Business Process Patents Little Clearer after Bilski Decision

Most people know about Amazon’s “One-click” buying method. Some people know it is patented, one of an increasing number of “business process or method” patents allowed by the Patent Office the past decade or so. Some of them may not be valid but it is not clear which, even after the long awaited Bilski decision. And these method patents are among the most prolific and growing segment of patent applications today.

Managers and attorneys concerned with business method patents and their validity were hoping for precision from the long expected decision in the Supreme Court case Bilski v Kappos, 561 US __, 129 S. Ct. 2735, 2010 US LEXIS 5521c. But when it was decided on 28 June what came out was still uncertain, except defeat for Mr. Bilski.

Bilski and his partner had “invented” a method of determining appropriate pricing for hedge transactions on, among other things, energy products. Every such transaction is a bet between two bettors (“Energy will cost more later.” / “Energy will cost less later.”). A bettor following Bilski’s method has a comprehensive mathematical way of analyzing weather and other data to optimally choose a price to pay for either side of the bet.

The Federal Circuit Court of Appeals two years ago had said—although in a split of the 12 judges into several opinions—that this patent was not valid under the Patent Act, because it neither required a specific computing machine nor did it transform matter. In June, the Supreme Court issued three separate opinions, in which some judges agreed with parts of some but not all. They all agreed on two things. First, the Patent Office was right to turn down Mr. Bilski. Two, the “machine or transformation” test was too narrow.

This article will not be an academic analysis of academic opinions. I will say that the majority opinion called for an expansive reading of the patent act, consistent with the growing nature of technology , while the “minority” (remember, all nine voted to deny the patent) spoke for a narrow reading consistent with what the technical words of the Patent Act meant more than 200 years ago. (Ironically, that minority is the same group who want to read the Constitution broadly to meet the needs of modern times. ) The problem for all 9—and all 12 of the earlier court—was the high level of abstraction in Bilski’s application.

The earlier, lower court had created this “specific machine or transformation of matter” test to kick out abstract patents. But it has problems. First, no one really takes “specific machine” seriously. If someone invents something that, for example, detects non-nitrogen explosives like TATP at the airport by hooking some sensor to a machine running any Windows version 98 or later, or any MAC OS 9.0 or later, it will be specific enough to get a patent. On the other end, no one takes matter transformation that seriously either. Cell phones transform energy, not matter, and they are full of patents, 100s of them. (Maybe all the federal judges have a deep understanding of Einstein’s principle of the duality of energy and matter.)

OK, so we get almost no predictive power from these three opinions. They are political, in the sense of preserving the appearance of a Court not too fractious. They criticize the Court of Appeals for being too strict, but not too harshly. They leave for another day, not too soon, the question what business methods are really patentable.

So, Bilski’s hedge-calculation invention is no good. What would the Court do with this 2006 patent awarded to four inventors from IBM: “Stateful business-to-business protocol exchange.” (No. 7,085,286 or just “’276”), described as “A method of communicating between two entities, each of the business entities utilizing a different communication protocol, wherein a business conversation is established between the entities.” It refers to orders, acknowledgements, shipping documents and invoices, etc, exchanged among, say, manufacturers and chain stores, where different companies observe different standards or “protocols” for data exchange.

No specific machine is said to be needed to implement the method, at least in the first seven claims, although as a practical matter one would use some sort of computer at each end of each B2B “conversation.” Nor is there a necessary transformation of matter. Claims eight through 19 do include a “B2B protocol exchange” to translate between protocols and to keep information about the threads of conversation between various suppliers and buyers. Presumably this uses computing hardware to do the translations and store data for the future, but nothing specific, whatever is efficient to use.

Is ‘286 a valid patent today? The description, involving an “exchange processor,” is abstract. IBM currently offers a “B2B Appliance XB60” that seems to be exactly what was claimed as a protocol exchange in their patent. But Mr. Bilski could have proposed an “appliance” into which one pours weather data and out of which pricing data pours. Would that have helped him a get a patent?

Pretty much everything computers do is abstract. I am typing this article on a word processor that makes the writing look like a typewritten page, for those who recall typewriters, but it is a bunch of data stored magnetically and displayed metaphorically by some application of solid-state physical chemistry. Is that too abstract to support any patents?

Potentially an appliance like IBM’s can have a large economic effect, since even between departments of a given company data are stored in widely different ways, and getting from one to another, or getting an order from one buyer to a supplier over the internet when they have each chosen different protocols, can have an impact. Multiply the impact by the number of commercial buy/sell transactions worldwide daily and it adds up to a valuable patent.

Why is not the ‘276 patent just as abstract as Mr. Bilski’s? The ‘276 deals with buyers ordering real stuff from suppliers, like bags of beans, pallets of computers, or cases of hog maws (linings of pig stomachs, for many different ethnic dishes). Mr. Bilski dealt with sales not of barrels of oil but of contracts to deliver barrels of oil in the future, when the price of a barrel is higher or lower than today. And he did not provide a way to buy or sell but to establish a price at which to buy or sell. It was just a couple of levels of abstraction too high to take out of the public domain and give someone a monopoly. Kind of like Justice Potter Stewart, who could not define hard-core obscenity, but knew it when he saw it. Jacobellis v. Ohio, 378 U.S. 184 (1964)

In business method patents, the more abstract the invention and the more economic activity it could affect—Bilski’s sought patent could have affected trillions of dollars of transactions—the less likely the patent will be upheld. Is that a bright-line rule? No, but we can see that economic activity affected and level of abstraction are the important factors weighed.

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