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Supreme Court’s Bilski patent decision fails as solution to banks’ concerns

Lawyers will continue to have plenty of work as ruling on business methods patents doesn’t address key point of contention

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By Lauren Bowers, vice-president and senior counsel, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , and Gregory Taylor, vice-president and associate general counsel, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it , Office of the General Counsel, American Bankers Association

The best ideas are common property.

Seneca, Roman dramatist, philosopher, and politician, 5 BC - 65 AD


On Monday, June 28, the Supreme Court of the United States issued its much-anticipated opinion in Bilski v. Kappos, a case that some believed (or at least hoped) was positioned to settle, once and for all, a particularly vexing area of the law: whether a method of doing business can qualify as a an “invention” or “process” that can be patented under the Patent Act, 35 U. S. C. Section 101. The question of what constitutes patentable subject matter as it relates to methods of doing business has bedeviled the U.S. Patent Office and the courts for years.

Ultimately, Monday’s decision didn’t answer the question.

Or, more precisely, it didn’t answer the more contentious parts of the question.

What the Court’s decision does do, however, is clarify the notion that a business method’s patentability does not turn solely on whether it meets the “machine-or-transformation” test articulated by the U.S. Court of Appeals for the Federal Circuit. More importantly, the decision expressly leaves the door open for a “business method” to receive patent protection. The question of exactly how wide that door has been opened remains unanswered, meaning that the marketplace is once again left to guess at (and, ultimately, litigate) the contours of what constitutes a viable and valid “business method” patent.

Untouched issue: A fundamental shift with practical impact

Few Supreme Court cases this session have garnered as much attention as Bilski. Drawing interest from such diverse sectors as software development, medical diagnostics, and banking/finance, the case was viewed by many as a golden opportunity for the Court to interpret the Patent Act in such a way that would recognize the fundamental paradigm shift from an industrial to an information age.

And, of course, in addition to recognizing the transformation of our world economy, one cannot ignore the business interests at stake in the outcome of the case. The potential revenue streams that could be demanded by holders of “business method” patents are huge, and the impact of a liberalization of the patent process potentially transformative for many industries—transformative in both a good and a bad way.  One beneficiary would be the “patent trolls”--holding companies that purchase often-questionable patents and seek to generate a financial windfall via litigation.

For those who expected the Court to throw open the doors of the Patent Office to everyone who has a “better idea” on how to run a business (and wants to sell you a license for it), the Court’s ruling fell well short of those expectations. The Court  ruled that the process in question in Bilski—a  mathematical algorithm used to hedge against price changes in commodities—was not patentable. In reaching its decision, the Court didn’t plow new legal ground. Rather, its decision turned on the well-established doctrine that “abstract ideas” like math equations are not patentable, pointing to a string of well-established decisions in the  Benson, Diehr, and Flook cases as “guideposts.”

Twist in the Bilski ruling

Where the Court’s opinion does become interesting is in the “dicta” —the non-operative language of the decision. Having shot down Mr. Bilski’s hopes of patenting his hedging strategy, the Court opined that—in theory at least—there are business methods out there that would be the proper subject for a patent.

The farthest that the Court is willing to go, however, on that front, is the statement that “the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject” of the statute.

Even this statement is qualified, and the Court made it very clear that its decision in Bilski cannot be read as broadly settling the larger question of business method patents:         

“It is important to emphasize that the Court today is not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection. This Age puts the possibility of innovation in the hands of more people and raises new difficulties for the patent law. With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck.” [Emphasis added.]

Banking industry’s stake in patent law
For the financial services sector, the ruling in Bilski does little to resolve any of the ongoing issues or litigation that has plagued the industry. In fact, it appears that the industry’s financial burden will not be lifted by this decision. A number of financial institutions filed friend-of-the-court briefs in Bilski, advocating that the Court reject the concept of patenting business methods on the grounds that broad, abstract patents relating to processes stifle innovation because of the risk of litigation.

The banking industry has a point. One needs look no farther than the protracted proceedings in the Data Treasury litigation to get a sense of the potential for abuse that business method patents can engender. Filed in 2006, the Data Treasury Corporation brought suit against nearly 60 banks, bank holding companies, and technology vendors, alleging infringement of patents relating to banking and check imaging.

Data Treasury is a classic “patent troll” case. The defendants have had to endure the expense and uncertainty of over four years worth of complex legal proceedings. The trial phase of the case began this spring, and is expected to continue through this summer and into the fall.

Where does this leave banks?
So, what happens next? The likely impact of Bilski will be to throw the debate on what is patentable back to the Patent Office and, ultimately, the lower courts. Both sides of the debate are likely to find something that they like in the decision. The fact that the Court has expressly and intentionally left the door open to business method patents will undoubtedly encourage more, not less, litigation. Bilski is ultimately a narrow ruling that only marginally advances the jurisprudence in this area.

In essence, the Court has done nothing more than put forth the bold proposal that, like unicorns, business method patents clearly do exist, and that it is just up to the Patent Office and the lower courts to go out and find one.

[This article was posted on June 30, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.]
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Greg Dillard said:

First a disclaimer: I own a business method patent and I believe they are like any other business asset that may be used as a tool to accomplish good objectives or bad objectives. While over 250 lending organizations and over 4,000 individual lenders have used my patented business method, I have never charged any lender for improving their business methods by utilizing my technology. In fact, I have paid lenders over $8 million dollars to use my patent.

I was awarded patent# 6,236,973 on May 22, 2001 for developing the technology that would empower construction lenders to offer the required builder's risk hazard insurance in conjunction with their construction lonas. Lenders have always had the most capital invested at construction sites, but they traditionally required their borrowers to select and purchase the insurance to protect the collateral without offering their clients an option.

I was the first to propose that construction lenders should have a blanket builder's risk policy written with the lender as the initial named insured and that lenders should offer their borrowers an online builder's risk facility where the borrower could save up to 25% of the cost of the insurance by voluntarily purchasing coverage under the lender's policy. The borrower obtains broader coverage for less money and the lender gains the benefit of insurance coverage that stays in effect even if the borrower defaults on their loan. Lender's have also received over $8 million in additional non-interest revenue while limiting their transactional/operational risk.

Additional information on this "unicorn" designed for the banking industry is available at www.onlinebuildersrisk.com

 
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