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LawPundit Excerpts of and Comments to the ORAL ARGUMENTS in the BILSKI case, which currently awaits decision by the United States Supreme Court

By Andis Kaulins

This posting provides LawPundit excerpts and comments to the ORAL ARGUMENTS in the BILSKI case, soon to be decided by the United States Supreme Court (we have added the links in the excerpted text). Although much of the patent industry seems to expect the machine-or-transformation standard in Bilski to be overturned, we view the course of oral argument to suggest that the Supreme Court could well affirm the Federal Circuit limitation of patents in Bilski by pointing to the context-defined definition of "process" in the patent law as historically applying to machines and transformative inventions, it being the job of Congress -- if it so desires -- to extend that definition of "process" beyond those bounds -- an extension which, in view of the desperate need for real patent reform, is legislatively in fact not desirable.

ORAL ARGUMENT OF J. MICHAEL JAKES ON BEHALF OF THE PETITIONERS

[LawPundit comment: The Court starts with the question of what is patentable, i.e. what are useful arts? Historically, these were tied to machines and physical inventions. "Processes" not tied to machines or physical transformation were not patentable.]

MR.JAKES: ...the Federal circuit has created a new test just for processes that are not found in the statute or required by this Court's decisions.
JUSTICE SCALIA: Of course, the government says that the -- that the term on which it hangs its hat is the term ?useful arts? and that that meant, originally, and still means manufacturing arts, arts dealing with workmen, with -- you know, inventors, like Lorenzo Jones, not -- not somebody who writes a book on how to win friends and influence people.
What?s wrong with that analysis, that that's what "useful arts" meant, that it always --always was thought to deal with machines and inventions?
...
[LawPundit comment: The Court moves to the issue that not everything that is "useful" is patentable]

JUSTICE BREYER: ... every businessman -- perhaps not every, but every successful businessman typically has something. His firm wouldn't be successful if he didn't have anything that others didn't have. He thinks of a new way to organize. He thinks of a new thing to say on the telephone. He thinks of something. That's how he made his money.
And your view would be -- and it's new, too, and it's useful, made him a fortune -- anything that helps any businessman succeed is patentable because we reduce it to a number of steps, explain it in general terms, file our application, granted?
MR. JAKES: It is potentially patentable, yes.

[LawPundit comment: One way to define "useful arts" is to look to the original purpose of the Constitution]

JUSTICE BREYER: Okay. Well then, if that were so, we go back to the original purpose of the Constitution. Do you think that the Framers would have wanted to require anyone successful in this great, vast, new continent because he thinks of something new to have had to run to Washington and to force any possible competitor to do a search and then stop the wheels of progress unless they get permission?
Is that a plausible view of the patent clause?
...

[LawPundit comment: If not everything that is useful is patentable, then what is a reasonable limitation?]

JUSTICE SOTOMAYOR: So how do we limit it to something that?s reasonable? Meaning, if we don't limit it to inventions or to technology, as some amici have, or to some tie or tether, borrowing the Solicitor General's phraseology, to the sciences, to the useful arts, then why not patent the method of speed dating?
...
[LawPundit comment: Even if the Supremes are "nervous" about the Federal Circuit new standard in Bilski, what else is there? a limitation on the patentability of abstract ideas only?]

JUSTICE BREYER: ... suppose I were to take the view that this is way too far, that that?s not the purpose of the statute. Suppose for hypothetical's sake I'm still a little nervous about that -- that circuit's decision there. Have you any suggestion for me?
MR. JAKES: I think that we should go back to the first principles that were enunciated in Diehr and other cases, that abstract ideas per se are not patentable. That's my position, and what I would advocate in this case and in any case, as long as you're--
CHIEF JUSTICE ROBERTS: What -- I'm looking at your claim 1, in Joint Appendix page 19 to 20. How is that not an abstract idea? You initiate a series of transactions between commodity providers and commodity consumers. You set a fixed price at the consumer end, you set a fixed price at the other end, and that's it.
I mean, I could patent a process where I do the same thing. I initiate a series of transactions with sellers. I initiate a series of transactions with buyers. I buy low and sell high. That's my patent for maximizing wealth.
I don't see how that's different than your claim number 1.
MR. JAKES: If that was a novel and unobvious method, then it should be patentable, but it's eligible as subject matter --
CHIEF JUSTICE ROBERTS: Well, but your claim 1 it seems to me is classic commodity hedging that has been going on for centuries.
MR. JAKES: Your Honor, if that were true, then we should run afoul of the obviousness provision under section 103. Now, the Patent Office did initially allow some of our claims over the prior art.
...
[LawPundit comment: Beyond abstract ideas the petitioner volunteers "physical steps" in a process as making abstract ideas patentable, as if picking up a phone were a "physical step", but of course, the taking of "action" upon an initial abstract idea does not make it "patentable"]]

MR. JAKES: ... I think even the Patent Office agreed that there are physical steps in our method here. And in the insurance method --
CHIEF JUSTICE ROBERTS: What -- I'm sorry. Just -- what are the physical steps? Initiating a series of transactions between commodity provider and market participants?
MR. JAKES: That would be one.
...
[LawPundit comment: Petitioner claimed that a "technology" or "technology and science" limitation on patentability would not work in the US, although Europe manages to do that.]

