Second Thoughts On Bilski: Could Another Case Get A Direct Ruling On Business Method Patentability?

Patents

from the not-done-yet dept

So, I already wrote one initial post on the Bilski ruling, where the court basically seems to punt on the larger questions of the patentability of business methods by focusing very narrowly on whether or not Bilski’s specific patent is valid. However, as you read through the “concurring” rulings (pdf), it does seem like many members of the court want, very badly, to outlaw business method patents, but weren’t able to do so this time around. The court really had one clear question to look at here: whether or not the Federal Circuit’s “machine or transformation” test for patents made sense. The court ruled that this was not the only test, so the Federal Circuit erred on that part, even if there were plenty of other reasons to reject Bilski’s specific patent. The majority opinion by Kennedy makes it clear that the court is not making any statements on what is “excluded” from patentability. But the concurring opinions seem to have a serious problem with this. There are two concurring opinions and both express concerns about business method patents.

The first is by Justice Stevens, joined by Justices Breyer, Ginsburg and Sotomayor. The second is written by Justice Breyer and joined by Justice Scalia. That makes five out of the nine justices expressing concern over why the court finds business method patents allowable. I’m certainly not an expert on the Supreme Court and how it works, but five out of nine seems like it should have been enough to get the majority. What’s a little odd is that Scalia did not join in Stevens’ concurring opinion, despite agreeing with it in Breyer’s. (Updated at the end of the paragraph). Effectively, it looks like the court was divided 4/4 with Scalia as the swing vote (how often does that happen?). I’ll leave it to Supreme Court experts to unravel that detail, though, at a first pass, I would note that ideologically, Scalia often seems at the other end of the political spectrum from Stevens, Breyer, Ginsburg and Sotomayor — who are often described as the “liberal” wing of the court, while Scalia heads up the “conservative” side. I’m hoping that general politics had nothing to do with his decision not to side with Stevens. Update: Aha. Scalia only joined in part of the Breyer concurring opinion — and not the part where he specifically complained about not tossing out business model patents. Of course, that seems odd. It’s not clear what Scalia is actually agreeing with then. To some extent, it sounds like he agrees on almost everything that the first concurring opinion stated… except maybe to a level of degree.

However, in recognizing that five out of the nine Justices do, in fact, see problems in allowing business method patents, it does appear that the court is very much open to potentially rejecting them in a future case. The Justices appeared to note that the court wasn’t really asked to rule on business method patents as a whole in this case, and so it did not. But that doesn’t mean a different case might not get a clearer ruling on the patentability of business methods (and, potentially, software).

The first (long, and well worth reading) concurring opinion from Stevens, joined by Breyer, Ginsburg and Sotomayor, indicate that they don’t believe business methods should, in fact, be patentable, and highlight a variety of problems with business method patents:

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.”

Stevens takes serious issue with the fact that the majority opinion relies on the fact that, following the Federal Circuit’s ruling in State Street, Congress passed the First Inventor Defense Act, as proof that Congress says business method patents are okay. The First Inventor Defense Act basically said that because most people didn’t think business methods were patentable, they shouldn’t be punished if they were already using a business method and someone else later patented it after the courts said it was patentable. To the majority, this is seen as evidence that Congress recognizes business method patents. Stevens finds that reasoning to be hard to swallow, as the whole point of the First Inventor Defense Act was to protect businesses from the harm of business method patents.

He then goes on to discuss how the patent system is supposed to be a balance and have limitations, which the majority opinion seems to ignore. He quotes recent research suggesting patents in certain areas may do more harm than good, and notes how many businesses did fine at creating new business methods without relying on patents, and expresses skepticism that business method patents do anything to promote progress (footnotes, and other citations edited out):

Many have expressed serious doubts about whether patents are necessary to encourage business innovation. Despite the fact that we have long assumed business methods could not be patented, it has been remarked that “the chief business of the American people, is business.” Federal Express developed an overnight delivery service and a variety of specific methods (including shipping through a central hub and online package tracking) without a patent. Although counterfactuals are a dubious form of analysis, I find it hard to believe that many of our entrepreneurs forwent business innovation because they could not claim a patent on their new methods.

“[C]ompanies have ample incentives to develop business methods even without patent protection, because the competitive marketplace rewards companies that use more efficient business methods.” Burk & Lemley… Innovators often capture advantages from new business methods notwithstanding the risk of others copying their innovation. Some business methods occur in secret and therefore can be protected with trade secrecy. And for those methods that occur in public, firms that innovate often capture long-term benefits from doing so, thanks to various first mover advantages, including lockins, branding, and networking effects. Business innovation, moreover, generally does not entail the same kinds of risk as does more traditional, technological innovation. It generally does not require the same “enormous costs in terms of time, research, and development,” and thus does not require the same kind of “compensation to [innovators] for their labor, toil, and expense.”

Nor, in many cases, would patents on business methods promote progress by encouraging “public disclosure.” … Many business methods are practiced in public, and therefore a patent does not necessarily encourage the dissemination of anything not already known. And for the methods practiced in private, the benefits of disclosure may be small: Many such methods are distributive, not productive–that is, they do not generate any efficiency but only provide a means for competitors to one-up each other in a battle for pieces of the pie. And as the Court has explained, “it is hard to see how the public would be benefited by disclosure” of certain business tools, since the nondisclosure of these tools “encourages businesses to initiate new and individualized plans of operation,” which “in turn, leads to a greater variety of business methods.”

In any event, even if patents on business methods were useful for encouraging innovation and disclosure, it would still be questionable whether they would, on balance, facilitate or impede the progress of American business. For even when patents encourage innovation and disclosure, “too much patent protection can impede rather than ‘promote the Progress of . . . useful Arts.'” … Patents “can discourage research by impeding the free exchange of information,” for example, by forcing people to “avoid the use of potentially patented ideas, by leading them to conduct costly and time-consuming searches of existing or pending patents, by requiring complex licensing arrangements, and by raising the costs of using the patented” methods. Although “[e]very patent is the grant of a privilege of exacting tolls from the public,” …. the tolls of patents on business methods may be especially high.

Breyer and Scalia’s concurring opinion kicks off with the same basic point in shorthand:

This Court has never before held that so-called “business methods” are patentable, and, in my view, the text, history, and purposes of the Patent Act make clear that they are not.

Basically, it looks like some of the Justices really badly want to make it clear that business method patents go way too far, beyond what the Constitution allows, but they came up just short (somehow) of being able to do that in this case (which, again, was really tasked only with reviewing whether or not the Federal Circuit’s “machine or transformation” test made sense). For whatever reason, they were unable to get that into the majority opinion. But that doesn’t mean they couldn’t potentially do so in the future.

Filed Under: bilski, business method patents, patents, software patents, supreme court