I don't say this often, but it looks like the Court of Appeals for the Federal Circuit (CAFC) -- or "the patent court" -- got a big one mostly right. In the rehearing of the Bilski case concerning the patentability
of software and business method patents, CAFC just came out with its ruling that will significantly limit software and business method patents
, bringing the rules way back towards what they were years ago, and effectively rolling back some of the earlier, dreadful, CAFC decisions that opened the barn doors towards tons and tons of software and business method patents.
The summary is that the court has said that there's a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable
. That means a significant
number of software and business method patents are about to disappear, freeing up many industries to be much more innovative -- at a time when that's desperately needed.
Earlier this year, I laid out the arguments on both sides
of the case, surprising some by pointing out that I did not think it was right for the courts to carve out a special "exemption" for software or business model patents, but that a single standard should be applied across all patents. From my first read of the ruling, it looks like CAFC may have gotten this right. It doesn't carve out an exception, but makes it clear what the rules are for patents, based on earlier Supreme Court rulings, and makes sure the same rules are applied across the board. Specifically, CAFC recognizes that without that two-pronged test, the patent system effectively allows the patenting of overall concepts, rather than specific applications. While patent system defenders always claim that "ideas are not patentable," in practice, that was not true over the past decade. This ruling brings things back into line.
The ruling does note that such rules may be changed in the future, as necessitated by changes in technology, but "we see no need for such a departure." This statement strikes me as a bit odd -- as it shouldn't be the court's determination for when there should be such a "departure," but that of the legislative body (and you can bet lobbyists are rushing to Capitol Hill with new legislation to expand the scope of the patent system as we speak).
The ruling specifically addresses the State Street ruling that opened the doors to the widespread patenting of software and business methods and found that the earlier ruling erred, somewhat, in creating an improper standard for determining patentability that did not agree with Supreme Court precedent.
There are some dissenting opinions, with one that freaks out and claims that the court is usurping the legislative role, in changing what is patentable based on their own beliefs rather than what the law says. But, in a separate concurring opinion, two of the judges rightly point out that this is incorrect, show how their ruling is consistent with the law, and suggest that the only ones going beyond what the law says are those who are aggressively trying to expand what is patentable.
However, there's another dissenting opinion, well worth reading, that goes even further
and argues that the CAFC ruling doesn't go far enough in repudiating the State Street ruling, and even points out why the courts are wrong to claim that "anything under the sun invented by man" is patentable. This dissent, written by Judge Mayer, is highly worth reading, showing all of the unintended consequences and harm done by the vast expansion of patentable materials -- mainly focusing on the evils of business method patents. "Methods of doing business do not apply 'the law of nature to a new and useful end.' Because the innovative aspect of such methods is an entrepreneurial rather than a technological one, they should be deemed ineligible for patent protection." Mayer points out, as we have noted repeatedly, that the clause in the Constitution that allows patents does "not grant Congress unfettered authority to issue patents," but rather, only to issue patents that effectively promote the progress. The dissent goes on to show how so many patents do exactly the opposite. It's really a fantastic read.
So What Happens Now?
Well, it may take some time to digest, but it's likely this will be appealed to the Supreme Court, so that process may take a while. Given the Supreme Court's recent rulings on patents, however, if I had to take a guess, I think they would support this ruling. But, you never know until it's decided.
This ruling will, however, send serious shockwaves through pretty much every industry -- because software and business method patents are found just about everywhere. Companies that rely on such patents (such as patent hoarding companies) may have just found out their current business model is about to go away. An awful lot of patents are now about to be invalidated, and a lot of patent lawsuits may get thrown out as the patents do not meet the criteria set forth in this decision.
You can bet, however, that the supporters of widespread software and business method patents will not go down without quite a fight. Beyond appealing the decision, it's likely there will be a push for a different type of patent reform in Congress that will expand the patent system to allow software and business method patents. There will be ridiculous announcements from companies that have chosen to litigate rather than innovate, claiming that they cannot innovate (even though they weren't) without much broader patents that they were actually using to hinder innovation.
So, while this is a huge victory for freeing up the ability to innovate, those who have used bogus patents to profit for years cannot be expected to go along quietly.