JUSTICE GINSBURG: Isn't that the basis on which the patent law rests in Europe, in other countries? They do not permit business method patents. It has to be tied to technology, to science or technology. So if other systems are able to work with the notion of technology-based, why not ours?
...

[LawPundit comment: What are the precedents for making business methods patentable?]

JUSTICE STEVENS: May I ask this question? What do you think the strongest case from our jurisprudence is that supports your position?
MR. JAKES: I would say it's the Diehr case.
JUSTICE STEVENS: Which one?
MR. JAKES: Diehr. Diamond v. Diehr.
JUSTICE STEVENS: Diehr?
MR. JAKES: Yes.
JUSTICE STEVENS: That's, of course, nothing like this patent.
MR. JAKES: No, it's not, but I think it --
JUSTICE STEVENS: There's language in the opinion.
MR. JAKES: It outlines the general principles --
JUSTICE STEVENS: Yes.
MR. JAKES: -- and also tells us that there are only these specific things that are not included within the subject matter.
JUSTICE STEVENS: But is it correct that there's none -- none of our cases has ever approved a rule such as you advocate?
MR. JAKES: I don't think this particular subject matter has been ruled on by the Court.
Now, in Dann v. Johnston in the seventies, there was a case that could have been decided on the grounds that it was a method of doing business, and instead the Court chose to decide that case based on obviousness. And really ?-

[LawPundit comment: Business methods were not patentable historically. Scalia and the horse whisperers.... We often criticize Scalia but he is a terrific Justice (regardless of whether one agrees with him or not) with a no-nonsense sensibility.... here is an example of that.]

JUSTICE SCALIA: You know, you mention that there are all these -- these new areas that didn't exist in the past because of modern business and whatnot, but there are also areas that existed in the past that don't exist today. Let's take training horses. Don't you think that -- that some people, horse whisperers or others, had some, you know, some insights into the best way to train horses? And that should have been patentable on your theory.
MR. JAKES: They might have, yes.
JUSTICE SCALIA: Well, why didn't anybody patent those things?
MR. JAKES: I think our economy was based on industrial process.
JUSTICE SCALIA: It was based on horses, for Pete's sake. You --
(Laughter.)
JUSTICE SCALIA: You would really have thought somebody would have patented that.

...
[LawPundit comment:The Court heads the discussion toward the "transformation" test]

JUSTICE KENNEDY: In the Diehr case, the Court said that in the end, the abstract idea must be in a process that, oh, implements a proposal that the patent laws were designed to protect, which brings you almost back to the beginning. You don't --
MR. JAKES: It does.
JUSTICE KENNEDY: You don't know much from that language. But that was something that you could touch, that you could see, that looked like a machine; the substance was different before the process and after the process. And -- and none of that's applicable here. It's --
MR. JAKES: The Diehr invention was an industrial process of the conventional type, because it was a method of curing rubber. But today the raw materials are just as likely to be information or electronic signals, and to simply root us in the industrial era because that's what we knew I think would be wrong and contrary to the forward-looking aspect of the patent laws.
JUSTICE SOTOMAYOR: Well, isn't the manipulation of electronic signals a substance that?s different in kind from just a method of how to go about doing business or a method of how to approach a particular problem?
Isn't there -- isn't that what the Federal Circuit was trying to explain, which is that there has to be something more substantive than the mere exchange of information; that it has to involve -- it used the word "transformation." It hasn't defined the outer limits of what it means by that.
MR. JAKES: I think there is a difference. But by rigidly looking at that transformation test, what you do is you exclude lots of other things where the transformation is not required --
...
[LawPundit comment: The Court now tacks in the direction of if there is no "transformation" test, then the mere exchange of information would be patentable. But can patent protection justifiably be extended from "machines" to raw "information" -- and is there any way to know that it would not do more harm than good? ]

JUSTICE BREYER: There are actually four things in the patent law which everyone accepts. There are two that are plus and two that are minus. And the two that are plus is by giving people a monopoly, you get them to produce more. As you said, you get them to disclose.
The two minuses are they charge a higher price, so people use the product less; and moreover, the act of getting permissions and having to get permission can really slow things down and destroy advance. So there?s a balance.

