Patenting the Intangible

These were two of the questions raised in Bilski v. Kappos, argued before the Supreme Court in November 2009 after a patent application was denied by three governmental bodies. The original patent application focused on a way to hedge risk in energy commodities. Using this method, a company could theoretically buy and sell coal at a fixed price over time despite constantly changing costs in the market.

Aaron Van Oort and Scott Alter of Faegre & Benson, experienced in intellectual property law, said speculation about the Supreme Court’s decision rose as more decisions heard later in the calendar year were released.

“The one thing pretty much everyone agreed on was that Bilski would be denied his patent,” says Van Oort. The most important part of the decision, he said, became the Court’s position on the machine-or-transformation test.

For those who are not intimately familiar with this particular quirk of the patent process, the machine-or-transformation test is used to determine patentability. Alter said there are two prongs: Does the invention transform to a different state? And is the invention tied to a particular machine? If the invention passes either test it is, at least historically, patentable.

Though it has been the sole test in the past, in Bilski the Supreme Court said an application could still be patentable even if it doesn’t pass the machine-or-transformation test, “but the Supreme Court didn’t give an idea of what to look for,” says Alter.

Is the decision good or bad? Well, it depends.

Alter says that though some industries would have liked a more aggressive decision to increase protection from “patent trolls,” others may want more flexibility in order to leave more room in their field for advancement.

Van Oort adds that the way patent cases are presented might change. “If the patents don’t meet [the machine-or-transformation test], then it lends itself to creativity” when a patent application needs defending.

It’s still unclear exactly how Bilski will affect the patent process going forward, though Alter and Van Oort agree that there are bound to be incremental, but not immediate changes. “A lot of it has been punted back to the federal circuit,” the usual end of the line for patent cases, says Alter. “The federal circuit had cut off debate, the Supreme Court opened it up.”

Machine-or-Transformation Test

The U.S. Patent and Trademark Office has restrictions on granting patents for software, and wasn’t seriously challenged until the patent-eligibility trilogy—three cases heard by the U.S. Supreme Court from 1972 to 1981.

1  >>The first of the trilogy, Gottschalk v. Benson was denied patentability on grounds that the invention was merely an algorithm, and fit into the category of abstract ideas. The court did, however, say that it is theoretically possible for software to be patented.

2  >> In Parker v. Flook, the application of the patent relied on prior art (previously patented systems) and an algorithm to adjust limits in catalytic conversions. It was denied in similar terms as Benson.

3  >> The third case, Diamond v. Diehr, involved a process integrating software and machinery that found the best process and temperature at which to cure rubber. Despite its similarities to Parker v. Flook, The Supreme Court granted the patent because of its tangible application.