John Duffy on Business Method Patents

"[W]hy did business patents arise, and why did they survive?" John Duffy (GW Law) seeks to answer these questions in Why Business Method Patents?, the fifth paper in my review of Stanford's Bilski Symposium. Unlike the first four papers, Duffy neither explains how Bilski should have been decided nor focuses on how Bilski will be interpreted going forward; rather, he presents a compelling (and well-written) historical explanation of how we ended up where we are today.

Parts I and II of Duffy's piece address why business patents arose. He argues against the hypothesis that activist Federal Circuit judges expanded patentability to business methods in State Street, noting that "the executive branch would be a far better candidate for pinning responsibility for the change" (e.g., the PTO was issuing business method patents long before State Street). But more importantly, Duffy describes how business patents reflect "enormously important developments that were occurring outside the legal system": "Increasingly rigorous and mathematical approaches were deployed to address problems of economics and business, and scientific methods were generally extended into these fields." For example, a patent by Harvard Business School professors on valuing private equity investments "seems more closely akin to an engineering solution than to something that could fairly be called 'abstract.'" Duffy notes that "employers on Wall Street began to seek out physicists and engineers." (I remember receiving those recruiting emails myself!) This "Law Followed Technology" thesis is "a better explanation for the rise of business method patents in the late twentieth century."

Part III tackles why business patents survived, a question for which "both judicial activism and technological change seem especially poor answers." Instead, Duffy argues that "the most important factor in explaining the result in Bilski" was the "shift towards textualism" over the past thirty years. It is hard to read "any" in § 101 as being in line with exceptions to patentable subject matter, and the Bilski Court "broke [the] silence" on the "atextual exceptions" for "laws of nature, physical phenomena, and abstract ideas" by noting that these exceptions were "consistent with" the novelty and utility requirements—an attempt to bring these exceptions "into the framework of textualism." Duffy argues that textualism "is also the reason for the Court's hostility to State Street," because State Street's "useful, concrete and tangible" test is "not connected to the statute." Going forward, the Court would be more likely to accept "a standards-based approach," especially if "the criteria ... were rigorously tied back to the text and structure of the Patent Act."

But the Bilski Court was not only methodologically different from the Federal Circuit in State Street: the Court accepted business patents only "grudgingly." The Bilski majority noted that subject matter could be limited through the "new and useful" requirement and through stare decisis. Duffy notes that "[a] third justification for limiting patentable subject matter is provided by the text and structure of the Patent Act." Statutory requirements such as § 103 (nonobviousness) and § 112 (explaining in "clear" and "exact" terms) "provide textual support for a doctrine such as the traditional 'abstract idea' exception to patentable subject matter." Duffy argues that "it is a logical fallacy to think that, merely because factors are relevant to one section of the Patent Act, they cannot also be relevant to other sections." Under this approach, business patents like the private equity valuation patent mentioned earlier will be more likely to be upheld because they "can be evaluated against a growing field of prior art that allows new contributions to be identified and carefully defined."

Duffy concludes by noting that "it would be a major mistake to assume that technological development uniformly pushes in favor of broader patentability," and that patents on isolated and purified DNA sequences may be a good counterexample. It would be interesting to know what Duffy thought of the symposium papers by Dreyfuss and Evans and by Feldman on patenting genes!