The US Supreme Court on Monday takes up the most fundamental question in patent law: Which innovations deserve the protection of a patent?

The answer holds billion-dollar implications for the American economy.

At issue is whether US patent protection must be limited to inventions involving machines and transformative processes, or whether patent law also embraces nonphysical inventions like improved business methods and software innovations.

The case, Bilski v. Kappos, is viewed as a potential landmark in patent law. It has attracted 67 friend-of-the-court briefs from lawyers, scholars, and businesses, including Microsoft, the Biotechnology Industry Organization, Bank of America, Google, Yahoo, and L.L. Bean.

A patent is a reward for innovation. It grants a temporary monopoly to inventors who shape original thought into a "new and useful process, machine, manufacture, or composition of matter."

But a patent can also stifle innovation. When government-backed protection is provided for an ill-defined method, a patent may foster uncertainty and raise a risk of distracting and expensive litigation.

In its essence, legal analysts say, patent law seeks to achieve a balance that will reward genuine innovation without significantly burdening further innovation by others.

The Bilski case involves an attempt by Bernard Bilski and Rand Warsaw to obtain a patent for their invention of a method of hedging risks associated with energy-related commodities. The method uses an intermediary to dampen commodity price fluctuations. It provides protection to both sellers and consumers. The innovation is a mathematical formula used to determine intermediary prices.

The Patent and Trademark Office rejected the application. On appeal, the US Court of Appeals for the Federal Circuit upheld the patent office's rejection. In doing so, the appeals court articulated a test to help determine which processes are entitled to patent protection.

Under the Federal Circuit's test, a patentable process must involve a machine to complete the process or involve the transformation of an article into something different.

Announcement of the test sparked an uproar well beyond Mr. Bilski and his lawyers. If upheld, analysts say, the Federal Circuit's "machine or transformation test" would undermine a large number of so-called method patents, including business method innovations, biomedical research innovations, and software patents.

"The term 'process' encompasses all technological and industrial processes, broadly conceived. But it does not extend patent-eligibility beyond those bounds, to methods of organizing human activity that are untethered to technology," writes Solicitor General Elena Kagan in her brief on behalf of the US Patent and Trademark Office. "Because [Bilski's] hedging method relates solely to human conduct, untethered to any technology – any machine or transformation of matter – it falls outside the coverage of [patent law]."

Bilski's lawyers counter in their brief that the machine-or-transformation test is a step backward. "The fact that manufacturing processes and machines may have dominated the US patent system during the eighteenth and nineteenth centuries (and even then not completely) is unsurprising and sheds little light on how patents promote progress in the information age of the twenty-first century," writes Washington lawyer J. Michael Jakes. "The patent law fulfills its constitutional mandate by promoting progress in fields yet undiscovered, pushing back the frontiers to reach unforeseen and unforeseeable innovations in all the useful arts."

The patentability question should focus on the underlying substance of the invention, not on ties to a machine or technology, Mr. Jakes says. He warns that the Federal Circuit's decision has cast a pall over tens of thousands of patents.

L.L. Bean was among seven Internet retailers who filed a friend-of-the-court brief urging the high court to state unequivocally that business methods are not patentable.

According to the brief, Internet retailers like L.L. Bean have become frequent targets of patent-infringement lawsuits by companies claiming control over some element of e-commerce. "Virtually all Internet retailers agree to settle these types of cases ... not because the allegations of the plaintiff have merit, but because the cost of settlement, although high, is less than the even higher cost of defense," writes Peter Brann in his brief on behalf of L.L. Bean and other Internet retailers.

On the other side of the issue, a consortium of Georgia-based biomedical companies is urging the high court to embrace a broad view of patent eligibility. According to the group, Georgia Biomedical Partnership, the Federal Circuit's decision is already being applied to strike down protections to a broad class of biotechnology and medical inventions.

"Without the limited monopoly provided by patent protection, the biotechnology and pharmaceutical industries cannot and will not make the large investments needed to commercialize these inventions for the benefit of the public," writes Atlanta lawyer William Kitchens in a friend-of-the-court brief.

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