Questioning the Methods

“The uproar that is occurring now in patents for business models, biotech, and software went on in the 1920s with chemicals, specifically plastics,” Pedersen says. “Some overly broad patents resulted. When something new starts, there isn’t that track record to look back on, and it is easier to get some questionable patents through the office.”

The Bilski ruling will undoubtedly nullify some overly broad patents granted for business methods; patent holders will want to think twice before asserting them in court.

While Bilski addresses the absence of physical transformation in a business model, transforming data could still be eligible for patent protection. For instance, Schutz notes, a computer program that makes a trading decision for derivatives takes the price of stock, runs it past a values theory, compares that with existing prices, and then issues a decision to buy or sell. In this case, stock prices or option values have been transformed, through a software system, into a decision to buy or sell.

“Something that had been done by hand, that is now done on computer may be patentable, but it is subject to the attack that it is obvious,” Schutz says. Proposed patents must meet the test for obviousness, meaning the product or process being patented wouldn’t have been obvious to someone with “ordinary skill in the art,” according to the U.S. Supreme Court.

Both attorneys say the Bilski decision has clarified patent law in the comparatively new area of electronic data collection and manipulation, eliminating part of the gray area as to what is literally transformative and what is instead a mental exercise. The court determined that Bilski had a theory, not a product.

And while Bernard Bilski did not use a computer in his hedging model, the court did briefly address the use of computers in its ruling—a key issue in patentability. Avoiding the issue of the use of personal computers, the court said “a particular machine” or “device” had to be involved to assure patent, Pedersen says. Does the word “particular” mean that personal computers are not specific enough to be included in the patent process?

“That was the ruling the court punted on,” he says. “If a patent is not applicable if used on a general purpose computer, I think that implies a naïve understanding of modern computer technology.” Clarification may be needed on what a “particular” machine or computer includes.

In the meantime, will the number of business-model patent applications drop? “Lawyers . . . are going to make sure that patents pass muster,” Schutz says. “If you start seeing that decrease now, it is the economy, not the Bilski decision.”