Business Innovation on Trial

Last Updated Jan 27, 2010 1:50 PM EST

Most innovation today comes in the form of digital pixels,
sophisticated analytical models, and brilliant but intangible ideas. Patent
law, however, is largely stuck in the Industrial Age. That could change in
early 2010, however, when the Supreme Court rules on a case that challenges the
definition of patent-worthy intellectual property. The invention at stake: a
math formula.

The case in brief:

You’ve probably never heard of Bernard Bilski and
Rand Warsaw. But if you pay a fixed amount each month to heat or cool your home,
instead of a fluctuating bill, you likely have them to thank. The two
Pittsburgh-based founders of WeatherWise USA created a mathematical process
that lets energy companies calculate a fixed, monthly charge for homeowners
based on usage patterns. More importantly for the energy industry, however, is
that they invented a way for companies to hedge their own financial risks. In
1997, they applied for a patent.

The Patent and Trademark Office rejected the application on
the grounds that their innovation didn’t fit the current definition
of a patentable process: It’s not a machine and it doesn’t
transform anything.

When the Supreme Court heard the case on November 9, 2009,
attorneys for Bilski and Warsaw argued that in the past, the court has ruled
that patentable machines and processes should be broadly defined to allow for
new technological innovations. Government lawyers maintain that a process for
hedging risk is far too abstract to merit patent protection.

Why it matters:

There could be two possible outcomes when the court issues
its ruling, says DeAnne Maynard, chair of law firm Morrison & Foerster’s
Supreme Court practice: It could decide on Bilski and Warsaw’s patent
specifically and leave the task of redefining the patentability test for
another day; or the court could use the case to announce a new test —
a move that would both clarify and upend current law.

The Bilski case has prompted an outpouring of commentary
from businesses. In fact, the court has received an href="">unusually
high number of briefs (more than 70) from third parties, including Yahoo,
Microsoft, Novartis, and Bank of America. What’s most striking is
that nearly half of the briefs filed support neither side of the case and
instead ask the court to clarify convoluted aspects of the patent process.

Not surprisingly, href="">Yahoo argues that
the machine-or-transformation test hasn’t kept pace (pdf download)
with the speed of technological innovation. “[W]ith respect to the
cutting-edge issues of today,” the Yahoo brief reads, “the
test focuses attention on questions irrelevant to the statute’s
fundamental purpose of rewarding innovation.”

Instead, Yahoo attorneys urged the court to reject the test
and instead build on another court case that found processes to be
patent-eligible if they produce a “useful, concrete and tangible
result.” That definition was used to patent a method for processing
mutual-fund data.

That so many companies and organizations weighed in on the
case — without supporting either Bilski or the government —
shows the concern surrounding patent law in general. Broadening the scope of
patentable processes would protect intangible innovations like mathematical and
business processes, but going too far could allow individuals or companies to
stake an ownership claim on information, not innovation.

During the November 9 oral arguments, the justices seemed skeptical
of the notion that Bilski’s method could be patented but didn’t
give a clear indication of where they thought the line should fall.

“How do we limit it to something that is reasonable?”
Justice Sonia Sotomayor asked Bilski’s attorney. “Meaning,
if we don’t limit it to inventions or to technology or to some tie
or tether to the sciences, to the useful arts, then why not patent the method
of speed dating?”

Other cases to watch: