October 31, 2008 7:30 AM

Patent Bar Is Atwitter About Bilski Decision

Posted by Ed Shanahan

By Nate Raymond, The Am Law Litigation Daily

Every time we talked to an IP lawyer yesterday, the only topic of conversation was the Federal Circuit's decision in the Bilski case. (Of course, if you check out the opinion, you'll see that about half the bar appeared in the case.)

In a ruling with huge business implications, the appellate judges continued the Federal Circuit's recent trend toward narrowing the power of patents. In re Bilski, for those not in the know, is a case that asks whether a business method can be patented. Business method patents came into vogue following a controversial Federal Circuit decision in 1998, State Street Bank v. Signature Financial Group. In that case, the court granted patent protection to a system for managing mutual fund accounts.

Critics of the State Street ruling have long argued that it resulted in weak patents. In the case at issue, for example, two men, Bernard Bilski and Rand Warsaw, applied for a patent to cover a technique to hedge risk in commodities trading. The Patent and Trademark Office denied the application, calling it too abstract. Bilski and Warsaw's lawyers from The Webb Law Firm appealed, and eventually the case landed before the Federal Circuit, which took it up en banc.

In yesterday's 9-to-3 decision upholding the PTO's ruling, the court wrote that in order for a business method to receive patent protection, it would need to either "transform [an] article to a different state or thing" or be "tied to a particular machine." "The court went back to principles articulated in earlier Supreme Court decisions and said that for a method to be patentable it either has to be transformative or it needs to be a method that is employed specifically with a machine or an apparatus," said Wilmer Cutler Pickering Hale and Dorr partner William Lee, who argued for an amicus, the Financial Services Industry, in the case. (For Wilmer's insightful analysis of the Bilski ruling, click here.) Another amicus filer, Ropes & Gray's James Myers, told sibling publication Legal Times that the Federal Circuit's newly articulated machine-or-transformation test "shifts away from State Street and brings the Federal Circuit more in alignment with the Supreme Court." Myers predicts that the next wave of business method litigation will focus "on what degree of computerized involvement you have to have in order to meet the threshold."

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