Supreme Court to decide fate of software patents

Wisconsin has always been a hotbed of innovation and entrepreneurship, of using new technology to make useful things for people and industry. Around the turn of the last century, electricity and new ways of metalworking gave rise to industry-first startups that called Milwaukee home. Companies like Harnischfeger in mining equipment, Allen-Bradley in electrical controls and Allis-Chalmers in industrial machines, grew into industrial giants. 

With the wane of manufacturing around the turn of this century, Wisconsin has continued to adapt and has pursued its “Forward” motto to become a center for software development, with Epic Systems and Google in Madison, and with Metavante, Fiserv and GE Healthcare, and many smaller companies in the Milwaukee area.

Now, all Wisconsin software eyes should be on the U.S. Supreme Court, which will soon decide whether such innovation will be protected and whether software and business methods should be considered for patents, or not. 

Determining what types of technology can be covered by patents has been continuously changing over the years, and at times has been highly controversial. The United States Court of Appeals for the Federal Circuit, the court that handles patent appeals, issued a ruling in 1988 that allowed for “business-method” patents. In the State Street Bank case, the patent covered a data processing system for “hub and spoke” financial services, where the “spokes” were mutual funds that pooled their assets into a central hub. There, the court said that the transformation of data through a series of mathematical calculations produces “a useful, concrete and tangible result” – a final share price accepted in subsequent trades.

Because of that case, business methods of varied types were considered patentable, including methods for ordering on e-commerce web sites, systems for conducting Internet auctions, various financial products and planning techniques, and other techniques or types of software that companies and entrepreneurs have sought to protect as patentable “processes.”

In the past year, however, the Federal Circuit has begun to scale back the granting of these business-method patents. In a long awaited ruling of a case known as Bilski, the Federal Circuit held that a method of hedging risk in commodities transactions was not patentable. In the Bilski decision, the Federal Circuit said that the “useful, concrete and tangible result test” from State Street was insufficient to determine whether an invention is patent-eligible, and instead, applied a “machine-or-transformation” test, which requires that the invention is either tied to a particular machine or that it transforms a particular article into a different state or thing.

The case has drawn interest from diverse businesses. Surprisingly, certain computer and software companies, including IBM, Microsoft and SAP are arguing for tightened standards. Other companies, including American Express and Accenture, support broader patent protection.  Many now argue that this test does not comply with today’s changing Internet landscape. Many software and financial services companies believe the courts should develop a new test for determining the kinds of inventions that should be eligible for patent protection, one that might better accommodate emerging technologies.

The Supreme Court could say that, before Bilski, the courts had been making it too easy to get patents. Such a decision could further restrict patentability, hurting many start-up companies and entrepreneurs. More likely, they may say the new “machine-or-transformation” test is too rigid, and should be more flexible, decided more on a case-by-case basis. 

Either way, Wisconsin businesses need to be aware of the upcoming challenges and changes occurring with patents on software and business methods. 

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