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United States Supreme Court To Hear Software Patent Case

Submitted by: Douglas Kim on Jun 22, 2009 at 9:01 pm Tagged with: Intellectual Property, McNair, open source, Patent, software patent, United States Supreme Court Source: Doug Kim.

In 1998, the Federal Circuit held that business methods were patentable subject matter. Specifically, the Federal Circuit, the court of appeal for patent cases, held that “the transformation of data, representing discrete dollar amounts, by a machine through a series of mathematical calculations into a final share price, constitutes a practical application of a mathematical algorithm, formula, or calculation, because it produces 'a useful, concrete and tangible result' -- a final share price momentarily fixed for recording and reporting purposes and even accepted and relied upon by regulatory authorities and in subsequent trades.” It is this decision that is credited with instigating the boom in software and business methods patents that has continued for the past decade.

The boom seemed to have ended in 2008 when the Federal Circuit handed down the Bilski decision. In Bilski, the Federal Circuit stated that to be patentable, the invention needs to be (1) tied to a particular machine or (2) that transforms an "article" into a different state or thing.

Bilski and his partner Warsaw developed a hedging strategy used by several utilities to smooth out revenues in a sector where prices often gyrate. However, the patent office denied their application stating that they “are not directed to patent-eligible subject matter.”
Since Bilski, patent applications with business method claims in the computer and financial industries, have generally been rejected. For example, the rejection of the following claim was ruled upon by the Patent Office in 2009.

“1. A computerized method comprising: inputting multiple extensible Markup Language (XML) documents; creating a data representation of said multiple XML documents; and reducing redundancy across said multiple XML documents via a fixed set of tables".

The Patent Office maintained the rejection stating that “[T]he recited method, while being computerized, is not tied to a particular machine for executing the claimed steps. We find that the computerized recitation purports to a general purpose processor, as opposed to a particular computer specifically programmed for executing the steps of the claimed method. Next, while it can be argued that the creating step transforms the input XML documents into represented data, we find that the documents are not an article. Rather, they are mere data that represent such entities. Similarly, while it can be argued that the redundancy reducing step transforms the XML documents into a smaller set of the documents, they are not an article being transformed.”

So, for the time being it seemed that the open source camps and the anti-software patent groups (such as bank, advocacy groups and companies like Red Hat) have scored a major victory in preventing software and business methods from generally being patentable. With the Bilski decision, many were ready to state that “Software Patents Are Dead.” But the story continues…

On June 1, 2009, the United States Supreme Court agreed to hear Bilski’s appeal and the case is now headed to the Supremes. The principal issue before the Supreme Court will be whether business method patents are patentable subject matter if intangible steps are not tied to particular machines or apparatuses or don't transform anything to a new state or thing. At this point, there is substantial uncertainty concerning the viability of business method and software patents.

It is this author’s prediction, however, and based upon the last several patent cases that the Supreme Court has heard, that the Court will limit the power of patents. It is simply hard to believe that the Supreme Court will have a more favorable opinion of the Bilski case then the Federal Circuit. This means that if the results of the Supreme Court concerning Bilski does not eliminate business method patents, we can expect business method patents to be limited after this decision – perhaps to a more restrictive test used to determine if software is patentable.

However, until we see the decision, we can only await the results.

Doug Kim, a former software engineer, is an Intellectual Property Attorney with McNair Law Firm, P.A, where he concentrates on counseling companies concerning the protection and enforcement of intellectual property rights as well as assisting in enhancing intellectual property portfolios to increase company worth. Doug combines his experience in patents, trademarks, service marks, copyrights and trade secrets to assist clients in a comprehensive and integrated intellectual property protection program to build intellectual capital for his clients. Prior to practicing law, Doug worked with several large national companies in several specialized projects including radio frequency networks, data mining from legacy systems, and source code conversation from linear to object oriented programming.