Supreme Court ruling may strengthen innovation in U.S.

| Tuesday, June 29, 2010

The Supreme Court on Monday ruled against two founders of a South Side company who tried to patent a method for calculating how weather factors might impact energy prices, but the court left the door open for other businesses trying to patent unique processes.

The decision in Bernard Bilski and Rand Warsaw's closely watched case affects companies in industries ranging from software development to medical diagnostics, online shopping, insurance and agriculture, in terms of the intellectual property they generate in their laboratories and offices.

Warsaw called yesterday "a very bad personal day" but said the court's ruling is a big win for innovators in the United States.

The court essentially rejected a lower court's decision that limited what can be patented to machines, devices or chemical substances.

Several patent attorneys said the lower courts will try to come up with another way to judge patents.

Bilski and Warsaw of WeatherWise USA on South 14th Street came up with a mathematical process for protecting energy companies who are their customers from big swings in supply prices, and the two former Equitable Gas Co. executives tried to patent it starting in 1997. The U.S. Court of Appeals for the Federal Circuit in October 2008 upheld the government's rejection of their application.

In a unanimous decision, the nation's highest court agreed that Bilski and Warsaw shouldn't get a patent. But the justices didn't endorse the idea that a patent had to relate to a machine or other physical thing -- a yardstick used in many past legal cases.

In terms of the method WeatherWise uses in several of its products, the justices agreed it "was nothing more than an abstract idea, and abstract ideas never have been patentable," said attorney Randy Lipsitz, a specialist in intellectual property at Kramer Levin Naftalis & Frankel LLP in New York.

"But the court did not rule out that other business methods could be patentable," he added, and that's important in an increasingly technology-driven world.

Justice Anthony Kennedy wrote that there are "reasons to doubt" whether what's often called the traditional machine or transformation test for a patent should be the "sole criterion for determining the patentability of inventions in the Information Age."

Justices John Paul Stevens and Stephen Breyer said they agreed with the ruling, but not with the court's reasoning on the patentability of processes. "This court has never before held that so-called 'business methods' are patentable, and in my view the text, history and purposes of the Patent Act make clear that they are not," Breyer said.

Lipsitz said the ruling could be the basis for challenges to thousands of patent rejections in recent years by the Patent Office and by appellate courts.

Warsaw said the old rules for patents can't apply in a time when machines themselves are losing their physical properties, such as in "cloud computing" that links distant computers wirelessly to other computers and devices. "The patent office was trying to use 19th century standards for 21st century technologies," he said.

Jeff Kuester, an Atlanta patent attorney who represented Bilski and Warsaw, said the patent system and economy "dodged a bullet on this one." A strict interpretation of the machine or transformation test could have rendered many innovations created through research and development unpatentable, at a time when business methods are becoming more protected, he said.

Companies and academic institutions including Microsoft, Bank of America and the University of California filed legal briefs on the case, a sign of its importance to tech-oriented businesses.

Still, the decision disappointed some trade groups that view looser patent standards in the past decade as pushing businesses to spend more money on lawyers than engineers.

"This narrow ruling does little to curb the explosion of patents and patent lawsuits that are crushing real innovators," said the Computer & Communications Industry Association, based in Washington. The Patent Office granted 185,224 patents in 2008, twice as many as in 1990.

Warsaw said the process that was the focus of the case is used in WeatherWise's WeatherProof Bill products for electric or natural gas utilities and energy marketers who want to offer customers capped or fixed prices. The company, with six employees, has diversified into other products for energy companies that calculate energy efficiency for large groups of consumers, for example.

Bilski no longer is with WeatherWise and couldn't be reached for comment. Warsaw declined to discuss the company's financial performance or legal costs associated with the case.

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