South-Side’s WeatherWise In Decade-Long Dispute Over Patenting “Processes”

September 2008

South Side-based WeatherWise, a developer of customized consumer energy products, is fighting a decade-long dispute with the U.S. Patent office which is at the center of a nation-wide debate over whether certain types of processes - disembodied from any physical apparatus - should be granted patents.

At stake are millions of dollars that WeatherWise has already lost and may lose in royalties for a method it claims to have developed first involving managing risks in the energy market due to fluctuations in annual consumption. The patent application was filed in 1997 and WeatherWise has since commercialized the method, but several other competitors have copied and are using the same methods, seriously cutting into WeatherWise's royalty revenues for a process it believes is proprietary.

The federal court responsible for the next round of hearings considers the case so important and controversial that they requested a re-hearing of the case in front of a panel consisting of all twelve Federal Circuit judges, a very rare occurrence. Now, the Federal Circuit is considering whether or not all types of business methods should be patentable and if the court's previous State Street decision should be re-considered, which, if it is, would pose serious consequences for the thousands of business method patents issued since the original State Street decision. The case would surely be appealed to the Supreme Court, and could end up being one of the most important patent cases in the U.S. in the last 50 years.

The dispute arises because the WeatherWise method does not require the use of a physical apparatus, such as a computer, which traditionally has been at the core of patent protection. Under the current law, decided by a 1998 case called State Street Bank v. Signature Financial Group, business methods were determined by a Federal Court to be patentable.

The invention in the State Street case, however, used a computer to implement the method. The Patent Office interpreted the State Street decision narrowly however, saying that unless the method causes a "physical transformation of matter", it considers it to be merely an abstract idea, unworthy of patent protection.

The Patent Office's decade-old interpretation of State Street means that a method can be transformed from an unpatentable abstract idea into a patentable business method merely by using a computer to implement all or a part of the method. In State Street, a computer was used to calculate the value of a mutual fund share, a calculation that could be done just as easily using paper and a pencil.

The 1997 application was rejected by the U.S. Patent Office and appealed to the Patent Office Board of Appeals twice. After being rejected by the Patent Office Board of Appeals, the case was appealed to the Federal Circuit Court of Appeals, a court which hears all appeals coming out of the Patent Office. A three judge panel initially heard arguments on the case.

There are strong arguments in favor of allowing business methods to receive patent protection. The purpose of the patent system is to promote investment in innovation and new technology by providing a limited monopoly to inventors. Proponents of the patentability of business method inventions argue that, in our new economy, where information-based technologies are becoming more and more prevalent, the patent system must protect new types of inventions, just as it did at the dawn of the industrial revolution, when our economy evolved from an agriculture-based economy to an industrial-based economy.

Opponents argue that business methods not tied to a machine are abstract ideas and that providing protection will hurt innovation. Further, allowing disembodied business methods would move us further from standards in other countries. In the European Patent Office, for example, State Street type business methods would not be eligible to receive patent protection. In the U.S., however, the patent office has been overwhelmed by submissions of these types of applications, since the State Street decision.

So, how is the Federal Circuit Court likely to decide? Most commentators, including this one, believe that the State Street decision will survive, and are hoping that the court will provide a definitive test to determine which business methods can receive patent protection and which can not. There is also a significant possibility that the court will interpret the patent statute in a way that will allow patents to be granted for the type of business methods used by WeatherWise application and covered by the 1997 patent application.