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Business method patents have become shorthand for all that is supposedly wrong with the patent system. Critics in industry and law contend that business method patents have been too easily issued, broadly written, and overlitigated. They argue that these patents skirt the dividing line between patentable subject matter and unpatentable abstract ideas and mathematical formulas. Critics, therefore, had invested a great deal of hope in the Supreme Court’s grant of certiorari this term in Laboratory Corporation of America Holdings v. Metabolite Laboratories. They waited expectantly for the justices to review the appropriate boundaries of protectable subject matter. But their hopes were dashed last month when the Court took the unusual step of dismissing certiorari in the LabCorp case as improvidently granted, despite the fact that the case had been fully briefed and argued. This left many wondering whether business method patents are here to stay. Perhaps they are. But the evidence is strong that the justices are itching to say something about patenting business methods, and will sooner rather than later. A CASE ABOUT SCOPE Although business method patents are not really a new idea, they received an enormous boost from the U.S. Court of Appeals for the Federal Circuit in 1998. In the case of State Street Bank & Trust Co. v. Signature Financial Group, the Federal Circuit articulated the rule that any process may be patented if it produces “useful, concrete and tangible” results. That holding, coupled with the simultaneous explosion of Internet commerce, facilitated a rapid rise in the number of business method patents. And shortly thereafter the litigation began. The LabCorp case seemed ripe for a Supreme Court decision that would clarify the scope of patentable subject matter as codified at 35 U.S.C. �101 and that might narrow the scope to exclude business method patents. Whether the Court denied patent protection to such inventions in the first instance or simply provided patent examiners with additional analytical tools to pick over and reject more business method claims, there would have been obvious benefits for accused infringers. The justices did not oblige. Though the Supreme Court majority give no explanation for their decision to dismiss the LabCorp appeal, the dissent from Justice Stephen Breyer, joined by Justices David Souter and John Paul Stevens, offers at least two plausible explanations of why the case was tossed. First, the dissenters admit that the issue of what constitutes patentable subject matter under �101 was hobbled by what they describe as a “tenuous” procedural reason — “namely, that LabCorp did not refer in the lower courts to �101.” Although the dissent downplays this reason as technical, briefs from the patentee Metabolite and from the United States reasonably argued that the �101 issues had not been pleaded, argued, tried, or dealt with at either the trial or the appellate level. Eliminate the dispute over subject-matter patentability, and the LabCorp case becomes — as Metabolite and the United States (which opposed the cert grant in the first place) argued — only a garden-variety challenge of whether the patent adequately disclosed and claimed the invention as required by 35 U.S.C. �112. Section 112 requires a patentee to provide an adequate written description of its invention, sufficient to enable those skilled in the art to practice the invention, and to draft claims that provide a clear and definite expression of the boundaries of the invention. LabCorp and certain industry segments attempted to inject into this mix the issue of what constitutes patentable subject matter under �101. They essentially argued that the patent’s written description, enablement, and definiteness problems were the result of deliberately artful drafting of patent claims, which had been done to avoid the subject-matter requirements of �101. In other words, the reason the patent claims were unclear and unsupported by the specification was that Metabolite was seeking to patent something that may not be patented. Although the Supreme Court initially granted cert on this question, it apparently determined on further review that the procedural posture of the case made it an imperfect vehicle to address the subject-matter question. ONE COURT RULES? The second explanation the dissent offered as to why the Court ultimately declined to review the LabCorp case is that the Federal Circuit had not offered its views on subject-matter patentability. The dissent brushes off this problem, saying that, even without the Federal Circuit’s input, the issue was fully briefed to the Supreme Court by the parties and 20 amicus briefs. The three dissenting justices seem concerned about the Federal Circuit’s nearly exclusive oversight of the patent system. Breyer urges that “a decision from this generalist Court could contribute to the important ongoing debate, among both specialists and generalists, as to whether the patent system, as currently administered and enforced, adequately reflects the �careful balance’ that �the federal patent laws . . . embody.’ ” These sentiments closely echo Stevens’ concurrence in Holmes Group v. Vornado Air Circulation Systems (2002). In it, Stevens concluded that “occasional decisions by courts with broader jurisdiction will provide an antidote to the risk that the specialized court may develop an institutional bias.” In 2002 it was only Stevens who expressed concern that an “antidote” was needed to the Federal Circuit’s “institutional bias.” In 2006, Breyer and Souter appear to have joined in his skepticism of specialist courts. Beyond the reasons offered by the dissent, it could be further argued that the LabCorp case was an imperfect vehicle for challenging business method patents because the actual claimed invention was qualitatively different from a business method. The correlation between the presence of a chemical compound and a vitamin deficiency in a test subject falls more into the category of a natural phenomenon, rather than the kind of abstract idea or mathematical formula that constitutes a business method. WORTHY OF ATTENTION Even though the Supreme Court ultimately declined to rule in the LabCorp case, the forces arrayed against business method patents are hopeful that the Court will revisit the issue at its next earliest opportunity. The fact that the Court granted cert on this issue in the first instance suggests that at least five justices consider the scope of patentable subject matter to be an issue worthy of their attention. Further, on the merits, the three dissenting justices apparently would have held the Metabolite patent as invalid because it attempted to patent a natural phenomenon. In the process, the dissenters might have limited what can be patented under �101. Indeed, the LabCorp dissent specifically calls into question the Federal Circuit’s decision in State Street Bank: “That case does say that a process is patentable if it produces a �useful, concrete, and tangible result.’ But this Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary.” A fourth vote may be found in Justice Anthony Kennedy. For evidence, read his concurring opinion in eBay v. MercExchange (2006), which was joined by the three LabCorp dissenters. Kennedy’s concurrence in eBay, which addressed the proper test for injunctive relief in patent infringement cases, expresses concern about “vague” and “suspect” business method patents: “In addition injunctive relief may have different consequences for the burgeoning number of patents over business methods, which were not of much economic and legal significance in earlier times. The potential vagueness and suspect validity of some of these patents may affect the calculus under the four-factor test [for issuing an injunction].” Arguably, Kennedy is inviting litigants to argue that business method patents are unworthy of injunctions. Moreover, the reason that he offers for his perception that such patents represent a problem is the very issues of vagueness and suspect validity raised by LabCorp in its unsuccessful bid for relief. So are business method patents here to stay? Given what has happened in this Supreme Court term, it seems that changes may be in store next term and beyond. Breyer, Souter, and Stevens have indicated that State Street Bank is living on borrowed time. Kennedy may join them, given his concurrence in eBay. Expect many more petitions for certiorari on the issue of patentable subject matter as cases raising the issue percolate through the system. Meanwhile, a potentially larger threat to business method patents is already pending in the form of the Supreme Court’s grant of certiorari in KSR International Co. v. Teleflex last month. The KSR case could affect literally hundreds of thousands, if not millions, of issued patents. It could become the most significant patent decision since the Court ruled in Markman v. Westview Instruments (1996), which required judges — not juries — to construe claims, or Graham v. John Deere Co. (1966), which set the contemporary standard of patentability. In the KSR case the question is the appropriate standard for demonstrating that a patented claim is obvious. Beyond falling within the realm of patentable subject matter (�101), a claimed invention must be novel (�102) and nonobvious (�103). The KSR case asks whether a claimed invention can be an “obvious” combination of previously known technologies, as long as there is no specific proof of a prior “teaching, suggestion, or motivation” to combine them. Like the gas pedals at issue in KSR, the vast majority of patented inventions are combinations of previously known elements. At the Supreme Court’s invitation, the United States had filed a brief in favor of certiorari, arguing in essence that the Federal Circuit has taken one narrower means for demonstrating obviousness — the teaching/suggestion/motivation test — and mandated its application in every instance where obviousness is at issue. This, according to the United States, contravenes the broader functional approach codified in the patent statute and adopted in Graham v. Deere. The government argues that a combination may be obvious on its face and yet an accused infringer may not be able to provide prior written evidence of obviousness because “the combination was so obvious . . . that no one would have need or incentive to record the trivial extension of the art.” A more flexible approach to obviousness would theoretically provide patent examiners with the ability to reject more business method claims. It would also give additional weapons to alleged infringers seeking summary judgment or verdicts of invalidity. Despite the missed opportunity in LabCorp, then, the justices have not escaped the controversy over business method patents. With the KSR case awaiting review and a Supreme Court ready to take another case dealing with patentability, the next term should be extremely interesting.
Henry Bunsow is managing partner in the Northern California offices of Howrey. Aaron Levine is a senior associate in Howrey’s D.C. office. Both are members of the firm’s intellectual property practice.

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