The Supreme Court, as expected, dealt the final blow to Pittsburgh inventor Rand Warsaw's dream of patenting a method for hedging energy costs against changes in the weather. In doing so, however, the court didn't upset the foundations of the multibillion-dollar world of "business method patents," which are based less on a particular machine than a process for achieving some practical end.
It was an anticlimactic end to a case whose decision was so long delayed that some speculated the justices were deadlocked over how far to rein in what some see as an out-of-control patent process. Instead, the court rejected a narrow test that would require patents to involve a machine or transformation of matter and merely said patents can't cover an abstract idea.
"It looks like what people actually thought it would be, before it took forever," said John Dragseth of Fish & Richardson in Minneapolis. "Not much has changed from what thoughtful people thought the law should be."
The decision, penned by centrist Justice Anthony Kennedy, says the machine or transformation test is "a useful and important clue, an investigative tool," but not the sole test of whether something can be patented. The appeals court rejected the Bilski patent in stronger terms that suggested all patents lacking this qualification would be invalid.
By rejecting the narrow approach of the federal circuit, the court is eschewing artificial limits on patentability," said Andrew Pincus, a partner at Mayer Brown in Washington who represented the Business Software Alliance in briefs presented to the court.
Pincus wouldn't offer an opinion as to how the decision might limit future software patents -- he's an advocate, after all. The decision leaves for future litigation questions about whether software that involves an algorithm based on natural laws, for example, or patents on certain medical procedures will survive review.
"When you have something that's more than abstract, but still preempts a law of nature or natural phenomenon, what do you do?" said Dragseth, who represents the Mayo Clinic in a case over a medical procedure that seems to mimic the normal thought processes of a physician.
The Bilski decision is "a cautious effort to limit what they're going to do in a very special case," he said. "They know there's danger out there if they're not careful."
The court went out of its way to avoid saying anything specific about software and other patents that don't specifically involve machines. This statement sums up the majority's refusal to take a firm stand:
"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."
The Supreme Court first upheld a software patent in 1981, involving software controlling a process for curing rubber, and since then patents have become a vital bulwark protecting the assets of big companies like IBM and Microsoft.
A federal appeals court first approved business method patents in a 1997 decision involving State Street Corporation. That same year, Amazon.com won a patent for its one-click ordering system, which struck many critics as being too obvious and unconnected with machinery to be patentable. Amazon.com immediately went after rivals in the new Internet retail industry seeking royalties for its supposed innovation.
While the patent system is enshrined in the Constitution, Congress has the job of specifying the rules. Current law allows patents on a “process,” unhelpfully defined as a “process, machine, manufacture, composition of matter, or material.”
Warsaw and Bilski began working on a hedging system in the early 1990s designed to shelter both consumers and utilities against big swings in energy prices and demand. While the idea is commonplace now –weather derivatives and energy hedging are both booming businesses – Warsaw says he and his partner were at the cutting edge when they designed their system.
“When I started on this concept in early 1990s, it wasn’t obvious,” Warsaw told Forbes last year. “There was absolutely no weather hedging going on.”
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