State of Innovation

Bilski, Software Patents and Business Method Patents


Will the Supreme Court use the In re Bilski 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008) case to deny patent protection to information age technology?  Many observes believe that this case will have major implications for software and business method patents.  The Bilski patent application covered a method of hedging risks when trading commodities.  The Court of Appeals for the Federal Circuit (CAFC) ruled that the Bilski patent did not fall within the subject matter of patentable material.  It reached this decision based on the so called machine or transformation test.  Bilski did not recite a machine or transform matter from one state to another state according to the court.

Software Patent

Software patents are inherently directed to a machine.  As any electrical engineer knows, solutions to problems implemented in software can also be realized in hardware, i.e., electronic circuits.  The main reason for choosing a software solution is the ease in implementing changes, the main reason for choosing a hardware solution is speed of processing.  Therefore, a time-critical solution is more likely to be implemented in hardware, while a solution that requires the ability to add features easily will be implemented in software.  As a result, to be intellectually consistent, those people against software patents also have to be against patents for electronic circuits.  Unless the Supreme Court is going to hold that electronic circuits are not statutory material for patents under 35 USC § 101, their decision should not affect software patents.

Some people in the open source community argue that the difference between software and hardware, is software can be reproduced at virtually no cost.  This argument is incorrect.  Software code, which are the instructions, can be cheaply reproduced if the computer hardware already exists for the copying.  The executed code or process cannot be reproduced cheaply, since it inherently requires hardware.  The hardware can only run so many processes at one time and is limited in speed and power.  Patents do not cover the software code, they cover the executed code or process.

The Bilski decision results in an overly formalistic style of claim writing that requires hardware be recited in the claims, when the exact hardware implementing the software is irrelevant to the invention.  For instance, error correction codes used in computers and communications are extremely important to our information society.  Error correction codes transform a set of numbers (data) into another set of numbers (a code).  The data and code are then transmitted to another location where the data is transformed and compared to the received error correction code.  The patent claims and the patent specification do not need to recite the hardware by which the error correction system is implemented for an electrical engineer to understand the system.  In fact, most technical and text books on coding do not refer to the underlying hardware.  However, under Bilski, if the inventor does not recite some hardware then his claims will fail the machine or transformation test.  What is the risk to the patent system if the inventor does not recite the hardware for an error correction code?  An error correction coding scheme divorced from hardware is useless.  No one is going to compute error correction codes by hand.  The requirement to recite the hardware is absurd and the most likely outcome of this rule is to deny a patent to a deserving inventor.

Business Method Patents

One of the first cases stating that methods of doing business are not patentable related to a patent covering outdoor drive-in movie theaters, Loew’s Drive-In Theatres v. Park-In Theatres, 174 F.2d 547, 552 (1st Cir. 1949).  The claims covered the now well-know design for a drive-in movie theater.  Clearly, these claims were directed to real world objects and there relationship.  For instance, how does one setup the parking rows in a partial semi circle around a screen and run the speaker systems to the cars?  The drive-in theater was a major success with over 800 drive-in theaters in 1948.  The drive-in theater did not exist before Richard Hollingshead, the inventor, created it.  Despite this, the court ruled that methods of doing business were not patentable and invalidated Mr. Hollingshead’s patent.  A process for building a car, airplane, or radio are methods of doing business and yet no one would question that it was patentable.  A process for curing rubber is also a method of doing business.  All of these processes are part of how a company conducts its business, i.e., a method of doing business.  There is no support in the statute, 35 USC § 101, for a prohibition against business method patents.

According to many people, one of the best known business method patents is the Amazon one click patent. applied for the patent in 1997 and it issued in 1999 as patent number 5,960,411.  A number of competitors had copied Amazon’s one click ordering system and shortly after the patent issued, sued Barnes and Noble for infringement.  Industry studies showed that between sixty and sixty-five percent of online shopping baskets abandon before they checked out.  The primary reason for abandoned internet shopping carts seems to be buyer confusion and annoyance with the online purchasing process.  Presumably, many of those abandoned shopping carts represent lost sales.  The goal of the one click method for online shopping was to make the process simpler, faster, and more secure, thereby capturing some of that lost business.  Barnes and Noble’s Express Lane (one click shopping system) was evidently successful, since a large percentage of their customers had chosen to utilize the Express Lane rather than the shopping basket.  Amazon’s one click patent clearly involved software and therefore hardware, in order to have any meaning.  The hardware included the internet, the customer’s computer, and Amazon’s servers. used real technology to solve a real problem.  This is exactly the sort of invention our patent system is designed to protect.  (For more on the Amazon one click patent click here)

It is my contention that a logically consistent definition of business method patents does not exist.  All patents are related to a method of doing business, since even device patents are related to how the business intends to build the device.  A common category of business method patents the critics decry are ecommerce patents, such as the one click patent.  All these patents use real technology (internet, computers and software) to solve real world problems.  Patents for financial products have also been widely criticized as business method patents.  If the financial product uses computers (software) to implement the product, then it uses a machine.  The fact that the machine merely transforms data, usually relating to money, makes it no different than a patent relating to error correction codes.  In an information society the processing and transformation of data is central to the economy and its technology.  The telegraph and telephone are nothing but devices to transform and transmit information.  The sounds wave created at the receiving end of the telegraph and telephone are just one more step in transferring the information.


Since the Bilski patent application has never been published, it is hard to determine from the claims if its commodity hedging scheme requires a computer for any practical use.  If the hedging scheme requires a computer for any practical use of the invention, then denying the patent just because it does not recite the hardware is absurdly formalistic.  If the invention does not require a computer for any practical application of the invention, then it is hard to see how the invention is novel.  In this case, the courts should avoid any overly broad pronouncements about business method patents or software patents and rule the invention is not patentable for lack of novelty.