Questioning the Methods

Bernard Bilski wanted to protect a complex business model he developed for hedging risk in the commodities market, so he decided to seek a patent on the process. He had developed a system for determining and distributing the risk inherent in pricing energy a season in advance. It was a model that ran the anticipated cost of energy past a host of cost factors—including long-term weather patterns—to establish a price, and then allowed natural gas customers to lock in at that rate in advance of the heating season.

But as interesting as that model may have been, it was found not patentable by the U.S. Patent and Trademark Office. Bilski sought a court decision to reverse the Patent Office decision. While he didn’t receive his patent, the case did create a long-anticipated precedent for determining if a business model could receive patent protection. The Federal Circuit Court ruling last October—In re Bilski—said that his utilities pricing model did not have the two key ingredients required to hold a patent.

One, it didn’t require a particular type of machine, and two, it didn’t change one thing into something else. “The federal court made it pretty clear: you can’t just take your business model per se, and patent it,” says Ronald Schutz, partner, and chair of the intellectual property litigation and licensing group at Robins, Kaplan, Miller & Ciresi, a law firm in Minneapolis. “There has to be some computer involved, or it has to transform something. You can’t patent a mental exercise.”

The court also focused on whether the process actually transformed anything. The court stated that “the claim is for a method of hedging risk,” and added that “transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances.”

Brad Pedersen, a partner with the law firm of Patterson, Thuente, Skaar & Christensen in Minneapolis, focuses on computer, software, and medical device patents. He says the Bilski ruling was welcome. “It really does give the patent office a shortcut to determine whether a process is applicable for a patent.”

How Bilski Changes Things

Schutz and Pedersen see the Bilski decision influencing businesses in two ways:

• It may clear up a backlog of business-model patents waiting on approval at the Patent Office. “The patent office now has a million pending patents,” Pedersen says. “It hired 1,000 new patent examiners every year for the past three years.”

• Those who will seek patents, “will need to step back and ask, ‘Is this going to run into a Bilski problem?’” Schutz says. “Those companies that have received business method patents will have to look at asserting their patent over potential infringers. Will the court say, ‘You shouldn’t have gotten that patent?’”