In the 19th century, they made it one way in respect to machines. Now you're telling us: Make it today in respect to information. And if you ask me as a person how to make that balance in respect to information, if I am honest, I have to tell you: I don't know. And I don't know whether across the board or in this area or that area patent protection will do no harm or more harm than good.
...
[LawPundit comment: Congressional patent legislation in 1952 envisioned a patent world involving machines and technological transformation, not information or code]

JUSTICE SOTOMAYOR: And so it begs the question, because we go around in a circle: What does "process" mean in a patent law that was passed in 1952 that had one set of manufacturing and other items that are technologically tied and this is not? So how do we discern Congress's intent, other than by the use of the word "process" in context? [emphasis and color added by LawPundit]
...
[LawPundit comment: The Court moves to the discussion of the example of Morse code, where the code itself was not patented, only its application to machines]

JUSTICE SOTOMAYOR: Morse's code was not obvious, and yet --
MR. JAKES: No, it wasn't.
JUSTICE SOTOMAYOR: As I understand that case, the only thing patented was the use of his code with respect to the telegraph machine that he proposed. The Patent Office rejected -- maybe I am reading the case wrong, but it rejected all of the claims except those that related to the use of the code with a particular machine.
MR. JAKES: It -- it does say used in connection with telegraphy.
...
[LawPundit comment: The Court then moves to the transformation example of Alexander Graham Bell and the telephone]

JUSTICE SCALIA: Well, it was -- it was transforming sound into electrical current and then at the other end electrical current back into sound. I mean it met the transformation test, didn't it?
MR. JAKES: It might have. It might have.
JUSTICE SCALIA: It clearly did.
MR. JAKES: Well, it's not that clear from the Federal Circuit's transformation test whether that would apply or not, because although the Federal Circuit has said transformation of data might qualify, it said it has to represent something physical, something -- a real object. And sound doesn't necessarily have to be that. Sound can be generated artificially. So --
JUSTICE SCALIA: Sound -- sound is not physical, and electric current is not physical?
MR. JAKES: I think electric current is physical.
JUSTICE SCALIA: Yes, I think so.
MR. JAKES: Yes.
JUSTICE SCALIA: Sound is, too.
MR. JAKES: It can be, but when it's transmitted over a wire, it's not. It's something else. It's an electrical current then.
JUSTICE SCALIA: Sound is not transmitted over the wires. Sound has been transformed into current, and current is transmitted over the wire and then transformed back at the other end into sound.
MR. JAKES: Yes, and I would agree --
JUSTICE SCALIA: I think it clearly --clearly would have been covered by -- by the test the government --

ORAL ARGUMENT OF MALCOLM L. STEWART ON BEHALF OF THE RESPONDENT

[Stewart starts out by distinguishing the patents of Samuel Morse and Alexander Graham Bell from inventions that do not deal in the realm of the physical, and sets out the standard applied by the Federal Circuit in this case]

MR. STEWART: Let me start by following up on the discussion of the Morse and the telephone cases, because it's certainly our view that those would come out the same way under our test as -- as they actually did in practice.
JUSTICE SCALIA: I certainly hope so.
MR. STEWART: Yes.
...
The reason that Bell's method was patentable was that it operated in the realm of the physical. Bell had devised a process implemented through machines by which sound was transformed into electronic current....

Innovations as to new techniques of public speaking, new techniques of negotiations, techniques that go to the substance of what is said may be innovative. They may be valuable. They are not patent eligible because they don't deal in the realm of the physical....
 ...
 ...

[LawPundit comment: But the Court wonders if such a broad standard is necessary and if one could not simply say that business methods are not patentable.]

JUSTICE SOTOMAYOR: How about if we say something as simple as patent law doesn't cover business methods, instead of what the Federal Circuit has begun to say, which is technology is tied to a machine or a transformation of the substance? But I have no idea what the limits of that ruling will impose in the computer world or the biomedical world. All of the amici were talking about how it will destroy industries. If we?re unsure about that, wouldn't the safer practice be simply to say it doesn't involve business methods?

MR. STEWART: I think that would be incorrect, and it would create problems of its own....

I think that the invention that was held to be patent eligible in State Street is commonly described as a business method, even though it was held to be patent eligible as a machine rather than as a process....

JUSTICE SCALIA: Also you could say business methods apart from machines are not patentable. How about that?

