Supreme Court Upholds But Criticizes Business Method Patents Ruling

June 28, 2010

The U.S. Supreme Court upheld a ruling refusing to give a patent for a business method, but also criticized the prevailing standard for deciding whether to allow such patents.

The case, involving a system for hedging against energy cost changes, had been closely watched. Some software and biotechnology companies wanted the definition of what can be patented to be as broad as possible because they license those processes. Others, like some financial institutions, wanted restrictions on business method patents to avoid getting sued.

The best known patented business method is Inc.’s one-click purchases.

The case before the Supreme Court involved Bernard Bilski and Rand Warsaw, who founded a small Pittsburgh company called WeatherWise to sell services based on hedging methods.

Bilski and Warsaw had tried to patent the hedging method, which allows users to make fixed energy payments even if usage and energy prices vary.

The U.S. patent office rejected the patent application in 2000, and the patent board upheld the rejection in 2006.

The U.S. Court of Appeals for the Federal Circuit, which specializes in patent cases, also upheld the rejection. It ruled in 2008 that business methods can be patented only if they involve a machine or result in the transformation of a material substance.

The Supreme Court upheld the appeals court decision but criticized the “machine or transformation” standard.

The Obama administration argued before the Supreme Court that the appeals court ruling should be be upheld.

Writing the Supreme Court opinion, Justice Anthony Kennedy agreed.

“Today, the court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text,” he wrote.

“The patent application here can be rejected under our precedents on the unpatentability of abstract ideas,” he concluded.

The Supreme Court case is Bilski v. Kappos, No. 08-964.

(Reporting by Diane Bartz and James Vicini, editing by John Wallace)

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