Patents under Pressure

Anyone who has ever made a purchase on Amazon.com using its "1-Click" checkout option can't help but be impressed by the convenience. Register your personal, credit, and delivery information once and all subsequent purchases require only a single mouse-click. The concept is simple, ingenious — and contentious. For years various parties have argued over who actually invented 1-Click. But that issue soon may be moot as the legal battle shifts to another front.

Amazon's shopper-friendly technique is based on a tedious, behind-the-scenes set of instructions described in a 931-word business-method patent claim. U.S. Patent No. 5,960,411 ultimately protects the process of "fulfilling [a] generated order to complete purchase of the item whereby the item is ordered without using a shopping cart ordering model.…" It is one of more than 6,000 such patents that have been issued by the U.S. Patent and Trademark Office (USPTO) in just the past decade.

But business-method patents, including Amazon's 1-Click process, H&R Block's tax-refund system, Priceline.com's name-your-price airline tickets, and Netflix's movie-rental process, may not enjoy patent protection for long. On May 8, the U.S. Court of Appeals for the Federal Circuit will hear In Re Bernard L. Bilski and Rand A. Warsaw, which could determine whether business-process methods should be protected by patent law. Currently the courts — including the U.S. Supreme Court — have not been clear about whether a process that has no tangible physical form, or innovative physical steps, should be patentable. As a result, business-method and software patents have been the focal point of several high-profile lawsuits. The Bilski case may set a new and important precedent.

What are potentially at stake are the thousands of business-process patents that have been issued since the 1998 landmark State Street Bank & Trust Co. v. Signature Financial Group Inc. decision — as well as the associated royalties. In that case, the court of appeals — the same court hearing Bilski — held that such patents were valid as long as the process yielded "a useful, concrete, and tangible result." That ruling triggered a flood of new applications, says Wynn Coggins, group director of business-method patents at the USPTO. Indeed, the year State Street was handed down, 1,400 business-method patent applications were filed and 306 patents were issued. Applications shot up to more than 3,000 in 1999, and by last year more than 11,000 inventors filed for protection, with 1,330 business-method patents issued.

That deluge has put a strain on the resources at the USPTO and "adversely affect[ed] the quality of issued patents," maintains Michael Meurer, associate professor of law at Boston University School of Law, in the Journal of Law & Policy. The double whammy of more patents and sinking quality also hinders start-up companies from entering the market for fear that they will be accused of infringing on patents that are "obvious" in nature but still protected by law.

The hope is that a new decision will clarify where to draw the line on patentable subject matter, says Ben Klemens, executive director of End Software Patents, an advocacy group. And if Bilski doesn't decide the matter, says Paul Devinsky, an intellectual-property attorney at McDermott Will & Emery, then the business-method patent issue will be "all teed up for the Supreme Court."

Getting Physical
It's not the specifics of the Bilski case that have patent observers riveted (the case hinges on whether the USPTO was correct in rejecting a patent application for a novel hedging strategy that linked natural-gas prices and erratic swings in the weather). Rather, as part of that case the appeals court has asked interested parties to address several larger questions about business-method patents, including whether the justices should revisit State Street. In effect, the Bilski case is synonymous with State Street because the court has invited interested parties to comment on State Street as part of Bilski.

The appeals court judges will hear the Bilski case en banc, meaning that all 12 justices will be involved, rather than the usual 3-judge panel. Observers believe "the federal circuit is trying to address broader issues than just whether Bilski and Warsaw get their patent," says Donald Ware, an intellectual-property attorney with Foley Hoag, a Boston law firm that filed an amicus brief on Bilski.

The issue of what constitutes physicalness is front and center. Before State Street, the patent office and courts generally agreed that a patentable process had to produce some sort of physical change or activity, such as molding rubber into a tire or mixing chemicals to produce the glue for a Post-it note. In fact, when the patent office rejected the Bilski patent, it did so because the process did not result in a "physical transformation, or any electrical, chemical, or mechanical act."

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