Bilski and Biotech: Business As Usual, For Now

Earlier today the Supreme Court handed down its opinion in what some patent observers have termed “the most highly anticipated patent decision of all time“: Bilski v. Kappos (pdf). The Bilski case was widely watched not for the significance of the particular patent at issue but for the far-reaching effect on patent law that the case might have.

Would the Court treat Bilski as a referendum on the patentability of so-called “business methods”? Would it speak more broadly still, using Bilski as an opportunity to clarify the patentability of a range of emerging technologies, particularly in the areas of software and biotechnology? These questions took on added significance for biotechnology companies, investors, researchers and observers earlier this spring when a federal court in New York used Bilski’s machine-or-transformation test to invalidate several of Myriad Genetics’ diagnostic method claims.

After months of anxious speculation, the Supreme Court’s decision arrived today in the form of a relatively brief 16-page majority opinion that did not produce anything near the profound jolt to patent law that some had anticipated. On the specific issue in front of the Court – whether to uphold the Federal Circuit’s decision to reject a patent application by Bernard L. Bilski and Rand A. Warsaw for a method of hedging commodities risk – the verdict was unanimous: the patent represented an “unpatentable abstract idea.” While Bilski and Warsaw are clear losers here – a result which comes as no surprise – the question for readers of the Genomics Law Report is what, if anything, Bilski means for biotechnology.

Laying out the Law of Bilski. Before we proceed with a review of Bilski and its implications for biotechnology, a cautionary word on the importance of Supreme Court robe-counting is in order. Despite Bilski’s 71 pages spread over three opinions (pdf), the only language that carries the force of law is that found in an opinion (or a part of an opinion) signed by at least five justices. That’s important because it leaves key sections of the majority opinion, along with both concurring opinions, as just that: opinions.

Kennedy’s Majority Opinion. The Bilski opinions kick off with Justice Kennedy’s majority opinion, which begins with a history of the Bilski patent and the procedural background of the case, before diving into the § 101 patent-eligibility discussion. The opinion looks at two proposed categorical limitations on “process” patents under § 101 of the Patent Act—the Federal Circuit’s machine-or-transformation (MoT) test and a categorical exclusion of business method patents—and finds both limitations lacking.

Reviewing the Patent Act’s definition of “process,” Justice Kennedy is unable to identify any reason why the MoT test should stand as the exclusive test of process patentability. While MoT is “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101,” it is “not the sole test” (Kennedy, p. 8). Justice Kennedy’s opinion closes with a clarification: although the MoT test is not the exclusive test of process patentability, the Court has neither endorsed the Federal Circuit’s prior interpretations of § 101 nor foreclosed the Federal Circuit from developing further limiting criteria for process patentability consistent with the Patent Act (Kennedy, p. 16).

After tackling the MoT test, Justice Kennedy undertakes a similar analysis with respect to the entire category of business method patents, and finds that clear statutory language—both in the definition of “method” and in § 273 of the Patent Act, which according to Justice Kennedy “explicitly contemplates the existence of at least some business method patents” (Kennedy, p. 11)—forecloses a complete ban on business method patents. Nevertheless, despite rejecting the MoT test as the sole test of patentability, and dismissing the argument that business methods are universally unpatentable, Justice Kennedy – and indeed all nine justices on the Court – conclude that the specific patent application submitted by Bilski and Warsaw fails the § 101 test for patentability because its claims represent  “attempts to patent abstract ideas,” and not a “process” (Kennedy, p. 13).

In an alternate universe, it is at exactly this point in the opinion that Justice Kennedy and the Court would have left their mark on patent law, explaining in broad terms the boundaries of patentable subject matter under § 101, and discussing in detail with the three specific exceptions to patent-eligibility identified by the court: “laws of nature, physical phenomena, and abstract ideas” (Kennedy, p. 5). Here is what the Court wrote instead:

Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas (Kennedy, p. 13).

And that is that, at least for those expecting a broadly-written decision in Bilski. Justice Kennedy’s opinion goes on to review the relevant cases and conclude that the specific claims in Bilski constitute unpatentable abstract ideas. Because existing precedents are sufficient to reject the Bilski patent application the Court “need not define further what constitutes a patentable ‘process,’ beyond pointing to the definition of that term provided in [the Patent Act] and looking to the guideposts in Benson, Flook, and Diehr” (Kennedy, p. 16).

