WASHINGTON -(Dow Jones)- A U.S. federal appeals court Thursday considered making it harder for companies to obtain business-method patents that, among other things, protect novel tax strategies, financial-services processes and one-stop online shopping.

In a rare 12-judge session, the Federal U.S. Circuit Court of Appeals said it was using the Bilski case, which involves a process for reducing weather-based risk in commodities trading, to consider stemming a tide of business-process patents that has followed the panel's 1998 ruling in State Street Bank & Trust. The State Street case involved a process for handling mutual-fund assets and said processes could be awarded if they achieve a "useful, concrete and tangible" result.

The Federal Circuit created a buzz in corporate legal circles when, in February, it asked for friend-of-the-court briefs in the Bilski case on whether it should tighten access to business-method patents. Almost 90 parties filed briefs in response, with major corporations such as International Business Machines Corp. (IBM), Bank of America Corp. (BAC), American Express Co. (AXP) and others arguing on both sides of the issue. American Express, for example, argued for broad coverage of business processes while IBM said business-process patents have created a major problem for business innovation.

The Federal Circuit is a special court that handles all patent lawsuit appeals, making it the final arbiter of patent law unless the U.S. Supreme Court intervenes. The Bilski case, once it is decided by the Federal Circuit, is likely to be appealed to the high court.

At Thursday's arguments, Chief Judge Paul Michel took the lead in criticizing the State Street decision, suggesting several times during the arguments that it should be reconsidered. "It doesn't sound like much of a test," Michel said of the precedent, suggesting he thinks the legal test for business-method patents may be too vague.

Other judges were more neutral in their questioning, but several members of the appeals panel asked pointed questions on how the test for process patents might be refined.

Pittsburgh-based attorney David Hanson tried to keep his arguments focused on whether his client, Bernie Bilski, had developed a patentable process to manage weather risk in commodities trading. "This is a unique process," Hanson told the court.

But the U.S. Patent and Trademark Office rejected Bilski's patent application and maintains the idea isn't eligible for a patent because it covers contract formation and not a process that is tied to a machine, a key test for obtaining a patent.

Raymond Chen, an attorney with the Patent and Trademark Office, or PTO, said his agency doesn't believe the Federal Circuit should use the Bilski case to significantly alter the State Street ruling, which he said requires a business process be tied centrally to a machine, such as a computer, to be eligible for patent protection.

The court heard from two friend-of-the-court filers at the oral-arguments session. Boston-based attorney William Lee, representing Financial Services Roundtable and several Wall Street banking firms, urged the Federal Circuit to adopt a several-part test for weeding out weak business-method patent applications.

In a friend-of-the-court brief, Lee's clients were critical of the Bilski patent. "At bottom Bilski's patent application seeks protection for nothing more than an abstract idea," the brief said, suggesting business-methods can only be patented if tied to a machine "in a non-conventional way."

Washington attorney John Duffy appeared for Regulatory Datacorp, a consortium of financial-services companies that uses patented business data processes to monitor financial crime and terrorism funding. Duffy told the panel he believes the U.S. Congress wants companies to have broad access to business-process patents. "The intent of Congress is to be broad," Duffy said.

The case is In re Bilski, No. 07-1130.

-By Mark H. Anderson, Dow Jones Newswires; 202-862-9254; mark.anderson@ dowjones.com

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  05-08-08 1747ET
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