US court mulls standard for business method patents

By Diane Bartz

WASHINGTON, May 8 (Reuters) - A U.S. appeals court heard arguments on Thursday over whether a patent should have been issued for a method to reduce the risk of sudden changes in energy costs.

The case could further define the scope of "business method patents" and is being closely watched by software makers, Internet companies, investment houses and other businesses.

The U.S. Court of Appeals for the Federal Circuit, which validated business method patents in a 1998 ruling, heard the case as a 12-judge panel.

Bernard Bilski and Rand Warsaw are challenging the U.S. Patent and Trademark Office's rejection of their request to patent their method for managing energy price risks.

Their attorney, David Hanson, argued that Bilski's method should be patented because it was useful, tangible and concrete. "(It is) unique in that it manages consumption risk," said Hanson, who denied that Bilski's patent was entirely abstract.

Raymond Chen, arguing for the patent office, said Bilski's process was not patentable because it involved nothing physical and no process to create any changes, as in an electrical circuit.

"This isn't a transformation," he said, citing one of the standards the U.S. Supreme Court has set for patentability.

Judge Alan Lourie pressed Chen on whether Bilski's patent would have been approved if a computer were used. "Isn't a computer mental steps by a machine?" he asked.

The judges also discussed what transformation meant. For example, one asked, is a baseball transformed if it is thrown as a curveball?

"Does it (transformation) require that a baseball turn into a green pea or something?" asked Judge William Bryson.

The patent office issued 1,330 business method patents last year, up from 120 in 1997, according to figures on the agency's website.

Pavan Agarwal, an intellectual property litigator with Foley & Lardner LLP, who listened to the arguments, said he could not tell which way the judges would rule.

"The court was seeking help in... deciding what was the right standard for determining what was eligible for a patent," said Agarwal.

Bilski and Warsaw's process, which at least 10 utilities use, smooths out fuel bills for homeowners and revenues for energy sellers. They founded the company WeatherWise to sell services based on the method.

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