This afternoon, the Supreme Court will hear arguments in Bilski v. Kappos which focuses on statutory subject matter and the patenting of business methods, software, and other similar inventions. The Federal Circuit ruled that methods do not contain patentable subject matter unless they include a machine or there is a physical transformation involved. It is hard to overestimate the importance of this case to the fields of business methods, software, diagnostic methods, and other inventions that do not include a tangible machine.
How do we predict what the outcome of the case will be at the Supreme Court? And what is this case really about?
Unfortunately, Bilski’s briefs are not overly helpful or persuasive for convincing the Court of Bilski’s position. The opening brief quickly glosses over the statutory language of § 101 and instead argues that the Federal Circuit’s new test conflicts with the Supreme Court’s decisions in Gottschalk and Flook. The brief then spends a great deal of time on the prior user defense of § 273. The petitioner argues that Congress must have embraced business methods since this defense only applies to “methods of doing business.”
Next, Bilski argues that the Federal Circuit’s new test disrupts the expectations of thousands of patent-holders by effectively invalidating their patents based on the new test. If change is needed, Congress should act, not the courts. Bilski makes several other arguments that try to deal with so-called “silly” or “trivial” patents. Finally, Bilski deals with the difficult issue of convincing the Court that its patent application is patentable.
In its brief, the PTO argues for a return to the “technological arts” test that was rejected by the Federal Circuit: patentable suject matter should be limited to industrial and technological processes. The PTO looks a bit at the history of “processes” under § 101 in reaching this conclusion. The PTO then addresses several other tests that the Federal Circuit rejected and argues that all of them impose meaningful limits on patentable subject matter, including the Federal Circuit’s machine-or-transformation test.
In its reply brief, Bilski spends a great deal of time arguing that thousands of patents and patent applications are being invalidated under the guise of Bilski, by the Federal Circuit, district courts, and the PTO.
We know that Justice Breyer was the author of and Justice Stevens joined the LabCorp. dissent that ridiculed the patents covering processes for diagnosing diseases at issue in that case. The dissent specifically noted that the Federal Circuit’s “useful, concrete, or tangible result” test articulated in State Street Bank and overturned in Bilski was never reviewed by the Supreme Court and was contrary to Supreme Court precedent. Thus, it seems unlikely Justices Breyer and Stevens would reverse the Federal Circuit’s decision in this case.
In eBay v. MercExchange, the Supreme Court ruled that injunctions should not issue as a matter of course when patent infringement is found, but instead the rules of equity should apply to such situations, just as in other areas of the law. Several exchanges between the attorneys in that case and the justices may be enlightening to Bilski. MercExchange claimed that the “Buy It Now” feature on eBay infringed its patents. First, Chief Justice Roberts seemed to mock the invention 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.
eBay’s attorney referred to patentees’ success rates in the Eastern District of Texas. Justice Scalia addressed this issue.
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.
Chief Justice Roberts also took issue with the fact that the Federal Circuit has often ignored binding Supreme Court precedent. Earlier this year, in Carlsbad Tech., Inc. v. HIF Bio, Inc., he had the following exchange during oral argument.
MR. RHODES: I can’t suggest what the Court might finally decide other than to say that — that, again, the circuit courts of appeal have uniformly applied this. They seem to be –
CHIEF JUSTICE ROBERTS: Well, they don’t have a choice, right? They can’t say, I don’t like the Supreme Court rule so I’m not going to apply it, other than the Federal Circuit.
(Laughter in the court.)
Justice Kennedy wrote a concurring opinion in eBay that was joined by Justices Breyer and Stevens. In the concurrence, he took serious issue with patent holding companies that do not produce a product.
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.
During oral argument in Microsoft v. AT&T, Justices Breyer and Stevens questioned whether the Supreme Court had ever ruled that software is patentable, despite the Federal Circuit’s precedent that it is.
Justices Ginsburg, Thomas, and Alito have less of a track record to go on as to how they might rule on the case. Justice Thomas rarely speaks during oral argument and Justices Ginsburg and Alito haven’t expressed strong opinions on the issues at stake.
The IP bar seems to believe that Justice Sotomayor will take a pro-IP stance on issues before the Court given her background in IP litigation. This also seems less than certain however.
I am not overly optimistic that the Supreme Court will take us back to the pre-Bilski regime. The way for Bilski to win this case is to argue to the conservative wing of the Court–Justices Scalia, Kennedy, Thomas, and Alito, and Chief Justice Roberts–that the case is really about statutory interpretation. They simply need to look at the language of § 101 that permits patent for “any new and useful process, machine, manufacture, or composition of matter.” There is no reference in the statute to machines or transformations and if any change is to be made, it should come from Congress, not the courts. The other provisions of the Patent Act and a robust examination should keep silly patents from being issued.
If they instead turn this into a policy argument, or worse yet a patent law argument, they are going to have difficulty convincing the justices that patentees who have inventions that they don’t understand or that they don’t feel warrant protection should get patents. The Court may not grasp the importance of the case.
Stay tuned . . .
I hope to provide an update after the argument. I will be traveling Tuesday and Wednesday, so the update may not come until later this week.