The good news is control of the market.
How are we gonna do that, Mr. Ross?
Some information is in front of you. We don't want to get too specific for security reasons. My task is to tell you what those things I can in layman's language. I think I can break it down sufficiently to give you a pretty firm idea.
How long could we hold on to it before the competition steals it?
We defend it, of course, tooth and nail. This is a proprietary process.
David Mamet, The Spanish Prisoner
Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.
But what is a process? It's been almost thirty years since the Supreme Court looked at the question of what sorts of processes are patentable. Back then, it was had to be "tied to a particular machine or apparatus," or needed to "transform a particular article into a different state or thing."
But what about mental processes -- and, in particular, business processes? Think about Amazon.com's method of recommending items, Netflix's rental movie delivery system, and Priceline's Dutch auction-style ticket-buying system -- all business methods which have applied for and received patents.
Bernard Bilski and Rand Warsaw told the Patent Office in 1997 that they had developed a highly useful method of using complex mathematical formulas to tell a business how to hedge against risk due to the rising and falling of prices of raw materials which they wanted to patent. The patent examiner rejected the invention, finding it was basically the solving of a math problem. The patent board of appeals agreed, concluding that the formulas involved non-physical matters beyond the scope of the patent law. And the Federal Circuit, which handles all patent appeals, agreed as well.
This is a huge deal. More amicus briefs were filed for Bilski than any other case you'll see. As one set of professors put it:
Limiting patent protection to physical transformations and specific machines would have problematic consequences for a variety of industries, including not only software but also pharmaceuticals and biotechnology. In these research-intensive industries, invention often consists not merely of making a new thing, but of harnessing a scientific principle or fact about the world to a new and useful end. New and nonobvious insights into which molecular structure might cure cancer, what ratio of measured chemicals in the human body indicates disease, and which form of an algorithm will properly measure the risk inherent in a debt instrument, should be patentable so long as they involve the practical application of the idea or discovery. By contrast, the scientific principle or fact itself should not be patentable, because it is merely an abstract idea, law of nature, or natural phenomenon.
The flipside was presented by, among others, the Electronic Frontier Foundation and other pro-innovation groups/persons:
If Mr. Bilski were allowed to patent his hedging method, he would be able to extract rents and potentially put out of business any individual or company who invests money or even advises others on investing in the same way as he does. In patent law, limiting competition is tolerable only when incentives are needed to promote technological progress. Bilski’s method, however, does nothing to advance the useful arts; in fact, one need not even use technology to invest as Bilski does.
Moreover, there can be little question that investment firms— exemplars of service-based businesses—already strive to develop innovative and effective investing methods in order to entice more clients. Thus, providing exclusive rights to a single individual or firm to control such methods goes against the core of patent policy.
Today's Supreme Court was unanimous that Bilski doesn't get the patent -- agreeing that while "machine or transformation" is an important test, it's not the only one -- but that Bilski's ideas are not patentable subject matter.
Justice Kennedy, for the five you'd expect, agrees that his "business methods" can't be patented but maybe some future mental processes can:
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. But there are reasons to doubt whether the test should be the sole criterion for determining the patentability of inventions in the Information Age. As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.
In the course of applying the machine-or-transformation test to emerging technologies, courts may pose questions of such intricacy and refinement that they risk obscuring the larger object of securing patents for valuable inventions without transgressing the public domain....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.
In light of these precedents, it is clear that petitioners’ application is not a patentable "process." Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk: "Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class." ... The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea... Allowing petitioners to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.
[T]he Court is quite wrong, in my view, to suggest that any series of steps that is not itself an abstract idea or law of nature may constitute a "process" within the meaning of §101. The language in the Court’s opinion to this effect can only cause mischief. The wiser course would have been to hold that petitioners’ method is not a "process" because it describes only a general method of engaging in business transactions—and business methods are not patentable. More precisely, although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a "process" under §101.