In other words: you figure it out. Or, as Justice Stevens more eloquently puts it in his concurrence:

The Court, in sum, never provides a satisfying account of what constitutes an unpatentable abstract idea. Indeed, the Court does not even explain if it is using the machine-or-transformation criteria. The Court essentially asserts its conclusion that petitioners’ application claims an abstract idea. This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court’s musings on this issue stand for very little (Stevens, p. 9).

Scalia’s Failure to Join the Majority. Although Justice Kennedy writes for a majority of the Court through most of his opinion, as discussed above there are two parts of the opinion (Parts II-B-2 and II-C-2) that Justice Scalia did not join, leaving those sections carrying the names of only four justices. While Justice Scalia did not provide an explanation for his decision to sit out those portions of the opinion, the significance is that most of the few passages of Bilski which might have provided some direct insight into the Supreme Court’s approach to biotechnology patents failed to achieve the five vote minimum necessary to become binding law.

In Section II-B-2, Justice Kennedy highlights the technological differences between the Industrial Age and the so-called “Information Age,” noting that grounding inventions in a “physical or tangible form” may have made sense in the former, but that there are “reasons to doubt whether the [MoT] test should be the sole criterion for determining” patentability in the latter (Kennedy, p. 9). Justice Kennedy’s concern—also raised in amicus briefs and at oral argument—appears to be that the MoT test could have damaging consequences for Information Age technology:

As numerous amicus briefs argue, the machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals. See, e.g., . . . Brief for Biotechnology Industry Organization et al. 14–27 . . . In the course of applying the machine-or-transformation test to emerging technologies, courts may pose questions of such intricacy and refinement that they risk obscuring the larger object of securing patents for valuable inventions without transgressing the public domain . . . Section 101’s terms suggest that new technologies may call for new inquiries (Kennedy, p. 9) (emphasis added).

The difficulty that emerging Information Age technologies pose for patent law is most clearly identified later in Section II-B-2 and then again in Section II-C-2, where Justice Kennedy notes “the tension, ever present in patent law, between stimulating innovation by protecting investors and impeding progress by granting patents when not justified by the statutory design” (Kennedy, pp. 12-13).

Justice Kennedy does point out, however, that there are other mechanisms for adjusting this balance in addition to redrawing the lines of patentability under § 101: “In order to receive patent protection, any claimed invention must be novel, § 102, nonobvious, § 103, and fully and particularly described, § 112” (Kennedy, p. 12). As we have written previously, biotechnology patents have recently come under attack from a variety of angles in addition to the § 101 attacks brought by Bilski and Myriad. Recent cases include challenges under § 103 (WARF and In re Kubin) and § 112 (Ariad v. Eli Lilly).

Justice Kennedy’s reminder, which he reiterates elsewhere in the opinion (see Kennedy, p. 5), considered in conjunction with Justice Stevens’ dissent (discussed below), which failed to garner five votes, suggests that there may be some members of the Court who would prefer to leave § 101 broadly construed – so as not to prematurely characterize whole categories of technology as unpatentable – while using requirements such as novelty and obviousness as a means to adjust the patentability calculus.

Stevens’ Concurring Opinion. Justice Stevens’ opinion was joined by three other justices (Ginsburg, Breyer and Sotomayor) and sets forth the justices’ belief that the Court, despite reaching the right result in affirming the rejection of the Bilski patent application, should have gone further and declared all business methods unpatentable.

Although largely limited to a discussion of business method patents, there is ample language in Stevens’ opinion to support a conclusion that the concurring justices share a much narrower view of the scope of process patents than exists at present. While that might seem to pose a threat to existing and future biotechnology process patents, the obvious point, of course, is that this view failed to carry a majority of the Court. With Justice Stevens retiring effective tomorrow, it is in reality a view that only three sitting justices appear to share. If Elena Kagan is confirmed her thoughts on this matter would be of obvious importance but, even then, that would bring the vote count only to four.

So while there is nothing in the Stevens concurrence that will be binding, or perhaps even all that instructive, for any lower court, we note with interest the opinion’s opening line: “In the area of patents, it is especially important that the law remain stable and clear” (Stevens, p. 1). As we discuss both above and below, it was exactly the lack of certainty surrounding Bilski — not knowing how broadly the Supreme Court might rule, and what impact that ruling might have for biotechnology patents – that generated such intense public interest in this case.

While Stevens’ opinion emphasizes the need for both stability and certainty, the concurring justices’ willingness to toss out all business method patents suggests that “stability” need not be synonymous with “status quo.” This may indicate that there are at least a handful of justices with an interest in bringing additional patent cases before the Court in areas where considerable uncertainty exists (e.g., biotechnology). We should find out in the next week or so just how many justices share that view as the Court is expected to rule on the petition for certiorari in the Prometheus case.

Breyer’s Concurring Opinion. Finally, Justice Breyer, joined in part by Justice Scalia, delivered a brief concurring opinion emphasizing that while the MoT test is not exclusive, the Court is not suggesting that the Federal Circuit’s previous State Street test (anything that produces a “useful, concrete, and tangible result” is patentable) be revived. Breyer added that “. . . in reemphasizing that the ‘machine-or-transformation’ test is not necessarily the sole test of patentability, the Court intends neither to de-emphasize the test’s usefulness nor to suggest that many patentable processes lie beyond its reach” (Breyer, p. 4).

Bilski’s Bottom Line. The tension, anticipation and nail-biting in the biotechnology community as it awaited the Bilski decision was primarily based on what the Court might have done. In the end, however, the Court kept its focus on the narrow issues before it and declined the opportunity to provide the type of sweeping guidance that might have influenced a wide range of biotechnology patents, particularly patents on methods or processes of medical testing and diagnosis. To put it another way, the Court could have chosen to speak broadly, but it did not do so.

The narrow ruling means that, at least for the moment, many biotechnology companies and their investors are breathing a sigh of relief, secure in the knowledge that the world of biotechnology patents as we know it continues on just as – or better than – before. Indeed, in Myriad, the most high-profile biotechnology patent case currently outstanding, Judge Robert Sweet relied on what was at the time a “definitive” MoT test in holding that Myriad’s challenged method claims were invalid. Now, with the Myriad litigation currently before the Federal Circuit on appeal, the Supreme Court has clearly stated that the MoT test is not definitive, thereby giving the Federal Circuit another potential means of overturning an important part of Judge Sweet’s ruling. (Note that the Supreme Court’s ruling in Bilski seems far less likely to bear on the portion of Judge Sweet’s opinion that found invalid Myriad’s claims to isolated DNA sequences, the so-called gene patents.) So enthused were Myriad’s investors by today’s Bilski ruling that they sent the company’s stock soaring more than 9% immediately following the Court’s announcement (it closed up more than 3% on the day). BIO’s Deputy General Counsel for Intellectual Property, Hans Sauer, was of a similar mind, telling ScienceInsider that BIO was “quite pleased” with the Court’s narrow opinion and that he might “open a bottle” in celebration.

Although the Court’s narrow ruling left a direct treatment of the difficult issues surrounding biotechnology patents for another day, those issues continue to loom large. As of this writing, a petition for certiorari in the Prometheus case is currently pending before the Supreme Court. In Prometheus, the Federal Circuit court applied the MoT test in a biotechnology context, upholding a patent on a method for improving administration of a drug. If the court grants review of the Prometheus decision, the biotechnology world will have another Supreme Court nail-biter on its hands, beginning with the oral argument next fall. Even if the Court denies certiorari in Prometheus, a number of alternate channels for biotechnology patent reform remain open, including the ongoing Myriad gene patent litigation (which itself might eventually reach the Supreme Court), the SACGHS gene patent recommendations and even private, industry-driven discussions (of which rumors abound).

As Justice Kennedy wrote (in one of the portions of his opinion that was not joined by Justice Scalia, discussed above), the pace of innovation has presented patent law “with a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles” (Kennedy, p. 10). Perhaps nowhere is this tension more evident than in the field of biotechnology. Although Justice Kennedy and the Court refused to “take a position on where that balance ought to be struck” (Kennedy, p. 10) in today’s Bilski opinion, the issue simply cannot be ignored forever. Whether it is the Supreme Court, Congress, the biotechnology industry or some combination of the three, it is only a matter of time before the challenge of balancing innovation, investment and knowledge-sharing in biotechnology must be tackled head on.