Interested parties the world over anxiously await as the U.S. top court prepares its ruling regarding the patentability of business methods. The Supreme Court recently heard arguments in the matter of Bernard Bilski and Rand Warsaw v. David Kappos from an appeal of the U.S. Court of Appeals for the Federal Circuit, which upheld the United States Patent Office decision last year.
Specifically, the Bilski case involves a Pittsburgh company, WeatherWise, that was founded by Bernard Bilski and Rand Warsaw to sell services based on hedging methods that allow users to make fixed energy payments in the face of varying usage or energy prices. Trying to protect their idea, a patent application was filed which was ultimately rejected by the U.S. Patent Office in 2000 and subsequently rejected by the Patent Board in 2006 and the Federal Circuit in 2008.
In reaching their decision, both the Patent Board and the Federal Circuit stated that a process is patentable subject matter if it can be “tied to a particular machine or apparatus” or if it is found to “transform a particular article into a different state or thing”. With respect to the Bilski case, the Federal Circuit ruled that the hedging method could not be patented because it was not tied to a machine and did not result in a transformation. Presently at issue before the Supreme Court is whether the “machine-or-transformation” test is the right standard and whether business methods are patentable subject matter.
Patent Protection:
At the root of the present argument is whether or not business methods are patentable subject matter. Essentially, patent protection is a very powerful mode of intellectual property which may cover any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter. Patent protection may confer upon the patent holder an exclusive right to exclude others from making, using or selling his or her invention in that country during the life of the patent.
Impact of a Bilski Ruling:
Experts agree that the today’s economy is driven by knowledge-based developments and patents play an integral role. Building on that sentiment, it is not surprising that between the years of 1992 and 2002, the number of patent applications filed in Europe, Japan and the United States grew by more than 40 percent. In particular, the number of software patents has been climbing sharply, a reflection of the industry growth as well as the pervasiveness of the medium.
Technology companies are watching the Bilski case with keen interest for another reason. Should the Supreme Court find that the business methods are not patentable subject matter, this may in turn negatively impact the patentability of software patents, which are often intimately related to the implementation of a business method (i.e. the Amazon.com Inc’s one-click process to buy goods on the Internet).
WeatherWise co-founder Rand Warsaw has estimated that due to the inability to patent their business method, his small company has lost close to $5 million a year. He went on to state that “this lack of patent protection has given rise to competitors and given rise to companies who have taken our intellectual property. For other small companies this could have been a death blow”.
As expected, this debate has spawned competing camps with opposing views. On one side are the innovators such as software and biotechnology companies, who desire an expansion to the definition of patentable subject matter due to the income associated with licensing the technology. On the other side you will find financial institutions who desire a restricted definition so that the new technologies and business methods are freely available.
The Supreme Court is not expected to hand down its decision until June of 2010; however, patent experts agree that the Court will not simply affirm the Federal Circuit decision. As a rule, when the Supreme Court takes a case from the Federal Circuit, they do so because they see something they want to change.
How To Protect Your Business Method Beyond Patent Protection:
Any Bilski ruling may impact the patentability of not only business methods but also software applications. Should the Supreme Court rule that pure business methods such as Bilski are not patentable subject matter, there exists other vehicles which may confer protection. For the most part, these other options pertain to contractual based solutions, but if patent protection is not available, they should be explored, especially if your company may experience a “death blow” should your methods or applications become public domain.
Non-Disclosure Agreements/Confidentiality Agreements
A company can protect its business methods and software applications (confidential information) by entering into non-disclosure and confidentiality agreements with its employees and any other parties that will be provided with access to the confidential information. For so long as the agreement is in effect, the confidential information is protected, effectively creating a contractual monopoly as opposed to a statutory monopoly provided by the patent system. The disadvantage with such a system is that a third party not bound by the contract would not be prevented from independently duplicating the business method or software application.
Non-Competition Agreements
Similar to a non-disclosure and confidentiality agreement, a non-competition agreement is another means to limit the disclosure of confidential information to third parties. A non-competition agreement prevents one party (usually an employee or contractor) from pursuing a similar business as that of another party. This allows a company to maintain its competitive advantage, by preventing other businesses from using the information for their own pecuniary gain and starting a competing business. However, it must be noted that a non-competition agreement can only be of a limited duration, and must also be limited in geographic scope. The courts are guided by the public policy that competition is to be encouraged, and are loathed to bar individuals from competing in their chosen trade or business.
Trade-marks
Not to be overshadowed by patent protection or contractual means, one should never overlook the power of branding and registering trade-marks. A trade-mark is a distinctive word, design or combination thereof used by an individual or business to distinguish their products or services from those of other entities. While trade-marks are associated with actual goods and services, they have gone on to be associated in the minds of the consumer to stand for the overall goodwill and reputation of a business.
Conclusion:
A company who has spent considerable time and effort developing a business method or a software application should be aware that depending on the manner in which it is used, there may exist alternatives to protect the business method aside from patent law. While patents provides the strongest level of protection, having certain agreements and trade-marks in place may ensure some level of protection and assist the company to retain its competitive advantage.
Brown, C. Donald
(416) 972-9001, Ext. 236
clientservices@heydary.com
Heydary, Javad
(416) 972-9001 Ext. 201
clientservices@heydary.com
