By: John C. Yates and John R. Harris
Morris, Manning & Martin, LLP

ATLANTA – On October 30th a leading U.S. federal court decided the major case of In re Bernard L. Bilski. This 100+ page court case could have a major impact on software and technology companies, especially those trying to obtain or enforce software patents in the U.S.

In this decision, the court re-established the “machine-or-transformation” test for patentability of a process.

In order to be patentable under U.S. law, a process technology must either be:

(1) tied to a particular machine or apparatus, or
(2) physically transform a particular article into a different state or thing.

Expect several immediate outcomes
Although the Bilski case doesn’t involve computer software, the implications for a software company may be enormous. Expect several immediate outcomes from this court decision –

• A “pure business method” patent claim is clearly not patentable. Such business method patent claims often set out broad, human-implemented type processes, without requiring the use of a computer.

• Software patents will need to be drafted very differently in the future to enhance the likelihood of the U.S. Patent Office agreeing to issue a software patent.

• Existing software patents may be challenged and attacked, particularly if the patent owner is trying to enforce rights against others.

The Bilski case involved a claim for a patent of a method to manage consumption risk costs of a commodity.

The claim recited a number of steps that were fairly broad and abstract, such as “initiating a series of transactions between [a] commodity provider and consumers,” and “identifying market participants,” and “initiating [another] series of transactions between said commodity provider and … market participants.”

No computer or software was involved in the claim.

The process could readily be carried out by a human being – without using any kind of machine. Nothing physical (not even data) appeared to be transformed.

The U.S. Patent and Trademark Office (USTPO) denied a patent for the inventors’ claims. The inventors then appealed to the Board of Patent Appeals and Interferences (BPAI), which upheld the rejection of patent.

A further appeal was taken to the Court of Appeals for the Federal Circuit.

The Court of Appeals not only accepted the appeal, but on its own initiative took the case before the entire court, not just the usual three judge panel.

The case was so important that thirty-nine friends of the court (“amicus”) filed briefs in an effort to influence the decision.

The decision was not unanimous – nine judges joined in the 32-page majority opinion (which establishes the ruling).

There were 100 pages of other opinions: two judges filed a separate concurring opinion, and three judges filed separate dissenting opinions. One dissenting opinion asserted that the majority did not go far enough in making business methods unpatentable.

Far reaching implications
The case is likely to have far reaching implications in the intellectual property world. Here are just a few of the expected implications of the court ruling:

• Already-issued patents that do not meet the new criteria may not be enforceable – meaning that many existing tech patents may be worthless.

• Pending patent applications that do not have technical disclosures sufficient to support a tie to a particular machine or a physical transformation may never be issued by the Patent Office.

• Pending patent applications may need to be amended to add claim sets to emphasize machine ties or transformations, if the applications can support a particular machine tie or some arguable kind of transformation.

• Companies involved with ecommerce, financial services, business methods, insurance, payment systems, and many forms of computer software, will have to rethink their patent strategies.
In summary, patent protection for software and technology companies will be more difficult to obtain and existing patents will be harder to enforce.

Lack of clarity
And finally, to confirm the lack of clarity provided by the decision, consider this passage from the court case:

“The raw materials of many information-age processes . . . are electronic signals and electronically-manipulated data.

And some so-called business methods, such as that claimed in the present case, involve the manipulation of even more abstract concepts such as legal obligations, organizational relationships, and business risks.

Which, if any, of these processes qualify as a transformation or reduction of an article into a different state or thing constituting patent-eligible subject matter?”

The court did not answer this question, and indeed specifically saw no reason to expand the boundaries of what constitutes patent-eligible transformations of articles.

The Bilski case raises many questions that will only be answered by further court decisions or possible Congressional action. There is a distinct possibility that an appeal to the U.S. Supreme Court will follow.

John Yates and John Harris are partners in the Technology Group of the law firm of Morris, Manning & Martin, LLP (www.mmmlaw.com) with offices in Atlanta and the Southeast. They can be reached at jyates@mmmlaw.com; jharris@mmmlaw.com.

This column is presented for informational and educational purposes and does not necessarily represent the views or positions of our firm or its clients.

The information contained herein is of a general nature and is not intended to provide legal advice to or address the circumstances of any particular individual or entity. No one should act on this information without appropriate professional advice after a thorough examination of the particular situation.

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