Appeal raises business method patent issues

WASHINGTON Wed May 7, 2008 1:53pm EDT

WASHINGTON (Reuters) - Software companies and other businesses are watching closely as a U.S appeals court weighs whether an inventor can patent an abstract process -- something that involves nothing more than thoughts.

The case could further define the scope of "business method patents," which were widely considered unpatentable until a 1998 ruling allowed them. The U.S. Patent and Trademark Office issued 1,330 such patents last year, up from 120 in 1997, according to figures on its website.

In this suit, Bernard Bilski and Rand Warsaw are challenging the patent office's rejection of their request for a patent on a method for managing the risk of sudden movements in energy costs.

Oral arguments in the U.S. Court of Appeals for the Federal Circuit are scheduled for Thursday.

Michael Warnecke, a former patent examiner and now a lawyer with Perkins Coie LLP, said the Bilski case is essentially another look at the court's 1998 "State Street" ruling which allowed the patenting of a plan to administer mutual funds.

"It's a frontal attack on... State Street," Warnecke said. "I think they're going to say that business method patents can be patented."

The Bilski case is being closely watched by companies which use business method patents such as Amazon's (AMZN.O) one-click method of buying products on the Internet.

Brian Kahin, an intellectual property expert with the Computer and Communications Industry Association, said he opposed granting patents for business methods because of the litigation that could result from inevitable, inadvertent infringement.

"There's so many patents and you're operating in an environment where you've got to have a lot of functionality," he said. "The more complex your product, the more potential there is that there's patents in there."

Bilski and Warsaw's process, which at least 10 utilities use, smoothes out fuel bills for homeowners and energy sellers.

"It's a win-win for both entities because your bill is known in advance and their earnings are known in advance," Warsaw told Reuters.

Bilski and Warsaw founded the company WeatherWise to sell services based on the method. Bilski is no longer with the company but Warsaw told Reuters recently that their process was also used by other companies without licensing.

"There are more programs done without us than with us. We think it's unfair, it's intellectual property," he said.

The patent office rejected their application in 2000, and the patent board upheld the rejection in 2006.

The federal circuit court, which hears all patent appeals, has agreed to hear the case en banc, which means all its judges with no financial stake in the matter will hear the case.

(Reporting by Diane Bartz; Editing by Tim Dobbyn)