Friday, December 12, 2008

Inside Legal Services

Software and business method patents, post-Bilski

Earlier this month, the U.S. Court of Appeals for the Federal Circuit upheld a ruling by the U.S. Patent Office denying a patent for methods of hedging in commodities trading. The decision, In re Bilski, is significant because it raises the bar for “business methods” and software-related patents. Companies pursuing or enforcing such patents would be wise to survey the post-Bilski landscape.  The following questions offer a starting point for that analysis.

How does the Bilski decision affect “business method” and software patents?

The Bilski court reconsidered earlier decisions that had liberalized patent standards. These decisions brought a surge in e-commerce and software applications just as Internet-based businesses were taking hold. As a result, the number of patents directed at “business methods” — ways of finding, serving and keeping customers — and web technologies skyrocketed. Now, the Federal Circuit has retrenched, limiting patentability to inventions that are tied to a particular machine or that transform an “article” into a different state or thing.

Can I patent software running on a general purpose computer?

The Bilski court focused on data-processing methods, and did not address the patentability of hardware or software per se. A key question for the future is how the phrase “tied to a particular machine” will be applied to software patents. If interpreted narrowly — i.e., requiring the use of special-purpose computing hardware to receive a patent — many, if not most, business method and software patents may not survive. If it is read less restrictively, the status quo may prevail. In either case, patents for inventions implemented as software should include some structural and functional components in the patent application and the claims. Claims covering human activity are now seemingly a thing of the past.

Are there any other changes we should make to our applications?

Where possible, consider phrasing your invention in terms of a transformation of an “article” into a different state or thing. In Bilski, the court focused on what constitutes “articles” that can be transformed, but offered little concrete guidance. Certainly any physical object or substance is an “article.” Something representing a physical object or substance (e.g., a display showing an X-ray of a bone) also qualifies. Outside these limited boundaries, however, there are few guideposts. The court struck down Bilski’s patent because it was related to “business risks,” and the court said that such abstract concepts are not articles.  The closer an “article” is to a physical, tangible object the more likely it will satisfy the test, but the gulf between tangible things and their representation in software is wide and unexplored.

Can you give examples of what is and isn’t patentable under this standard?

Consider three inventions, each using a mathematical procedure to predict values. The first claims the math itself without any specific application or result. A second uses it to simulate the behavior of an airplane wing. The third invention uses the math to predict stock prices based on historical data.

Even before Bilski, the first invention could not be patented — mathematical techniques are free to all. But under pre-Bilski law, the others could be patented. In fact, many patents have been issued for such applications. Now, a literal interpretation of Bilski may require use of special-purpose hardware to save the third invention.

What should we do going forward?

Patents directed to business methods that do not involve the use of computers or other machines are clearly at risk and, possibly, no longer enforceable. The scope of patent protection under Bilski will be determined over time, as the new standard is digested by lower courts. Until then, companies that rely on patents to protect software or business methods should reconsider whether their claims cover implementations tied to a particular machine or involving the transformation of an “article.” They should also remain alert to new developments: The Patent Office has already begun to revise its standards in light of the Bilski decision.

Steven J. Frank, Robert S. Blasi and Joel E. Lehrer are intellectual property attorneys in Boston.