End of an era? Patentability of business method patents

Case raises questions about the patentability of business method patents, says CNET Blog Network contributor Matt Wermager.

Matt Wermager
Matt Wermager is a patent litigator at the law firm of Vinson & Elkins, LLP. Matt began his training in the art of persuasive argument at age 4, and coupled with his engineering background, has prosecuted patents and litigated disputes in a number of different technological fields. Click here for Matt's official law firm bio. The postings on this site were created for informational purposes only and do not constitute legal advice. Disclaimer.
Matt Wermager
3 min read

Maybe you are of a sufficient vintage to remember the game show Let's Make a Deal. But have you ever thought about the similarities between that show and the U.S. patent system?

In the game show, contestants would have to pay a price (a wallet containing $500) to see what was behind door No. 3 (maybe a live goat; maybe a brand new faux wood-paneled station wagon). Similarly, in the U.S. Patent and Trademark Office, the government pays a price (allowing a unique brand of monopoly) to see what is in envelope No. 3 (your invention). The analogy may seem far-fetched, but the basic premise is the same: that is, paying a price to see what is otherwise concealed. And even in the realm of patent law, sometimes the government ends up with...a goat.

Fortunately, unlike the game show, there are several ways the USPTO can get out of the deal even after the envelope is opened and the invention disclosed. To be worthy of a patent, the invention must be new, useful, and non-obvious. While the "new" and "non-obvious" requirements normally get most of the attention, the USPTO and the U.S. Court of Appeals for patent cases (the Federal Circuit) have taken a somewhat surprising approach in the past couple of months to back out of deals with potential patentees--rejecting patent applications on the basis of usefulness. In other words, the Federal Circuit has been deciding that certain classes of inventions just aren't patentable.

What is really creating a buzz in the patent world is that the USPTO and the Federal Circuit have recently addressed an almost decade-old class of patents that has developed a reputation as the runt of the litter as far as patents go--business method patents. Love them or hate them, the Federal Circuit's 1998 decision in the State Street Bank case has been widely interpreted to allow for the patenting of new and novel business methods. Since that case, the USPTO has been inundated with business method patent applications and, more specifically, software applications. The question is, will this trend continue?

When the USPTO rejects a patent application, the applicant can appeal that decision to the Federal Circuit, which is what happened in In re: Comiskey. That case focused on a patent application for a method of mediation and a corresponding piece of software for conducting the same. In upholding the USPTO's rejection of some of the claims of the patent application, the court held that an otherwise abstract idea is valid only if it "(1) [is] tied to a machine; or (2) creates or involves a composition of matter or manufacture." That is, unless your business method satisfies one of those two criteria, the deal is off.

Even more recently, the Federal Circuit issued an order that reveals that those judges would like to revisit the patentability of business methods as a whole, not just software patents. In In re: Bilski (PDF), the Federal Circuit decided that it wanted the "en banc" court (that is, all of the active judges on that court as opposed to the normal panel of only three judges that hear most cases) to consider the following questions:

1. Whether (Bilski's) patent application claims patent-eligible subject matter under 35 U.S.C. 101?

2. What standard should govern in determining whether a process is patent-eligible subject matter under section 101?

3. Whether the claimed subject matter is not patent-eligible because it constitutes an abstract idea or mental process; when does a claim that contains both mental and physical steps create patent-eligible subject matter?

4. Whether a method or process must result in a physical transformation of an article or be tied to a machine to be patent-eligible subject matter under section 101?

5. Whether it is appropriate to reconsider State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998), and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999), in this case and, if so, whether those cases should be overruled in any respect?

The Federal Circuit's last question suggests that it may be looking to overrule, narrow, or just clarify its holding in the State Street Bank case. In other words, the Federal Circuit could be trying to rein in business method patents, perhaps by more concretely defining if and when business methods are patentable. Argument in the Bilski case is scheduled for May--we'll keep you posted as it develops.