Expect a "Perilous Future for Most Business Method Patents," Saith Judge Marylin Patel

by Lee Gesmer on April 6, 2009

Expect a "Perilous Future for Most Business Method Patents," Saith Judge Marylin Patel

Judge Marylin Hall Patel, a federal district judge in the North District of California (San Francisco/Silicon Valley) since 1980 and Chief Judge in the District from 1997 – 2004, is a well known federal judge when it comes to intellectual property matters. For example, Judge Patel decided the Grokster case at the district court level, which eventually was affirmed by the Supreme Court, and she has decided many patent cases.  When she speaks on IP matters, one would do well to listen

Therefore, her March 26, 2009 decision in Cybersource v. Retail Decisions is of no small significance. In this case Judge Patel applied In re Bilski to invalidate two business method patent claims in U.S. Patent No. 6,029,154, titled “Method and system for detecting fraud in a credit card transaction over the Internet.” The CAFC’s decision in Bilski requires that a process either be tied to a machine or apparatus or involve a transformation, and Judge Patel held that the ‘154 patent failed this “machine-or-transformation” test.

Judge Patel held that a credit card number is not a physical object, thereby failing the “transformation” test, and she rejected the argument that because the claims were tied to the Internet they satisfied the “machine” test, since “one cannot touch the Internet.”

At the conclusion of her opinion she stated:

In analyzing Bilski, one is led to ponder whether the end has arrived for business method patents, whose numbers swelled following the decision in State Street. Without expressly overruling State Street, the Bilski majority struck down its underpinnings. This caused one dissenter, Judge Newman, to write that State Street “is left hanging,” while another dissenter, Judge Meyer, registered “an emphatic ‘yes’” to rejecting State Street, and a third, Judge Rader, queried whether the court was willing to decide that the entire field of business patents is “undeserving of incentives for invention.” 545 F.3d at 995, 998, 1014. Although the majority declined say so explicitly, Bilski’s holding suggests a perilous future for most method patents.

The observations of several Justices suggest that this issue may be expected to receive serious consideration by the Supreme Court . . . The closing bell may be ringing for business method patents, and their patentees may find they have become bagholders.

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