Business Method Patents: Challenges for Patent Infringement Cases

As attorneys involved in patent litigation, our firm has received several inquiries lately about whether we might take, on contingent fee, a case for infringement of a business method patent.  The answer is “maybe!” “A business method is simply one kind of ‘method’ that is, at least in some circumstances, eligible for patenting.” Bilski v. Kappos,130 S.Ct. 3218 (U.S. 2010). Great care must be taken in evaluating such a case, however, because method patents are not broadly patentable.

Bilski made its way to the highest court via an administrative route rather than by private litigation. An applicant tried to patent a method of hedging risk in commodities trading in the energy market. The PTO rejected the patent, which was affirmed by the Board of Patent Appeals and the Federal Circuit (en banc).   The Supreme Court granted certiorari.            

Methods of doing business are not necessarily non-patentable. In Bilski, the claimed invention was a mathematical formula, an “abstract idea,” and thus not a patentable “process.” Significantly, however, the Court rejected any limitation that a method patent must satisfy a “machine” or “transformation” test. That is, a claimed process is not patent eligible only if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.  Although a useful tool, the Supreme Court held that the “machine or transformation” test is not the sole test for determining whether a method is patent eligible.   While the “machine or transformation” test might have worked well in the Industrial Age, it does not work as well in the Information Age.             

In the Supreme Court’s decision, four Justices concurred in one opinion (strongly disagreeing with the Court’s disposition of the case) and two in another (believing that business methods are not patentable). The Federal Circuit’s decision produced five opinions. This led Justice Kennedy to note, “Students of patent law would be well advised to study these scholarly opinions.”             

This has led some to suggest reexamination as an alternative to patent litigation or a license and that “defendants and potential licensees are using reexaminations more frequently than in the past to challenge the validity of the claims in issued patents.  So what’s the bottom line? Business method patents, while perhaps alive, will be difficult to successfully litigate by a plaintiff.   Perhaps the patent owner can best prepare his case for successful litigation by seeking re-examination himself before it is sought by a defendant, potential licensee or other third-party. We would be much more likely to take a business method case on contingency fee after the patent has survived re-examination in light of the substantial, though perhaps somewhat ambiguous, discussion of the higher and highest courts in Bilski.


Houston: Not Yet the Next Marshall

           Patent infringement suit filings have remained relatively steady for the past eight years, according to Stanford Law School’s Intellectual Property Clearinghouse. New patent suits range between 2,300 and 2,800 filings per year. But Marshall, Texas is the venue of choice for a disproportionally high number of those filings. Since January 1, 2008, for example, there have been 295 patent suits filed in the United States District Court for the Eastern District of Texas.  And sixty percent of the district’s patent suits are traditionally filed in the district’s Marshall Division. 

            There are several reasons why plaintiffs’ lawyers prefer Marshall. The sitting judges and their magistrates are considered fair and experienced. Jurors in the division have also demonstrated a deep respect for individual property rights. And there is a perception, although no longer substantiated, that cases reach trial quickly through Marshall’s “rocket docket.”

But another reason why plaintiffs prefer Marshall is the district’s “Rules of Practice for Patent Cases.” Those rules require prompt disclosure of discoverable information and prevent gamesmanship in the discovery process. More importantly, the rules are strictly enforced by the judges and magistrates. Plaintiffs’ lawyers know that they will be able to get the information necessary to support their case; and get it quickly or have an available remedy.

The crush of patent cases filed in Marshall over several years has caused its “rocket docket” to slow. And plaintiffs may search for other venues. One possibility is the United States District Court for the Southern District of Texas (located primarily in Houston, Texas). The venue may become attractive because, effective January 1, 2008, the district adopted its own “Rules of Practice for Patent Cases” that mirror those used in Marshall. Adoption of those rules, however, has not yet lead to a dramatic increase in patent suit filings. Only thirty-two patent cases have been filed in the district during 2008 (compared to twenty-eight last year). Time will tell whether the new rules attract suit filings. Because new suits filed under those rules are just now becoming ripe for the adjudication of discovery disputes, we will soon learn whether judges and magistrates in the Southern District of Texas apply the rules as strictly as the jurists in Marshall. If so, plaintiffs’ lawyers may find Houston a more attractive venue for their patent cases.