November 9, 2009 / 10:06 PM / 10 years ago

Supreme Court skeptical of patents for hedging

WASHINGTON (Reuters) - Supreme Court Justices seemed reluctant to allow hedging methods to be patented as it heard arguments on Monday that were closely watched by software, biotech firms and other industries.

Some software and biotechnology companies want the definition of what can be patented to be as broad as possible because they license those processes. Others, like some financial institutions, want restrictions on business method patents to avoid getting sued.

One of the best-known examples of a business method patent is Amazon.com Inc’s (AMZN.O) one-click process to buy goods on the Internet.

When Michael Jakes, arguing for the company WeatherWise, acknowledged that abstract ideas could not be patented, Chief Justice John Roberts pointed to a portion of the patent application, which is for a hedging method to allow users to make fixed energy payments even if usage and energy prices vary.

“How is that not an abstract idea?” he asked. “You initiate a series of transactions between commodity providers and commodity consumers. You set a fixed price at the consumer end, you set a fixed price at the other end, and that’s it.”

And the justices seemed dissatisfied with a distinction drawn by the U.S. Court of Appeals for the Federal Circuit that allowed business methods to be patented if they involve a machine or transformation.

Roberts was skeptical of the argument put forward by Malcolm Stewart, deputy solicitor general, who argued for the patent office, that use of a machine would draw a useful line between what should be patented and what should not be.

“You say ... the method isn’t patentable because it doesn’t involve a machine. But then you say but it might be if you use a computer to identify the parties that you are setting a price between and if you used a microprocessor to calculate the price,” he said. “That takes away everything that you spent 53 pages establishing.”

But if the court tosses out the rule that business method innovations that involve a machine or transformation can be patented, what new rule should take its place?

“How do we limit it (patentability) to something reasonable?” asked Justice Sonia Sotomayor.

A decision is expected by the end of June.

John Whealan, of George Washington University Law School, said, “Eight justices talked. They all seemed not to agree with the plaintiff’s argument.”

The case involves WeatherWise, a Pittsburgh company founded by Bernard Bilski and Rand Warsaw, to sell services based on hedging methods that allow users to make fixed energy payments even if usage or energy prices vary.

But when they tried to patent the hedging method, the U.S. patent office rejected it in 2000. The patent board upheld the rejection in 2006.

The case before the Supreme Court is: Bernard Bilski and Rand Warsaw, v. David Kappos. No. 08-964.

Reporting by Diane Bartz, editing by Leslie Gevirtz

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