Justices to Weigh Issue of Patenting Business Methods

Published in the New York Times
A version of this article appeared in print on June 2, 2009, on page B2 of the New York edition.

WASHINGTON—The Supreme Court agreed on Monday to decide what sorts of business methods might be patented, an issue with the potential to reshape significant parts of the economy.

“This is the most important patent case in 50 years, in particular because there is so much damage and so much good the court could do,” said John F. Duffy, a law professor at George Washington University who submitted a brief in the appeals court in support of neither side.

“The newest areas of technology are most threatened by the issues at stake here,” Professor Duffy said. “The court taking this is likely to make a lot of people nervous, including software manufacturers and biotechnology companies.”

In October, the United States Court of Appeals for the Federal Circuit in Washington significantly narrowed the processes eligible for patent protection, ruling that only those “tied to a particular machine or apparatus” or transforming “a particular article into a different state or thing” qualified.

The petitioners in the case, Bernard L. Bilski and Rand A. Warsaw, had sought to patent a method of hedging risks in the sale of commodities, including the risks associated with bad weather. The appeals court ruled against them, and it disavowed statements in earlier cases suggesting that business processes could be patented so long as they yielded useful, concrete and tangible results.

In urging the Supreme Court to hear the case, the petitioners said the appeals court’s decision put tens of thousands of patents at risk.

They added that the decision “threatens to stifle innovation in emerging technologies that drive today’s information-based economy.”

The appeals court attracted supporting briefs on both sides of the issue from many kinds of businesses, including management consulting, computer software, insurance and tax accounting firms.

One brief, from several financial services companies, urged the appeals court to be wary of protecting business processes not tied to devices or tangible changes. “Business method patents often stifle, rather than promote, innovation,” the brief said.

The brief also quoted a 2002 article from Judge Richard A. Posner, of a federal appeals court, who said that business method patents created the potential for “enormous monopoly power (imagine if the first person to think up the auction had been able to patent it).”

The federal government urged the Supreme Court not to hear the case, saying the hedging method at issue was plainly not patentable and that the case did not affect software or more exotic business methods.

But courts have relied on the decision of the appeals court since October to deny patent protection to methods of marketing software products, detecting fraud in credit card transactions and creating real estate investment instruments. In March, a federal judge in San Francisco wrote that the appeals court’s decision signaled that “the closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.”