Business Method & Software Patents Survive Biliski v. Kappos

In Biliski v. Kappos the United States Supreme Court issued its long-awaited decision on business method patents.   The bottom line:  business method patents are still recognized as patentable inventions.  By implication, software patents (called into question by the Federal Circuit’s en banc decision in the case below) also remain alive.

Biliski involved a patent claim for hedging the risk of price fluctuations in the economy.  The patent examiner rejected the patent application, explaining it “‘is not implemented on a specific apparatus and merely manipulates [an] abstract idea and solves a purely mathematical problem without any limitation to a practical application, therefore, the invention is not directed to the technological arts.”

The examiner’s rejection was affirmed by the Board of Patent Appeals and by the Federal Circuit Court.  However, in its en banc decision (that produced 5 separate opinions), the Federal Circuit took the additional step of declaring that a method was only patent eligible if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a differentstate or thing.  This test is known as the “machine-or-transformation test.”

Because the vast majority of software applications are designed only for a “general purpose” computing machine, the question remained after the Federal Circuit’s Biliski opinion as to whether software patents were patentable at all.

The US Supreme Court affirmed the examiner’s rejection of this particular patent application, but rejected the “machine-or-transformation” test imposed by the Federal Circuit and, in its final opinion of the October, 2009 term, restored a degree of normalcy to patent practice in the United States.

The signature of this Supreme Court in the past 12 years of patent decisions has been to end the various “bright-line” tests for patentability established by the Federal Circuit Court of Appeals, in favor of “functional” tests that can only be determined in a courtroom, after input from expert witnesses on both sides of the patentability test.

This approach to patent law was continued in Biliski v. Kappos.  The majority opinion, authored by Justice Kennedy, used traditional rules of statutory construction to reach its opinion that the “machine-or-transformation” test was just one method for determining patentability of a business method patent–not the only method.

The majority reasoned that 35 U. S. C. §273(b)(1), in an infringement action, creates a prior-use defense against “a method in [a] patent;”  ipso facto §273 implies a broad definition of the statutory term “method.”  The Court explained:

For purposes of this defense alone, “method” is defined as “a method of doing or conducting business.” In other words, by allowing this defense the statute itself acknowledges that there may be business method patents. Section 273’s definition of “method,” to be sure, cannot change the meaning of a prior-enacted statute. But what §273 does is clarify the understanding that a business method is simply one kind of “method” that is, at least in some circumstances, eligible for patenting under §101.

The majority opinion reasoned that if business methods are not patentable in any circumstances, §273 would be rendered meaningless.  “This would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous.”

Thus, rather than adopting categorical rules that “might have wide-ranging and unforeseen impacts,” the Court resolved Biliski narrowly: (1) on the basis of standard statutory construction, and (2) on the basis of previous decisions (Parker v. Flook and Diamond v. Diehr) which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas.

In a separate opinion concurring in the result, Justice Stevens (in his last written opinion on the Court) rejected the majority’s approach to statutory construction in patent cases.  A long-time opponent of software patents, Justice Stevens argued that:

[T]he Court at points appears to reject the well-settled proposition that the term“process” in §101 is not a “‘process’ in the ordinary sense of the word,” Flook, 437 U. S., at 588. Instead, the Court posits that the word “process” must be understood in light of its “ordinary, contemporary, common meaning.”  Although this is a fine approach to statutory interpretation in general, it is a deeply flawed approach to a statute that relies on complex terms of art developed against a particular historical background. [Emphasis added.]

While there are many possibile interpretations of the Court’s opinion, I believe this focus is possibly the most instrucive to clients and counsel anticipating patent litigation: the Court will continue to decide patent cases according to standard rules of construction, while ignoring (for the most part) the complex terms of art developed against a particular historical background. Indeed, this has been the pattern of Court decisions for at least the past 12 years. See, The End of Bright-Line Tests in Patent Litigation.

General commercial litigation typically involves the standard rules of statutory construction applied by the US Supreme Court in Biliski.  However, historicially patent litigators have generally dealt with more constrained, concrete and predicatible rules of construction–more in keeping with the predicability desired by scientists and mathmeticians involved in the world of patenting. 

If there is an overriding lesson to take away from Biliski, I believe it is this: bright-line tests in patent litigation no longer exist (for the foreseeable future).  Going forward, patent litigation will require nuanced argument, with expert interpretation, similar to practice in general commercial litigation.  This will exponentially increase the cost burden associated with patent litigation.

The majority opinion was authored by Justice Anthony Kennedy; joined (except for sec. II) by Justice Scalia, and by the remainder of the conservative wing of the Court: Justice Thomas, Chief Justice Roberts and Justice Alito.   The makeup of this majority reflects the statutory-construction basis for the decision.

Mr. Justice Stevens’ concurring opinion was joined by the liberal wing of the Court: Justice Sotomayor, Justice Ginsberg and Justice Breyer.