Bilski Case to Change U. S. Internet Patents?

Innovation on the Web is dependent upon the ability by entrepreneurs to safeguard intellectual property. Google, Amazon and other Internet companies have obtained many U.S. patents which protect, apparently, processes or ways of doing business. But that security could be jeopardized by a case pending in the U.S. Supreme Court. It's called the Bilski case, and the matter, loosely, is whether patents can be applied to inventions not tied to physical goods or not tied to transformations of physical goods. To help us understand the value of the situation as it applies to the Internet and ecommerce, we talked with Robert Kovelman, an intellectual property lawyer and a specialist in U.S. patent legislation.

Practical eCommerce: there's a case awaiting decision by the U.S. Supreme Court that some believe will stifle Internet innovation. Can you tell us a little about it?

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Robert Kovelman:"The situation is known as In re Bilski and it pertains to a way of hedging risk in the business of commodities trading. The reason that it is an important case is that the [patent] examiner through the application had ascertained that all the Bilski innovation was doing was manipulating an abstract thought and only solving a purely mathematical issue. Mr. Bilski, then trade with the examiner, appealed to the patent board, who similarly found that the claims don't involve patent-eligible subject matter and was actually just manipulation of an abstract thought.

"This is a significant question in the national circuit, which is responsible for hearing appeals on patent issues. It took the case up and overturned a long flow of precedent both to the national circuit and the Supreme Court and removed what was known as the useful, concrete and concrete test for patent-eligible subject matter and replaced it with what was called machine-or-transformation evaluation, which is a much more rigid test for patentable qualified subject matter. The reason why that is important [for ecommerce and Internet purposes] is that this goes to a basic or gatekeeper question, that is,'What's patent-eligible subject matter?' And the Supreme Court is going to decide that matter."

PEC: Why does this case matter to ecommerce merchants?

Kovelman:"Because Section 101 of the Patent Law, which governs what's patent-eligible subject matter, basically says that any new and useful process, machine, manufacture and the like is patentable. The Supreme Court, however, despite the written precedent, has been making oral comments that it is not necessarily keen to expand or overprotect patents in the possibility of, if you will, preventing a diminished incentive to inventors. Thus, it's an important question for ecommerce individuals because they should understand what is patentable subject matter. Is applications going to maintain its present status as being patentable? Are business methods going to keep their present status as patentable? As Justice Breyer has said from the Supreme Court, he does not necessarily think that the Supreme Court had addressed that issue and the Court is working under the premise that software is patentable, but it is not a settled question. Thus, it's a matter about what in the future will be patentable.

"The section really should be a lively supply. The founding fathers I do not think intended for Congress to restrict inventions to the 1700s and 1800s. The definition has to be wide enough so that it can encompass new technologies, software, medical procedures and the like as technology advances. So, it's an essential question about what will and won't be eligible for protection going forward."

PEC: When the Supreme Court validates the circuit court's decision and has a very restrictive view of the issuance of patents, is there some invention online which can be patentable?

Kovelman:"I believe that the answer would be'yes,' although the machine transformation test is more restrictive than the test that has been applied before, namely useful, concrete and concrete. You want to have some type of transformation of physical thing or you will need to have the innovation or procedure tied to a certain structure. And if you tie your creations (you have a way of exchanging emails, if you will, or safety protocols but it's tied to a certain memory and a particular network setup or something like that) you've got a better probability of being able to acquire the patent. So, I don't think that it will eliminate these completely unless the court comes right out and states that these aren't patent-eligible. However, I think it could make it a little more challenging so as to receive protection."

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PEC: So, are patents like the ones for Google's search algorithms or Amazon's one-click technology jeopardized by Bilski?

Kovelman:"I believe they do have a feeling of risk here.

"[Tne Bilski case] raises an interesting question. Will the patents which have already issued be subject to a kind of correction if the Bilski evaluation is maintained, or is more restrictive? Presently, pending applications can be amended. In our clinic, we are discovering the examiners are enabling us to amend the claims to add in a more special arrangement machine part of the test and get the cases to allowance and permit the patent's issue. If the patent's already issued while there is a presumption of validity, there's a question of how to fix that. Maybe what we call a reissue proceeding might work, but the issue with that is that the applicant would need to have his patent reviewed form the beginning under all of the rules. It's not only an issue of changing the claim to have more structure. [There is ] a threat that they might lose their patents by getting it reissued.

"So, it's something that's likely to impact current patents maybe more than present pending application and it is likely to send some messages, if you will, to the ecommerce community within the next few days. Justice Roberts stated they anticipated the Bilski decision to return until the end of the spring term, which is June 28. Thus, it should come out anytime."

PEC: So, what do you expect will happen?

Kovelman:"First of all, Justice Roberts made a remark about a year-and-a-half ago the federal circuit wasn't necessarily after a Supreme Court precedent. That tells me that is one reason that the Supreme Court chose; they were not happy with what the national circuit did. In the oral arguments, the judges expressed some very healthy skepticism towards software and business method patents on if they need to be patentable in the first location. However, if you take a look at a number of the major decisions which have come down recently, to begin with, the delay for important decision is over the normal time between oral hearing and making decisions for these significant decisions which have fundamentally changed patent legislation or explained it and Bilski has been around 220 days to this stage and that is consistent with the delay for significant cases.

"Now, regardless of the oral argument comments which were made by the judges...I think there is a good likelihood that the Court's going to come down with something a bit more flexible than the restricted transformation-or-machine test."

PEC: And, if they do not, do you see congressional action?

Kovelman:"You need a living, breathing definition and it is not only the definition of Section 101 or what's qualified patentable subject matter, that is just step one. I believe everything ought to be qualified if it matches the definition. There is nothing about transformation or linkage to a machine in Section 101. It is just any new and useful process system, and the courts have frequently stated that anything created by man under the sun is patentable and that I believe the definition works.

"The matter with Bilski, by way of instance, is that the patent office and the national circuit rejected it saying it is an abstract concept, though if it is an abstract idea, a law of nature or a natural occurrence, that was not made by man. That's something which has been discovered by man, but it is not created by man. So, I believe that the definition continues to work.

"I think that Congress is very likely to overturn the decision in certain degree. From the 1952 Act, Congress altered the term'art' into'procedure' That's all they said,'any procedure.' They did not put in any of these limitations. Likewise, the Patent Reformation Act has been pending for quite a few years and nobody really can say when it is likely to issue, but tackling some of the challenging questions Congress is seeking to in that Act, it is quite possible that Congress will also explain what it deems to patentable qualified subject matter if the Court goes in the direction Congress doesn't like."

PEC: Tell us about yourself and your company and your practice.

Kovelman:"I have been practicing for about 20 years now and I am now with the law firm Steptoe & Johnson in the Century City, Calif. office. I handle the intellectual property in this office for the company. I'm very knowledgeable about Internet-based engineering and software encryption, security and the like and I also have experience with litigation both as testifying as an expert witness in addition to running cases. I can see how this basic question really can impact the continuing nature of ecommerce for people today and at the short-term future"

PEC: Anything else on your mind for our subscribers, who are largely ecommerce merchants?

Kovelman:"Just that the situation definitely has to be reviewed. I believe we are in for some interesting times with standpoint at least to the issue in regards to what's going to continue to become patent-eligible subject matter."

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