented inventions.  This hostility became evident at the very beginning of his career on the high court, in his first patent opinion, Parker v. Flook, 437 U.S. 584 (1978).  That was followed three years later in the 5-4 case Diamond v. Diehr, 450 U.S. 175, 193 (1981)(STEVENS, J., dissenting), where he was joined by Justices Brennan, Marshall, and Blackmun.  Nearly two decades later, in denying certiorari of AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), he took the unusual step of adding a statement "respecting the denial of the petition for writ of certiorari," noting that:

The importance of the question presented in this certiorari petition makes it appropriate to reiterate the fact that the denial of the petition does not constitute a ruling on the merits.  See Carpenter v. Gomez, 516 U. S. 981 (1995) (opinion of STEVENS, J., respecting denial of certiorari); Maryland v. Baltimore Radio Show, Inc., 338 U. S. 912, 917–919 (1950) (opinion of Frankfurter, J., respecting denial of certiorari). 7

With Justice Stevens' retirement, will Justice Scalia assume the mantle in the defense against business method patents?  Or will Justice Stevens' successor to the Court listen to the horse whisperer?  Only time will tell.  But, for now, owners of computer-implemented inventions would do well to ensure that they are claimed in a manner that passes muster under the machine-or-transformation test.

1 Official Transcript, PROCEEDINGS BEFORE THE SUPREME COURT OF THE UNITED STATES, Monday, November 9, 2009, p. 16.
2 Slip op. at pp. 7-8.
3 Slip op. at pp. 11-12.
4 Official Transcript, p. 7.
5 Id. at p. 9.
6 Id. at pp. 9-10.
7 528 U.S. 946, 946-47 (1999).