Supreme Court to Decide If Business Methods and Software Are Patentable Under 35 U.S.C. § 101

June 2009

Supreme Court to Decide if Business Methods and Software are Patentable Under 35 U.S.C. § 101

BY STEPHEN KORNICZKY, AMY SIMPSON AND RYAN HAWKINS

On Monday, June 1, 2009, the United States patentable subject matter, the Bilski decision Supreme Court granted certiorari in the matter also upset the settled expectations of patent of Bilski v. Doll, agreeing for the first time since owners and the inventing public by calling into 1981, to address the scope of patent-eligible question the validity of thousands of issued subject matter under 35 U.S.C. § 101 and software and business method patents. promising to resolve an issue that has plagued the patent community. For the past 30 years, Undoubtedly, the Bilski decision appears to have the question of whether business method and raised more questions than it answered. software innovations should qualify for patent Although Bilski emphasized that the machine-or- protection has been debated among software transformation test is the only test for and financial services industries alike. This determining whether a process or method is controversy peaked in October 2008 when the eligible for patent protection, the court expressly United States Court of Appeals for the Federal declined to expand on what it means for a Circuit released its landmark and highly process invention to be “tied to a machine,” thus controversial In re Bilski decision. leaving the test open to inconsistent interpretations. In a dramatic shift from earlier precedents, the Federal Circuit in Bilski drastically narrowed the The fallout resulting from the Bilski decision has class of patentable inventions when it announced drastically affected patent prosecution before the the “machine-or-transformation test” as the United States Patent and Trademark Office (PTO) touchstone inquiry for determining whether a and resulted in inconsistent decisions in patent process qualifies as patent-eligible subject infringement litigations pending before the matter. Pursuant to the machine-or- district courts. For example, the PTO, seizing transformation test, an innovative process is upon the vagueness of the new machine-or- eligible for patent protection only if (1) it is tied transformation test, appears to have launched to a particular machine or apparatus, or (2) it an aggressive campaign to reject both business transforms a particular article into a different method and software patent applications as state or thing. In effect, the Bilski decision failing to recite statutory subject matter. precludes from protection those process Moreover, inconsistent interpretations of Bilski innovations lacking a physical and/or tangible among the district court judges have resulted in component. Moreover, in addition to contradictory rulings regarding the validity of significantly narrowing the boundaries of software patents. For example, Judge T. John

Ward in the Eastern District of Texas ruled that 4. Drastic policy changes endanger the Bilski decision did not apply to software- innovation and upset settled related patents. However, just a week earlier, expectations. Judge Marilyn Hall Patel in the Northern District of California invalidated the claims of a software Finally, the Petitioner will likely argue that the patent because the claims did not meet Bilski’s machine-or-transformation test disrupted settled patentability test. expectations of patent owners and the inventing public and cast doubt about the validity of The Supreme Court’s guidance on the thousands of patents that had issued prior to the boundaries of patentable subject matter is Bilski decision. certainly welcomed and, hopefully, will resolve the issue that has divided both the software and Respondent Government’s Arguments financial services industries for the past three 1. The machine-or-transformation test decades. The anticipated arguments, in support is drawn directly from Supreme of and in opposition to the Federal Circuit’s Bilski Court precedent. decision, are summarized below. The Government will contend that the Bilski Petitioner Bilski’s Arguments decision properly applied the machine-or- 1. The scope of patentable subject transformation test as described by the Supreme matter is broad. Court in Diamond v. Diehr, 405 U.S. 175 (1981), and thereby disavows any inconsistent decisions The Petitioner will argue that settled Supreme that may have conflicted with this test. Court jurisprudence and Congressional intent support a broad interpretation of patentable 2. Petitioner’s method is not a process subject matter including “anything under the sun eligible for patent protection. that is made by man” except for the “laws of In applying Supreme Court precedent, the nature, natural phenomena, and abstract ideas.” Federal Circuit properly found that Bilski’s 2. The machine-or-transformation test claimed method of hedging risk in the sale of is incongruous with a modern commodities is not drawn to patent-eligible information-based economy. subject matter under Section 101.

Requiring electronic or Internet-age inventions 3. Policy arguments are a red herring. to be either tied to a machine or result in a Finally, the Government is expected to argue physical transformation is a myopic test better that there is no merit to the Petitioner’s suited for Industrial Age inventions than modern contention that Bilski threatens emerging Information Age innovations. technologies because (i) the Federal Circuit 3. The practical effect of Bilski has emphasized that its decision does not been to stifle process patents. categorically exclude business methods (or other technologies) from patent protection, and (2) The machine-or-transformation test articulated Bilski’s claimed invention does not involve any of in Bilski is stifling innovation as the United States the frontier technologies that are arguably Patent and Trademark Office and the district threatened. court inconsistently apply the test to business method and software-related inventions. The uncertain fate of business method and software-related inventions in light of the Supreme Court’s pending review leaves many companies with questions as to what can be or 2

should be done in the interim. With respect to matter. Subsequently, a fully informed decision seeking patent protection for software and whether or not to continue prosecution can be business method innovations, consider filing made. provisional applications covering such inventions. Provisional applications are inexpensive, secure On the other hand, for software and business an early filing date, and provide a one-year method patents currently involved in litigation, it grace period before a final decision to formally may be possible to stay the litigation or table seek patent protection must be made. This one- any Section 101 issues pending a decision from year grace period may provide sufficient time for the Supreme Court. the Supreme Court to render its decision

regarding the scope of patent-eligible subject

If you have any questions concerning these developing issues, please do not hesitate to contact any of the following Paul Hastings lawyers:

San Diego Stephen S. Korniczky Amy E. Simpson Ryan B. Hawkins 858-458-3026 858-458-3042 858-458-3023 [email protected] [email protected] [email protected]

18 Offices Worldwide Paul, Hastings, Janofsky & Walker LLP www.paulhastings.com

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