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Handicapping 'Bilski' at the Supreme Court
IP Law & Business
June 02, 2009
When the Federal Circuit issued the landmark Bilski decision, some folks were ready to call it the death of (most) business method patents, or even software patents -- that view was a bit premature, because the law was still unsettled. Now, with the nation's top court now looking to take up the Bilski case, it's really unsettled.
Even if Supreme Court nominee Sonia Sotomayor joins the court and turn out to be strongly pro-patent, those hoping for stronger limits on what can be patented, there are still a number of way to find a majority. Several justices have, in other cases, dropped hints about what's in their minds on this subject.
The Court has taken four patent cases in recent years. Every time, the justices voted by a wide margin to limit the power of patents. The Federal Circuit's Bilski decision (pdf) now at issue got rid of "pure" business method patents (without defining what they are), while signaling that lower courts should rein in patents in related areas such as software. The Federal Circuit did not, however, say how tightly to pull those reins.
The limits set by Bilski are blurry -- and whatever they are, they make J. Michael Jakes unhappy. Jakes, the Finnegan, Henderson, Farabow, Garrett & Dunner partner who authored the Bilski cert petition, hopes to see the Supreme Court eliminate them, though he realizes that such a decision would, in a sense, reverse the court's own recent course. Jakes says his argument is based solidly in Supreme Court rulings, although the cases he cites pre-date the Federal Circuit.
"There's uncertainty about whether or not these patents have value, and whether people should continue to invest in R&D and getting patents in this area," Jakes says, noting that software patents are already being knocked down by district court judges citing Bilski. Most recently, a Florida district court held a gift-card patent, asserted against 10 banks, invalid on Bilski grounds.
In claiming the Federal Circuit's limits were too strict on patent holders, Jakes makes an argument that squares with a dissenting opinion favored by exactly one Federal Circuit judge -- Judge Pauline Newman, who has become something of a pro-patent outlier on a pro-patent court.
Jakes wants the court to make clear that software should be protected by patents. But if the Supremes knock down the Federal Circuit's "machine-or-transformation" Bilski test, it could do so to create an even more restrictive test.
And there are plenty of people that want to not just limit, but eliminate the State Street precedent that allowed software patents. Their ranks include not just advocacy groups, but banks and open-source software companies such as Red Hat. [Amici briefs available at Patently-O].
For the last three years, evidence has been mounting that justices are interested in paring back the patent system, particularly around software and business method patents. Some have also shown concern about "patent trolls," the controversial patent-holding companies that have been heavy litigators, often in the software and business-method areas. (The Bilski patent is exclusively licensed to an operating company, WeatherWise.)
"It's very difficult to believe the Supreme Court will be more welcoming to Bilski than the Federal Circuit was," says Ed Reines, a patent litigator at Weil, Gotshal & Manges with a client list of tech heavyweights. It doesn't help that Bilski's patent is on a complex scheme to hedge commodity prices. "The zeitgeist right now is not sympathetic towards financial hedging schemes," he adds.
Mark Lemley, an intellectual property lawyer and professor at Stanford University Law School, says given the Supreme Court's general direction the last few years -- setting limits on patents and the patent system -- it's surprising that the Court appears set to get rid of a ruling that's actually fairly restrictive, if not crystal clear.
"They either looked at the Bilski legal test and said it's an unworkable test, or they looked at their own precedent and decided they didn't like that," says Lemley.
The last time patentable subject matter was addressed by the Supreme Court was in 1981, with Diamond v. Diehr -- before the era of the personal computer. Whichever direction the Supreme Court moves, recent cases suggest the move could be a dramatic one. "If you look at other Supreme Court patent cases in recent years, they show no compunction about overturning settled wisdom in the Federal Circuit and courts of appeals," says Lemley.
The Court's decision to hear Bilski shows that the justices are eager to make a ruling on the limits of patentable subject matter. So let's look at a few examples of Supreme Court justices' comments on patents in recent years.
LabCorp v. Metabolite dissent, 2007 (Oyez.org)
Metabolite sued LabCorp for infringing its patent on a method for diagnosing illness based on levels of a particular amino acid. The Supreme Court took this case, heard arguments, and then dismissed it as "improvidently granted." They did so because LabCorp, the accused infringer, didn't bring up the limits of patentable subject matter in its argument.
Despite that technicality, Justice Stephen Breyer filed a dissent that showed he was strongly interested in setting more limits on just what was fair game for patenting. In his dissent, which was joined by Justices John Paul Stevens and David Souter, Breyer noted with distaste that the inventors in the LabCorp were making a patent claim over associations he sees as taking place in the minds of scientists and doctors: "…because the natural relationship between homocysteine and vitamin deficiency was now well known, such 'correlating' would occur automatically in the mind of any competent physician."
Later, Breyer wrote:
"Patent law seeks to avoid the dangers of overprotection just as surely as it seeks to avoid the diminished incentive... One way in which patent law seeks to sail between these opposing and risky shoals is through rules that bring certain types of invention and discovery within the scope of patentability while excluding others."
