Top court rejects a business method patent

WASHINGTON Mon Jun 28, 2010 7:23pm EDT

WASHINGTON (Reuters) - The U.S. Supreme Court unanimously rejected on Monday an effort to patent a way to hedge energy costs, but declined to shut the door on business method patents, saying the current criteria may be too narrow.

The most famous business method patent is perhaps Amazon.com Inc's one-click method to make a purchase, and the case involving a small Pittsburgh company was closely watched by a wide range of interests.

Some software and biotechnology companies wanted a broad definition of what can be patented because they license processes. Others, such as some financial institutions, wanted restrictions on business method patents to avoid lawsuits.

"The patent application here can be rejected under our precedents on the unpatentability of abstract ideas," Justice Anthony Kennedy wrote in the Supreme Court's majority decision.

But the court also said the current standard -- that the patented invention involve a machine or transformation -- could be a useful investigative tool but is not the sole test for deciding whether an invention is a patent-eligible process.

Stuart Meyer, a patent lawyer with Fenwick and West, said the opinion did little to rein in business method patents.

"The only bright line that we got out of today's ruling was that the machine or transformation test is not the talismanic test," said Meyer.

The top U.S. court did not offer an alternative standard, leaving companies with no clear guidelines on what future business methods can be protected.

"The decision is good for patent lawyers that represent business methods," said Scott Bain, litigation counsel for the Software and Information Industry Association, whose 500 members include Adobe, Symantec and Oracle. "It leaves questions unanswered."

The case before the Supreme Court involved Bernard Bilski and Rand Warsaw, who founded WeatherWise to sell services based on hedging methods.

Bilski and Warsaw had tried to patent the hedging method, which allows users to make fixed energy payments even if usage and energy prices vary. The U.S. patent office rejected the patent application in 2000, and the patent board upheld the rejection in 2006.

The U.S. Court of Appeals for the Federal Circuit, which specializes in patent cases, had rejected a patent on the hedging method in 2008 on the grounds that it did not involve a machine or result in a transformation of a material substance.

The Supreme Court upheld the appeals court decision to refuse the patent, but criticized the requirement that it involve a machine or transform a material object.

The Biotechnology Industry Organization (BIO) was pleased with the decision.

"This ruling specifically states that the 'machine-or-transformation test is not the sole test for patent eligibility' and recognized that the lower court's ruling could have created uncertainty in fields such as advanced diagnostic medicine techniques," said BIO President Jim Greenwood in an emailed statement.

Michael Jakes, who argued for Bilski, said he was disappointed by the decision to refuse his client's patent but pleased to see a broad interpretation of patentability.

"The court's decision will... keep open to patenting such fields as business methods, software, medical diagnostic methods, data compression, and the manipulation of digital signals," said Jakes, with the law firm Finnegan, Henderson, Farabow, Garrett and Dunner LLP.

The Supreme Court case is Bilski v. Kappos, No. 08-964.

(Reporting by Diane Bartz; Additional reporting by James Vicini; Editing by John Wallace, Maureen Bavdek and Tim Dobbyn)