Patenting Carbon Credit Trading: Dodging Certainty

2010 has been a year of uncertainty for the future of carbon credit trading. Optimism that the administration would push for an energy bill with a comprehensive national market-based compliance program has faded, while the sale of the first voluntary trading program in the U.S. for all six greenhouse gases, suggests a sagging commitment to a voluntary carbon trading market.
By Paul Craane
2010 also has been a year of uncertainty for the future of patenting carbon credit trading. The U.S. Supreme Court's docket included a case that placed the patenting of business methods, such as methods for providing financial services, squarely in the cross hairs. It was expected that the decision in Bilski v. Kappos (or Bilski, for short) would likely effect carbon credit trading patents and patent applications as well, although no one knew exactly how the Supreme Court would react. Strong arguments were made on both sides of the issue, but the justices' comments during oral argument suggested an intense skepticism of the patent eligibility of business methods.

Regardless of what the Supreme Court did, someone was going to be disappointed. Bilski bore the immediate brunt of the decision, as the Supreme Court unanimously rejected Bilski's method for hedging risk in commodity trading. Beyond this, and in particular on the issue of the patenting of business methods, the Supreme Court found itself split. While business method patent holders were thankful that the Supreme Court did not opt for the certainty of holding all business methods patent-ineligible, no consensus has formed as to where the new lines might be drawn. Still, some helpful guidance may be gleaned from Bilski for parties looking to patent carbon credit trading methods.

The Gathering Storm

Patent eligibility was the issue in Bilski. If a claimed invention is patent-eligible, the applicant must still show that the invention is patentable (useful, novel, nonobvious, and fully and particularly described). Patent eligibility is thus a gate through which the applicant must pass, not the finish line.

Historically, patent eligibility has been defined by what is excluded from eligibility, rather than by what is included. Patents may extend to "anything under the sun that is made by man." Still, patent eligibility is not without its limits. In particular, there are three major exceptions to patent eligibility: laws of nature, physical phenomenon and abstract ideas.

For a long time, the courts acted as if there was a fourth exception: methods of doing business. Then in the late 1990s, the courts did an apparent about-face, and a surge in business method patents followed. These patents might be for a method of insuring or hedging risk, or trading securities or commodities, or even for a method of trading pollution credits under a cap-and-trade type scheme. This surge continued until 2008, when a series of court decisions signaled a retreat from the previous open attitude towards the patent-eligibility of business method patents.

The decisions attempted to provide certainty as to patent eligibility in a technology-neutral fashion. In particular, it was held that a method is not patent-eligible where it is not tied to a particular machine or apparatus, or does not transform a particular article into a different state or thing. Moreover, it was established that the "machine or transformation" test would henceforth be the one and only test for determining patent eligibility.

While no one expected the Supreme Court to deliver a quick response to the machine or transformation test when Bilski was argued in November 2009, it would not be until the last day of the Court's term in late June that Bilski would again be in the news.

The Storm Breaks

On a certain level, the Supreme Court's reaction in Bilski is a study in consensus and certainty. All of the justices thought Bilski's claims were not patent-eligible. None of the justices thought that the machine or transformation test should be the "one and only" test. Beyond this, the nine justices appeared bitterly divided into two camps.

In the end, four justices were able to convince one of the remaining justices to join just enough of their decision to claim to represent the majority of the Court. This turned out to be a good thing for business method patentees. If the group headed by retiring Justice John Paul Stevens had prevailed instead, the Court would not only have rejected Bilski's patent, but also pronounced all business method patents patent-ineligible. Thus, much of the story of Bilski is the majority opinion that might have been, rather than the majority opinion that was.

In the end, the majority signaled that the analysis of patent eligibility would remain technology-neutral and focused on the three exceptions. Moreover, while disagreeing with the lower court that the machine or transformation test was the one and only test, the majority did agree that it was a good test and an important clue. Furthermore, in striking down Bilski's claims, the majority warned that if a process or method claim attempted to preempt all uses of a method, then it would be patent ineligible, as would a claim that merely attempted to limit such a method claim to a particular field of use.

Under these conditions, business method patents lived to fight another day.

A Bright, New Day?

So, where does Bilski leave the patenting of carbon credit trading? Less certain than if Justice Stevens had prevailed, such that carbon credit trading methods would have been ineligible for patenting.

Bilski does not suggest a move to the unrestricted patenting of business method patents, however. The machine or transformation test still may be used to weed out patent-eligible methods from patent-ineligible methods. Consequently, a failure to tie in a machine to a method of trading carbon credits will likely end in a court or the U.S. Patent and Trademark Office determining that the claims are patent-ineligible. In fact, the Patent Office has already issued guidance to its examiners to continue to use the machine or transformation test as part of a "totality of the circumstances" approach, and evidenced skepticism that a method which fails the machine or transformation test could ever be patent-eligible.

Bilski may best be viewed as a field with two fuzzy boundaries and an open area in between. On the one hand, if the applicant can express his or her invention in connection with a particularized machine, such as a computer, there is probably a good likelihood of success in obtaining a patent and/or withstanding a challenge to the patent. On the other hand, expressing the invention in a way that would preempt all uses of a method, or all uses within a particular field of endeavor, probably will result in no patent being granted or a successful challenge.

However, the area in-between presents a range of opportunities for applicants who have applications on file, or who have not yet filed. Such applicants may opt for a strategy that combines claims drafted to meet the machine or transformation test with others that test the boundaries of what the Patent Office will consider to be preempting all uses or uses within a defined field. Such a strategy will likely need to consider how the machine is tied to the remainder of the method, however, for in suggesting that certain steps of the method must be performed on a single computer, for example, the patentee may unnecessarily limit the invention in this day and age of distributed computing and cloud networks.

At the end of the day, Bilski may not have provided the certainty some wanted the Supreme Court to bring to the issue of patent eligibility. Considering the alternative, however, a little uncertainty might just be a good thing for those patenting carbon credit trading methods.

Paul Craane is a partner at Marshall, Gerstein & Borun LLP. Reach him at or (312) 474-6623.