LabCorp involves a different technology area than the Bilski casea. Still, the dissent is a strong indication that Breyer, Stevens, and Souter would all seem to strongly favor reining in patents.
eBay v. MercExchange, 2006 (Oyez.org)
The eBay v. MercExchange case was arguably the most important patent case in a half-century, and the only time that the issue of "patent trolls" was addressed directly in oral argument.
MercExchange was an Internet marketplace that failed. It transformed itself into a patent-holding company, and sued the dominant online marketplace, eBay, saying that site's fixed-price sales -- the "Buy it Now" button -- infringed the patent of Thomas Woolston, a patent lawyer and MercExchange principal.
But Chief Justice John Roberts actually mocked MercExchange's "invention" from the bench during oral arguments:
CHIEF JUSTICE ROBERTS: Mr. Waxman, you mentioned, in -- in responding to the suggestion that we're dealing with a troll, you described -- what exactly is the invention here?
MR. WAXMAN: The -- the invention is a -- it's -- it's not a business method. It doesn't claim methods. It claims a system, an apparatus for an electric market for the sale of goods via a network.
CHIEF JUSTICE ROBERTS: Electric. I mean, it's not like he invented the, you know, internal combustion engine or anything. It's very vague, I think, and this is one of the considerations the district court mentioned.
WAXMAN: Look, I'm not a software developer and I have reason to believe that neither is Your Honor, and I -- I can't -- explain specifically what this claims. It's laid out very carefully in --
CHIEF JUSTICE ROBERTS: I may not be a software developer, but as I read the invention, it's displaying pictures of your wares on a computer network and, you know, picking which ones you want and buying them. I -- I might have been able to do that.
(Laughter in the court.)
MR. WAXMAN: Well -- I'll say respectfully that that is not a fair characterization of the innovation here, the actual innovation.
When eBay's lawyer mentioned patentees' strong success rate in the Eastern District of Texas, Justice Antonin Scalia chimed in:
JUSTICE SCALIA: You know, I mean, that's -- that's a problem with Marshall, Texas, not with the patent law. I mean, maybe -- maybe we should remedy that problem.
MR. PHILLIPS: Well, I hope you do.
JUSTICE SCALIA: But I don't think we should write -- write our patent law because we have some renegade jurisdictions.
The Court ruled unanimously for eBay. These two exchanges could indicate that Roberts and Scalia are squarely in the restricting-patents camp. At a minimum, it suggests they are conscious of recent allegations of abusive patent litigation.
Meanwhile, in a concurring opinion written by Justice Anthony Kennedy, joined by Souter, Breyer and Stevens, expressed reservations about patent-trolling: "An industry has developed in which firms use patents not as a basis for producing and selling goods but, instead, primarily for obtaining licensing fees. ... For these firms, an injunction, and the potentially serious sanctions arising from its violation, can be employed as a bargaining tool to charge exorbitant fees to companies that seek to buy licenses to practice the patent."
Again, the Bilski patent is owned by an operating company. But these justices have shown real reservations about a litigation-heavy business model that has been enabled by expansive patent grants. So where does that leave Kennedy when it comes to Bilski?
Microsoft v. AT&T, 2007 (Oyez.org)
In the patent bar and at the Federal Circuit, software patents are the law of the land. But during oral arguments in the 2007 AT&T v. Microsoft case, which regarded damages for infringing copies of software distributed overseas, it became clear that the at least a few Supreme Court justices haven't made up their minds about whether software should be patentable.
During oral arguments, Breyer went out of his way to make it clear that despite the fact that software patents were issued widely following the Federal Circuit's 1998 State Street Bank decision, he had never gotten the opportunity to weigh in, and as far as he was concerned, it's not a settled issue:
JUSTICE BREYER: "I take it that we are operating on an assumption that software is patentable? We have never held that in this Court, have we?"
Later, Stevens also asked a government lawyer point-blank whether software is patentable. The answer: "Standing alone in and of itself, no."
He likely said that because as it stands, software has to be tied to a machine to get a patent -- not hard to do. But it shows that for Stevens, like Breyer, software patents are up for debate.
So, tally it all up, and you have Breyer and Stevens authoring the blistering LabCorp dissent, and vocally questioning whether software is patentable; Justice Kennedy concerned about an exploitive business model based on patent litigation; Justice Scalia taking pot-shots at a court widely perceived as pro-patent rights; and Chief Justice Roberts making a joke about a patent-holding company, despite its lower court victory.
Justices Samuel Alito, Ruth Ginsburg and Clarence Thomas are tougher to read. And then there's the strong likelihood that the retiring Souter, a patent skeptic, will be replaced by Sotomayor. While her record is thin on patent issues, she was a trademark litigator at one point in her career, giving her experience on the "enforcement" side of a different kind of IP right.
Regardless of which way Sotomayor may lean, for those seeking more limits on what can be patented, it appears there is more than one way to get to a five-vote majority.
Editor's note: For more background on the Bilski case, see "The Prior Art" blog on IP Law & Business' Web site.
