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Patents

Supreme Court Blocks Patent for Business Formula

But ruling leaves uncertainties about how the patent system will adapt to a changing economy

Since the first U.S. patent was issued in 1790, some 7.5 million inventions have received them. Every grade-schooler learns about the cotton gin, invented by Eli Whitney in 1793, and the incandescent light bulb, for which Thomas Edison received a patent in 1880. More than a century later, inventor Dean Kamen patented the Segway, a two-wheeled, self-balancing “human transporter.”

Whitney, Edison and Kamen come from very different eras, but their reasons for getting a patent were the same: to make sure that no one copied, built or sold their inventions without permission.

That’s exactly what Bernard Bilski and Rand Warsaw, founders of a Pittsburgh company, were seeking when they applied for a patent in 1997 for their invention, a method for helping buyers and sellers of energy hedge against possible weather-related price changes. But theirs is a complex, business-world idea, not a nifty electric scooter or a revolutionary product for lighting homes and street lamps. The patent office rejected their application, noting that the invention doesn’t require a particular machine and “merely manipulates [an] abstract idea and solves a purely mathematical problem.”

After a lengthy legal battle, their case, Bilski v. Kappos, ended at the U.S. Supreme Court, which ruled on June 28 that their hedging method is ineligible for a patent. But the highly anticipated ruling—a rare foray into patent law by the high court—left many uncertainties about how the patent system should adapt to a changing economy. David Kappos is the director of the U.S. Patent and Trademark Office.

Those outstanding questions—about whether business methods, abstract ideas, mathematical formulas and other advancements that aren’t strictly tied to physical objects are eligible for patents—have broad implications for a wide range of industries, including software, financial services, biotechnology and retirement planning.

Defining the limits

The Supreme Court’s decision slightly broadens the scope of what is eligible for a patent. But the line between what is and isn’t eligible remains murky. As Gregory N. Mandel, a professor at Temple University Law School who specializes in intellectual property law, says, “The really difficult challenge here is that, on the one hand, it’s easy to describe an innovation that is so abstract that patent laws should not apply to it. But it’s hard to draw a line between that innovation and increasingly more concrete inventions.”

Indeed, during oral argument in the case, several justices bombarded Bilski and Warsaw’s lawyers with hypothetical questions about just how far the line could be pushed. Justice Sonia Sotomayor wondered whether “a method of speed dating” could receive a patent. Justice Antonin Scalia asked whether “horse whisperers,” with special insights into the best ways to train horses, might be patentable.

Justice Stephen Breyer took it even further. “You know, I have a great, wonderful, really original method of teaching antitrust law, and it kept 80 percent of the students awake,” he said. “And I could probably have reduced it to a set of steps, and other teachers could have followed it. That you are going to say is patentable, too?”

A high-stakes problem

Business interests and legal experts are sharply divided on the issue.

At one end of the spectrum, critics of a broader application of patents say their application to a variety of business methods could increase prices and limit access to innovative new approaches. At the other, advocates for these types of patents argue that without them, innovation will be stifled, as inventors fear that others could steal their ideas and reap the profits.

In a friend-of-the-court brief opposing Bilski’s patent bid, AARP attorney Barbara Jones argued that abstract ideas and mathematical formulas should never be eligible for a patent.

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Members can earn 3% cash back on purchases with the AARP® Credit Card from Chase.

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Join or renew today! Members receive exclusive member benefits & affect social change.