United States Federal Circuit to reconsider the patentability of new business methods

April 16, 2008
On February 15, 2008, the United States Court of Appeals for the Federal Circuit issued an en banc Order stating that the full Court will rehear the appeal of In Re Bernard L. Bilski and Rand A. Warsaw. In U.S. Court of Appeals practice, an en banc rehearing is typically granted only where a case is considered unusually important. Here, the patent application at issue claims a "method for managing the consumption risk costs of a commodity."  In rejecting the application, the United States Patent and Trademark Office had objected to issuing a patent for the method on the ground (among others) that it was not restricted to performance by machines and/or did not contain any limitation to prevent it from covering a purely mental process by individuals.

The U.S. Court of Appeals for the Federal Circuit has expressly raised the possibility of overruling its own prior decisions on business-method patents from two cases:  State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368 (Fed. Cir. 1998) and AT&T Corp. v. Excel Communications, Inc., 172 F.3d 1352 (Fed. Cir. 1999).

Oral argument will be heard in May 2008.  The decisions under reconsideration have been used to support the U.S. patent law doctrine that transformation of data by a machine, business methods and software are all patentable subject matter.  These decisions have remained controversial, especially in light of the relative ease of obtaining software patents in the U.S. as compared to other jurisdictions, and (it is often argued) the frequent issuance of U.S. patents for non-innovative ways to implement known methods using computers.

Prior to the 1998 decision in State Street, business methods were not considered to be patentable subject matter by the USPTO.  State Street did away with the so-called "business method exception" to patentable subject matter, and held that business methods could be patentable if they could be applied to produce "a useful, concrete and tangible result" - that is, accomplish a practical application. The business method at issue in State Street was for a computer-based system of pooling mutual funds. 

State Street opened the floodgates to business-method patent applications in the United States, resulting in a seven-fold increase in such patent application filings from 1998 to 2006.  Numerous patents have been granted for business methods, many for internet-based methods ranging from Amazon.com's "one-click" on-line ordering process to Priceline.com's on-line reverse auction for airline tickets.  As a result, the Federal Circuit's en banc decision in In Re Bilski could affect the validity of scores of patents issued since State Street.

Although the Federal Circuit's decision will almost certainly have a significant impact on United States patent law, it is also likely to have important ramifications for patent law in Canada.  The approach in Canada to business-method patents is more conservative than that in the United States, so a reining-in of the scope of patentable business methods in the U.S. may help to clarify and solidify Canada's position.  Ultimately, the decision may overturn a landmark case and carve out a new approach to business-method patents - the implications of which remain to be seen.

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