Business Method Patents for Business Process Sourcing : Strategies for Hedging Your Bets when Strategies for Hedging Weather Futures are Unpatentable under U.S. Supreme Court’s Bilski Decision
Posted June 30, 2010 by Bierce & Kenerson, P.C. · 
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Business process outsourcing (BPO) has led many entrepreneurs and their investor cousins (sometimes called “patent trolls”) to seek patent protection for their business methods. The long-awaited decision of the U.S. Supreme Court in Bilski v. Kappas, 561 U.S. ___ (June 28, 2010) was anticipated to lay down the groundwork for defining the parameters of patentable business methods. Its decision disappoints the more than 60 parties that filed briefs on both sides of the debate over what is patentable.
The Bilski Decision. The case inspired multiple opinions, leading to different majorities for different propositions.
Unanimously, all nine Justices agreed that the patent for hedging financially against weather-related losses in the energy industry was too abstract, citing the Court’s precedents that provide three specific exceptions to the broad patent-eligibility principles of 35 USC Section 101: “laws of na¬ture, physical phenomena, and abstract ideas.”
The majority ruled that the patent should not have been granted. That was the easy part of the decision. The hard part was to identify why that particular patent should not have been granted.
A smaller majority invited the Federal Circuit court to propose an alternative or supplemental statement of the legal test for patentability that is now used, the “machine or transformation” test. This test permits patentability only if the process is used in a machine or transforms physical properties. Justice Kennedy’s majority opinion expressly refrained from adopting any new legal test for “any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.” (Slip Op., pp. 9-10).
Justice John Paul Stevens, for the minority of four (himself and Justices Ginsburg, Breyer and Sotomayor), criticized the “tepid disposition” of the case by the majority. He argued that the First Inventor Defense Act of 1999, 35 USC Section 273, only protects first inventors from claims, and is not to be construed to modify the general test of patentability under the 1952 Patent Act. (Slip Op., p. 34-36). “The [1999] Act merely limited one potential effect of that decision: that businesses might suddenly find themselves liable for innocently using methods they as¬sumed could not be patented.” (Slip Op., p. 34). As a matter of statutory construction, he concluded “In light of its history and purpose, I think it obvious that the 1999 Congress would never have enacted §273 if it had foreseen that this Court would rely on the provision as a basis for concluding that business methods are pat¬entable. Section 273 is a red herring; we should be focus¬ing our attention on §101 itself.” (Slip Op., pp. 37-38).
On this basis, Justice Stevens, concurring, concluded that “methods of doing business” are not “processes” eligible for patent protection under 35 USC Section 101, and that a too-expansive grant of patent protection would impede economic progress. “The primary concern is that patents on business methods may prohibit a wide swath of legitimate competition and innovation.” (Slip Op., p. 43).
Intellectual Property Strategies for Business Process Protections, after Bilski. Enterprises hiring service providers normally demand indemnification for patent breach. Service providers now need to refocus their intellectual property strategies on ways to deal with the inconclusiveness of the Bilski majority decision under Justice Kennedy. This means:
o Trade Secrets. Enterprises should refocus on their policies, procedures and “idea farming” activities under trade secrecy. The implementation should be directed towards ensuring that only a few trusted individuals know the entire secret formula.
o Challenge the BPM Patent Trolls. Justice Stevens was inciting business executives not to succumb too quickly to patent trolls. Patent laws were not intended to create a new class of “speculative schemers who make it their business to watch the advancing wave of improvement, and gather its foam in the form of patented monopolies, which enable them to lay a heavy tax upon the industry of the country, without contributing anything to the real advancement of the arts.” (Slip Op., p. 45, citing Atlantic Works v. Brady, 107 U. S. 192. 200 (1883).
o Antitrust Laws. Patents grant monopolies, while antitrust laws ban monopolies in restraint of trade. Antitrust litigation offers a further avenue of attack against patent trolls. Prosecution of antitrust laws can be done both by regulatory enforcers (DOJ, FTC) or private plaintiffs. Business method patents are dangerously close to business practices, so a patent troll relying on such patents would need to be willing to risk a treble damage claim plus payment of the plaintiff’s attorneys’ fees.
o Link the Process to the Machine-or-Transformation Criteria. As BPO virtualizes with telecom, virtualization software in the public (or private) “cloud,” BPO patents will be increasingly challenged to fit within the “machine-or-transformation” test, or some unknown, unpredictable CAFC future interpretation. Defensively, businesses that use machines simply for processing and transmission might not meet a new CAFC test. Offensively, the business methods should be tied to automation concepts where machines take action. The difference, then, is that introducing human agents cuts back on patent protection rights, as well as possible infringement claims.
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