MR. STEWART: If the Court said that in the limited area of business methods, if there is no machine or transformation, there is no patent eligibility --
...
JUSTICE BREYER:  Okay. Now, you say what is it they have done in this case in the Federal Circuit? They have pulled back. That's a mood. That's a mood. They?ve pulled back insofar as they are pulling back from business methods, not machines, dah, dah, dah, dah, dah. Okay? You say we see no problem with that. [LawPundit note quoting the Wikipedia: "To reflect the sound of Morse code, practitioners began to vocalise a dot as "dit", and a dash as "dah" ".]

Do you see what I'm trying to do? I'm trying to note the things that have been raised in these 80 briefs insofar as possible, say there?s a lot there for the future that we can't really decide, but say as a pull back, okay. [Link, color and emphasis added by LawPundit]

...
[LawPundit comment: The Court now turns to the machine test element of the Federal Circuit's decision in Bilski]

CHIEF JUSTICE ROBERTS: Mr. Stewart, I thought I understood your argument up until the very last footnote in your brief. And you say this is not --simply the method isn't patentable because it doesn't involve a machine. But then you say but it might be if you use a computer to identify the parties that you are setting a price between and if you used a microprocessor to calculate the price. That's like saying if you use a typewriter to type out the -- the process, then it is patentable. I -- I -- that takes away everything that you spent 53 pages establishing.
...

MR. STEWART: I think an -- an interactive computer technique, one in which you sign on and can find people without tracking them down specifically, can simply identify yourself on the Website as somebody who is interested in engaging in a particular transaction and a potential counterparty can find you, is different from the Yellow Pages.

But I guess the fundamental point I would make is -- and this is really responsive to the second part of Justice Breyer's question -- I think it is both a virtue and a vice of the test that the Federal Circuit has announced and that we are advocating that it doesn't solve all the hard questions. That is, the Federal Circuit has said since this particular patent applicant didn't identify any machine or any transformation that would be necessary to the accomplishment of its method, that person is out of luck, and, therefore, it's inappropriate for us to go on to decide kind of the precise level of substantiality that a machine or transformation must play --
...

JUSTICE SOTOMAYOR: Now, if it veers the other way, which is by saying that we exclusively rely on the machine-or-transformation test, that we're precluding applications of the patent law in those fields, the things we can't imagine. Once you announce an exclusive test, you're shoe-horning technologies that might be different.

 MR. STEWART: I guess I would say a couple of different things. The first is that it seems unlikely, even with new and rapidly emerging technologies, that somebody would come up with a system that seems for patent purposes analogous to the inventions that have been patent eligible in the past that didn't involve any machine and that didn't involve any transformation.
...
JUSTICE SOTOMAYOR: All right. So help us with a test that doesn't go to the extreme the Federal Circuit did, which is to preclude any other items, something we held open explicitly in two other cases, so we would have to backtrack and say now we are ruling that we were wrong, and still get at something like this?
MR. STEWART: Well, I think the Court could say -- could do essentially what was done in Benson and Flook, namely acknowledge that there had never been a case up to this point in which a process had been held patent eligible that didn't involve a machine or a transformation. It could leave open the possibility that some new and as yet unforeseen technology could necessitate the creation of an exception. [emphasis added by LawPundit]



JUSTICE GINSBURG: Mr. Stewart, did you --did the government put forward this machine-or-transformation test? Was that your test, or was it the Federal Circuit's on its own?
MR. STEWART: The Federal Circuit, sua sponte, set the case for hearing en banc. I believe the case had been argued to a panel, but had not been decided, and the Federal Circuit set the case for reargument en banc, posed a number of questions to the -- the parties and the government did advocate the machine-or-transformation test.
...

JUSTICE GINSBURG: You did -- and if you read Judge Mayer's opinion, it has a simplicity to it. It says, if it's technology, then its within the realm of patent, and if it's not technology, it isn't. If it?s based on science or technology -- and that seems to be what is used in other places.
MR. STEWART
First, people could dispute whether particular advances are properly regarded as technological advances, and, second, we would still have the difficult problems that the Chief Justice has referred to, where you have a process that is described as involving technology at some step along the way, and courts will still have to make the determination, is that a sufficiently substantial step to make the process, as a whole, a technological one.
So I don't think that, by adopting a technological arts test, the Court would avoid the difficulties that it has appropriately identified with the machine-or-transformation test.


