Supreme Court to decide: What kind of innovations get a patent?

The US Supreme Court on Monday takes up the most fundamental question in patent law: Which innovations deserve the protection of a patent?

The answer holds billion-dollar implications for the American economy.

At issue is whether US patent protection must be limited to inventions involving machines and transformative processes, or whether patent law also embraces nonphysical inventions like improved business methods and software innovations.

The case, Bilski v. Kappos, is viewed as a potential landmark in patent law. It has attracted 67 friend-of-the-court briefs from lawyers, scholars, and businesses, including Microsoft, the Biotechnology Industry Organization, Bank of America, Google, Yahoo, and L.L. Bean.

A patent is a reward for innovation. It grants a temporary monopoly to inventors who shape original thought into a "new and useful process, machine, manufacture, or composition of matter."

But a patent can also stifle innovation. When government-backed protection is provided for an ill-defined method, a patent may foster uncertainty and raise a risk of distracting and expensive litigation.

In its essence, legal analysts say, patent law seeks to achieve a balance that will reward genuine innovation without significantly burdening further innovation by others.

The Bilski case involves an attempt by Bernard Bilski and Rand Warsaw to obtain a patent for their invention of a method of hedging risks associated with energy-related commodities. The method uses an intermediary to dampen commodity price fluctuations. It provides protection to both sellers and consumers. The innovation is a mathematical formula used to determine intermediary prices.

The Patent and Trademark Office rejected the application. On appeal, the US Court of Appeals for the Federal Circuit upheld the patent office's rejection. In doing so, the appeals court articulated a test to help determine which processes are entitled to patent protection.

Under the Federal Circuit's test, a patentable process must involve a machine to complete the process or involve the transformation of an article into something different.

Announcement of the test sparked an uproar well beyond Mr. Bilski and his lawyers. If upheld, analysts say, the Federal Circuit's "machine or transformation test" would undermine a large number of so-called method patents, including business method innovations, biomedical research innovations, and software patents.

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