October 31, 2008

Court Limits Patents for Business Methods

Business processes may no longer be protected by patents, according to a controversial federal appeals court ruling on Thursday.

The judges ruled against a man who tried to patent a business idea, a decision with far-ranging implications for the financial services and high-tech industries.

The U.S. Court of Appeals for the Federal Circuit ruled against Bernard Bilski. He wanted to patent a method for hedging against weather-related effects on businesses.

However, his idea did not involve a machine and did not physically transform anything. Therefore, the court ruled that the process was not eligible for a patent.

Chief Judge Paul Michel wrote for a nine-judge majority that Bilski's patent application did not meet this definition of "process" under patent law.

They seemed to rely heavily on 1970s-era U.S. Supreme Court decisions that established the "machine-or-transformation test."

The court agreed with the U.S. Patent and Trademark Office's denial of Bilski's patent. They concluded that that the agency's interpretation of the "process" was correct.

The ruling met dissention with financial service firms.

Consulting firm Accenture and banking company Goldman Sachs Group Inc., believe that processes like Bilski's should be eligible for patents.

Denying the patent "eliminates a whole class of innovations from protection - business methods that rely on humans for execution," Accenture noted in a fact sheet arguing for reversal of the patent office's decision.

However, Bank of America Corp., Wachovia Corp., and several other companies argued in court briefs that allowing abstract ideas to be patented "hinders rather than promotes innovation."

Tech companies that rely on computer-related patents could feel reassured from the court's statement that processing data counts as "transformation," making them patent-eligible.

But the court ignored the question of whether mentioning a computer is enough to argue that a process involves a machine.

Two judges filed long dissents; they argued the ruling could hurt industries operating with patents that could be affected by the decision.