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Supreme Court Case Could Freeze Innovation

The case affects a class of patents know as "business methods" patents

Government News on Ulitzer

In the High-Tech industry, the machinations of the US Supreme Court are, at best, fodder for dinner party trivia questions. There is one case on the Supreme Court docket this year that has the potential to change the way intellectual property protected in the United States, and have a major effect on the software companies who rely on the patent process. It could also have a devastating effect on innovation.

The case, known as ”Bilski v. Kappos” (AKA “In Re Bilski”), has to do with what subject matter can be protected by a patent. In this case, the inventors, Bernard L. Bilski and Rand Warsaw, filed a patent application for a process of hedging risk in energy contracts. The requirement is that invention must be “concrete” and” produce a useful result”.

The US Patent and Trademark Office (USPTO) rejected the inventors’ application, on the grounds that it was too ill-defined. In legal terms, the claimed invention was an un-patentable abstract idea. The inventors appealed to the patent appeals board, and this was rejected as well.

The inventors then appealed to Federal Court, which decided the case “en banc.” When an appeals court decides a case “en banc” this means that the entire appeals court, not just a subset of the sitting judges (which is the norm), writes the decision in the case. En banc decisions are typically reserved for the most important cases – cases where precedent setting law is likely to result.

The case affects a class of patents know as "business methods" patents. While business method patents have been around for a very long time (the Piggly-Wiggly supermarkets were founded based on a patented business process), the case State Street Bank v. Signature Financial Group in 1998, widened the scope for patenting of business processes.

“The Bilski case is particularly important to tech companies, because their technological advances that are software-based processes will have to satisfy Bilski's test for whether such processes are eligible for patent protection under § 101 of the Patent Act,” said Bradley D. Blanche, an intellectual property shareholder in the Orange County office of Greenberg Traurig, LLP.

It should be noted that some companies have a business set up around their intellectual property and licensing. IBM has reported a more than $1B annual intellectual property business, and frequently rewards employees who submit patents. Indeed, IBM joined Novartis in supporting Bilski before the Supreme Court, arguing for “patent protection for broad categories of cutting-edge innovation” rather than link the protection to “primitive physical technology.”

On the opposing side are companies such as Google and Symantec who argue that expanding the scope of business-method patents could expose them to infringement lawsuits over basic mental processes and ideas that are the building blocks of innovation.

I think that Google and Symantec are right. They represent the true innovative spirit of Silicon Valley where entrepreneurs are rewarded for risk taking and embrace the thinking of Austrian economist Joseph Schumpeter and creative destruction. If the Bilski application is allowed to go forward, it effectively lowers the bar for patenting all sorts of vague processes. This will create legions of new patent trolls with ill-defined patents, who storm around the high-tech industry looking for companies to use the legal system to extort licensing fees.

At LogLogic we were faced with a similar choice about what path to take when the USPTO granted us a sweeping patent on collecting and managing logs. We at LogLogic could have asserted our patent rights to cast a chilling effect on our competitors. Rather, mindful of our fiduciary obligations to our investors, we chose to adopt a defensive posture instead.

The issues around patents are critical to the high-tech industry and innovation and “In Re Bilski” is sure to have reverberations no matter which way it is decided. Look for a decision to be announced by the Supreme Court in spring 2010.

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Bill Roth is a Silicon Valley veteran with over 20 years in the industry. He has played numerous product marketing, product management and engineering roles at companies like BEA, Sun, Morgan Stanley, and EBay Enterprise. He was recently named one of the World's 30 Most Influential Cloud Bloggers.