Court weighs whether to restrict 'business method' patents

A federal appeals court wrestled with those kinds of questions Thursday when it considered placing restrictions on patent protections for business practices. The case under review is being closely watched by financial services and software companies.

The number of patents on tax preparation strategies, investment techniques and other business methods has surged since 1998, when the Court of Appeals for the Federal Circuit opened the door to such claims.

That increase has led to widespread criticism that many of the patents, including one about how to teach golf lessons, are frivolous and spur excessive litigation.

The Federal Circuit said in February that it would reconsider its decade-old decision in a case that many patent experts say is one of the most important in years. Depending on how broadly the court rules, the case could make it harder for investment banks and software companies to patent their products.

On Thursday, the U.S. Patent and Trademark Office urged the court to rule that only processes that involve machines or that physically transform an object should be granted a patent.

Using that standard, the agency rejected an application by Bernard Bilski and Rand Warsaw, who sought a patent for a strategy to manage weather-related risk through commodities trading.

"It doesn't have a machine, it doesn't have a computer, it doesn't have software," Raymond Chen, an associate solicitor for the patent office, told the court in defense of the agency's decision. All 12 judges at the appeals court heard the case, a reflection of its importance.

Some of the judges expressed concern that the government's rule would exclude too many new technologies from receiving the benefits of patent protection. Patent holders have the exclusive right to their inventions for 20 years and can charge royalties.

"I'm wondering if your new test doesn't mean the demise of software patents," said Judge Kimberly Moore.