Most Software, Internet Patents at Risk or Just Bad Ones? Experts Disagree

Those most upset seemed to be the three dissenting judges. One warned that the nine-judge majority was undermining progress in the “Information Age.” The ruling follows Supreme Court slaps at the court’s decisions -- on when to issue injunctions for patent infringement, in the eBay case, and what counts as “obvious” and unpatentable, in KSR (WID Aug 30/07 p2). Dozens of companies, trade associations and private lawyers filed briefs in Bilski, including Yahoo, IBM, the Computer and Communications Industry Association, the Business Software Alliance and the Free Software Foundation.

To earn a patent, a business method must be “tied to a particular machine or apparatus,” or “transform a particular article into a different state or thing,” said Chief Judge Paul Michel. The court’s 1998 holding in State Street that a process must result in a “useful, concrete and tangible result” to be patentable is too loose and ignores Supreme Court precedent, he said. The Bilski patent application, rejected by the Patent and Trademark Office, covered a way for hedge funds to manage risk.

But the court majority declined to adopt any “categorical exclusions,” including against software -- the specific target of some filers -- beyond those prohibited “fundamental principles” set out by the Supreme Court. Michel seemed resigned to the eventual rejection of the court’s holding. “We agree that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade,” he said. The Supreme Court may “set aside this test to accommodate emerging technologies,” and the Federal Circuit may “refine or augment” its favored test.

The majority has created uncertainty, “the enemy of innovation,” said Judge Pauline Newman. “The innovations of the ‘knowledge economy’ -- of ‘digital prosperity’ -- have been dominant contributors to today’s economic growth and societal change,” yet the ruling would have excluded their patentability, she said. The decision is “contrary to statute, contrary to precedent, and a negation of the constitutional mandate” -- ignoring previous decisions such as Diehr, in which the court found that “computer- implemented processes” are covered by Section 101, the eligibility provision of the Patent Act, Newman said.

The decision links “patent eligibility to the age of iron and steel at a time of subatomic particles and terabytes,” Judge Randall Rader, next in line to become chief judge, said in a milder dissent. The majority should have just said Bilski had tried to claim an abstract idea, he said. “Today’s software transforms our lives without physical anchors. This court’s [machine-or- transformation] test not only risks hobbling these advances, but precluding patent protection for tomorrow’s technologies.” Judge Robert Mayer went the other way, saying there’s no indication Congress ever meant to make business methods patentable. Several Supreme Court decisions “implicitly tether patentability to technological innovation,” not business methods, he added.

Quick to Summary Judgment, Cheaper Licensing

Amazon’s one-click patent will almost certainly be challenged under Bilski, Bruce Wieder, Dow Lohnes patent practice chief and Georgetown University patent-law professor, told us. It’s not enough for a process to be tied to a machine “as a second thought” in the patent application. Software programs that enable semiconductor chips to run are probably safe, but “ethereal inventions” such as e-commerce processes are less secure, he said. If Wieder were being sued for patent infringement of such a process, “I would probably be working this weekend on my summary judgment motion.”

Courts will probably do more claim-by-claim analysis to weed out unpatentable business methods without necessarily rejecting or invalidating a patent, Wieder said. The ruling will require the PTO to rewrite its guidelines for examiners, who will have more justification to quickly reject applications for failing the section 101 test, he said. Companies that specialize in licensing patents will probably have to settle for lower fees from targets that may otherwise challenge their patents in court, Wieder said.

Though the majority said it wouldn’t decide whether “recitation of a computer” passes the machine test, the PTO already is basically treating such a process as invalid, Peter Brown, executive director of the Free Software Foundation, told us. The office has said that software loaded on “general purpose computers” alone wouldn’t qualify, he said, predicting a flood of rejections of software-patent applications. “The danger we face now is the lobbying for new legislation to impose software patents,” Brown said.

Trying to ‘Tease Out’ Answer from Supreme Court

“On balance, the opinion tries to strike a fairly good middle ground,” providing “backup” to the PTO’s efforts, Todd Dickinson, executive director of the American Intellectual Property Law Association and former PTO director, told us. He disagreed that Amazon’s one- click patent was in jeopardy, instead interpreting the ruling as mostly leaving alone computer-implemented processes. Jim Crowne, the association’s communications director, said patents on “dedicated devices” that run software should be safe, since they aren’t general-purpose computers. “By no means would I call it a slam dunk for anybody.” The main result will be to “clear out some of the underbrush” from the courts -- lawsuits filed by holders of patents that should never have been issued, Dickinson said.

The majority may be trying to “tease out… some kind of unified rule” from the Supreme Court on patent eligibility, Dickinson said. The Federal Circuit seems unhappy with trying to interpret 30-year-old Supreme Court decisions for the Internet age, Crowne said. Dickinson said he doubted the ruling would change Capitol Hill efforts at a patent overhaul. But he said it may lead previous supporters to conclude that the courts will settle the problems in patent lawsuits. Wieder said Congress should start over with a patent bill that omits the subjects recently decided by the Supreme Court and Federal Circuit. Lawmakers opposed to strong-arming settlements or licensing fees through patent litigation have a “pretty big arrow in their quiver,” he said.

A spokeswoman for Yahoo, which filed in the case, couldn’t provide comment on the ruling by our deadline. EBay, whose patent fight with MercExchange set a new Supreme Court standard for injunctions, and the Business Software Alliance couldn’t be reached for comment.