[Many, many pages of history follow.]
Since at least the days of Assyrian merchants, people have devised better and better ways to conduct business. Yet it appears that neither the Patent Clause, nor early patent law, nor the current §101 contemplated or was publicly understood to mean that such innovations are patentable. Although it may be difficult to define with precision what is a patentable "process" under §101, the historical clues converge on one conclusion: A business method is not a "process." And to the extent that there is ambiguity, we should be mindful of our judicial role. "[W]e must proceed cautiously when we are asked to extend patent rights" into an area that the Patent Act likely was not "enacted to protect," lest we create a legal regime that Congress never would have endorsed, and that can be repaired only by disturbing settled property rights.
Justices Breyer and Scalia concur (yes, them) to stress the areas on which all nine Justices agree:
[A]lthough the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything which produces a "useful, concrete, and tangible result," is patentable. "[T]his Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary." Indeed, the introduction of the "useful, concrete, and tangible result" approach to patentability, associated with the Federal Circuit’s State Street decision, preceded the granting of patents that "ranged from the somewhat ridiculous to the truly absurd." In re Bilski , 545 F. 3d 943, 1004 (CA Fed. 2008) (Mayer, J., dissenting) (citing patents on, inter alia , a "method of training janitors to dust and vacuum using video displays," a "system for toilet reservations," and a "method of using color-coded bracelets to designate dating status in order to limit ‘the embarrassment of rejection’ "); see also Brief for Respondent 40–41, and n. 20 (listing dubious patents). To the extent that the Federal Circuit’s decision in this case rejected that approach, nothing in today’s decision should be taken as disapproving of that determination.
In sum, it is my view that, in reemphasizing that the "machine-or-transformation" test is not necessarily the sole test of patentability, the Court intends neither to de-emphasize the test’s usefulness nor to suggest that many patentable processes lie beyond its reach.
So, what does it mean? I don't practice in this area of law, so I defer to friends who do. #1 says: "It's a huge victory for the status quo. The edges are blurry, they've always been blurry, and they're pretty much the same blurry. The border that the PTO was patrolling is a gray area that the court approves of. Bilski was just out of it. Business method patents go forward, as long as they're not absurdly algorithmic, and of course, I can't explain exactly what I mean by it."
And #2, our own profmatt, adds:
So what does this all mean? Well, honestly, it's hard to say. Because of how the court fractured, today's opinion doesn't give a whole lot of guidance to anyone other than Mr. Bilski, who doesn't get his patent. Can software programs be patented? Maybe, but they're going to face a more uphill process than they did before. What about efforts to patent complex financial structures and the like? Maybe, maybe not. It's really the equivalent of getting "Reply hazy, ask again" when you shake the Magic 8 Ball.
Because of how patents work, national uniformity is less of an issue than it might be in other cases. All patent cases go up to the Federal Circuit in Washington regardless of where they're brought. (The Federal Circuit also hears appeals from patent and trademark office decisions refusing patentability, which is where Bilski got its start.) At least in its original Bilski opinion, the Federal Circuit was pretty hostile to continuing to broaden the scope of patents. While SCOTUS' decision does dial back their outright hostility toward allowing any method patent, that's still going to be present at the lower court.
My guess? We're back at SCOTUS in 2-3 years on a similar issue, looking for more guidance. Indeed, we could be back at the court as soon as next term, as there's at least one cert petition (Prometheus v. Mayo), where the lower court invalidated a patent, applying Bilski. We'll probably have an order on that petition tomorrow, which will let us know how quickly we can expect some more answers.
Still to be recapped from today, the final day of the term: Free Enterprise Fund v. Public Company Accounting Oversight Board, in which a 5-4 Court decide that it's totally unconstitutional to have an executive branch board with members appointed by the SEC and removable only "for good cause shown" (with the SEC members under the President also removable only for good cause) ... but that the PCAOB can keep running anyway. I'll try to explain.