JOHN W. SCHLICHER

PATENTS, PATENT LITIGATION, PATENT DISPUTE RESOLUTION AND

SETTLEMENT, LICENSING, ANTITRUST, LAW AND ECONOMICS

 

 

 

John W. Schlicher, “The Supreme Court, Bilski, Business Methods, and Sensible Limits on Patents,” 91 Journal of the Patent and Trademark Office Society 523 (2009)(Article) (Table of Contents)

 

Introduction and Summary Section

 

Technological change is a major and probably the main source of economic growth.  Patent law exists to increase the rate of technological change and uses market forces and judgments to determine the direction of change.  However, patent law has its limits and the Supreme Court will for the umpteenth time define those limits.  The Supreme Court will decide whether Bernard Bilski might be granted a patent.

I.  Summary

This paper describes the Bilski issue - whether a patent may be granted for a method a commodity dealer could use to reduce its market risk when buying and selling.  (Section II)  It briefly describes the law of patentable subject matter.  (Section III)

Sensibly understood, the limits on patentable subject matter operate to prevent a patent when some product or process does not provide the type of benefit patent law exists to achieve or when certain types of costs of using patents would greatly exceed the benefit.  (Section IV)

Patent law exists to increase incentives for R&D on new product and process designs, that is technology, with potential to lead to economic growth by increasing the demand and supply products and services.  The Bilski process does not provide this type of benefit.  Even if it did, this is not a sufficient reason to declare the process potentially patentable.

Patent rights create costs.  When inventors obtain patents, other people bear four types of costs: costs to avoid violations; costs of errors; costs of legal uncertainty; and transaction costs of licensing (not the payment to the patent owner).  Patents will do more harm than good if extended to areas, where economic costs exceed economic benefits.  When it is unclear whether costs will exceed benefits in some area, as it will often be, increased incentives to produce new technology should always be favored.  Patents should be refused on the basis of patentable subject matter only when these types of costs are highly likely, if not virtually certain, to exceed the benefit for some type of process or product.  On initial appraisal, a patent on a process such as Bilski’s would seem high likely to impose economic costs far greater than any economic benefits and should not be patentable subject matter.

This paper notes that if the Bilski process is patentable, there are no apparent limits on patentable subjects, a point several Justices illustrated during the Bilski argument.  (Section V)  The paper explains why several Justices were right to ask why a process that is not patentable should become patentable merely by changing the claim to say some steps of the process are carried out using some machine or changing the claim to say the invention is some machine or group of machines that carries out the steps of the process.  (Section VI)  The same considerations that should guide what processes are patentable should also guide what machines are patentable.  Processes such as Bilski’s should not be patentable merely because some steps could be carried out with a general purpose machine such as a telephone or a computer.

This paper also discusses the machine-or-transformation test the Court of Appeals majority perceived from the Supreme Court’s decisions.  (Section VII)  It explains why the machine-or-transformation test is inconsistent with the Patent Act.  It describes why the Supreme Court’s decisions do not and should not require that test.  The Court’s decisions are described in section X.  The paper describes an alternative to the Court of Appeals’ test that is in tune with the Patent Act.  (Section VIII)  The Patent Act could be understood to limit patentable processes to those carried out by businesses and people when they make or when they use machines, manufactures, and compositions.  The paper explains why limiting patentable process in this way would be likely to limit the costs patents impose on the economy.  It describes why patentable processes could also be limited to processes of making or using some limited and identifiable group of machines, manufactures, or compositions.  The purpose again would be to limit the costs of patents.

This paper briefly explains why there is no need for a separate rule against patenting methods of doing business.  (Section IX)  Any such rule is useless and has potential to do enormous harm.  Finally, the paper describes the extent to which processes of making or using information of any kind should be patentable and the extent to which services should be patentable.  (Sections XI and XII)