The other thing I would say about the machine-or-transformation test is this is not a government position of recent vintage; that is, the government's brief to this Court in Gottschalk v. Benson -- or its reply brief, which was filed around 1971 --basically said, although this Court has never announced machine or transformation of the test, that is the principle that can be abstracted from the totality of the Court's decisions. [emphasis added by LawPundit]



JUSTICE KENNEDY: Was the State Street case a machine-or-transformation test?
...
MR. STEWART: Oh, it would come out the same way. I mean, State Street Bank --
JUSTICE KENNEDY: That's what I thought. And is it -- is it machine or transformation, in your view?
MR. STEWART: Well, it was machine -- that is, in State Street Bank, the claim was not to a process within the meaning of section 101. The claim was not to a method of accomplishing things by means of a computer, which would be, potentially, a process. It was to the computer itself, the programmed computer, that the innovation in State Street Bank was that the devising of new computer programs that allowed the computer to perform various tasks in association with the carrying out of the hub-and-spokes investment -- investment method. And, certainly --
CHIEF JUSTICE ROBERTS: So what did that --what did that transform?
MR. STEWART: It didn't transform anything, but it would fit -- the transformation part would be irrelevant because the machine-or-transformation test is, in our view, the appropriate rubric to apply in construing the statutory term process, that is, when the person doesn't say, I have invented a new machine, but, rather, says, I've identified a new process for accomplishing things.
...
JUSTICE STEVENS: I don't understand why that isn't just the application of a process, which --which is not itself patentable subject matter, to a particular machine that can use the process --
JUSTICE KENNEDY: That's -- that's a problem I have.
...
JUSTICE BREYER: So I thought you were saying that the correct argument for the people attacking the patent in that case was to say, this is not a machine. The machine there is a computer. This is a program that changes switches, and that is a different process for the use of the machine.

Now, whether that process is or is not patentable depends upon a lot of things that we don't have to go into in this case. Is that right?
...
MR. STEWART: But I -- but I think the argument that has been made with success -- and PTO agrees with this -- is that programming a computer by means of software to produce -- to perform new functions can create a novel --

JUSTICE BREYER: But then all we do is every example that I just gave, that I thought were examples that certainly wouldn?t be patented, you simply patent them. All you do is just have a set of instructions for saying how to set a computer to do it. Anyone can do that. Now, it's a machine.

So all the business patents are all right back in. Now, that -- what I think we were looking for was -- or at least I was -- was why that isn't so, and how you are going to later, down the road, deal with this situation of all you do is you get somebody who knows computers, and you turn every business patent into a setting of switches on a machine because there are no businesses that don't use those machines.
...
[LawPundit comment: Does the court have a viable alternative to the machine-or-transformation test?]

JUSTICE GINSBURG: But this case could be decided without making any bold step --
MR. STEWART: Again, I don't -- I don't think it would be a bold step to say that machine or transformation is the test. That is, we have gone for more --
JUSTICE GINSBURG: But even the Federal Circuit didn't say it was the test. It said it is for now. We know that things that we haven't yet contemplated may be around the corner, and when they happen, we will deal with them.
MR. STEWART: And we would -- we would be entirely content with a ruling like that.
...
The other point I would make about the programmed computer is, to follow up on my television and DVD example, that when you claim a machine or a manufacture, as the committee reports to the 1952 Act said, those words are broad. They encompass everything under the sun that is made by man. And so a television is indisputably a machine, even though its function is not to transform matter. It's only when you get to the term "process" that you are left with -- that the machine-or-transformation test kicks in.

And really, the argument on the other side is: The term "process" in ordinary speech is extremely broad. It can literally be read to encompass any series of steps, whether or not linked to technology, whether or not linked to a machine or transformation. And the other side argues you should construe it that way in the patent statute.

I guess the -- the three reasons we would say that's not so are, first, under the canon of noscitur a sociis, it?s appropriate to construe the term "process" in conjunction with the other terms. Those other terms are broad, but they all refer to physical objects that don't exist in nature and are created by man. And a huge array of very productive, innovative activity doesn't culminate in the creation of any new physical substance, and the word "process" surely was intended to add something, but it would be quite strange to construe the word "process" to encompass the whole range of human endeavor when the other words are limited to the creation of new things in the physical.

The second thing is that when this Court in the past has explained the term "process," it's always linked it to the operation of machines, as in the telephone cases and in Morse, or to the transformation of matter in ways that may not be dependent on a particular machine.

And the third thing I would say is that in a sense, there?s a strong ?dog that didn't bark in the night? quality to our argument; that is, even though the Court has never said in so many words that a method of allocating risk by contract is a patent-eligible process, the economic history of this country really would have been fundamentally different if it had been believed from the outset that innovations of this character could be patented and potential competitors could be foreclosed from engaging in the same method.

REBUTTAL ARGUMENT OF J. MICHAEL JAKES

[LawPundit comment: uneventful]

Full post as published by LawPundit on April 20, 2010 (boomark / email).