By Joe Mullin
IP Law & Business/April 2008

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As most patent lawyers know, the U.S. Court of Appeals for the Federal Circuit has signaled that it is reconsidering the patentability of business methods in a rare en banc hearing on In re Bilski. It's the most visible sign yet that the Federal Circuit is ready to fall in line with a series of Supreme Court rulings limiting patent rights by revisiting its own 1998 State Street Bank v. Signature Financial Group decision.

Many may also know that Bilski is about a method of trading weather risk invented by two former energy company executives who are founders of Pittsburgh-based WeatherWise USA, Inc. But far fewer know that, miles away from Washington, D.C., another group of lawyers is scrutinizing WeatherWise's business methods: attorneys in the Minnesota attorney general's office.

The very company whose case is likely to set precedent for every business method patent to come-and raise the bar for those already issued-is being hauled over the coals right now by government investigators, with its patent-pending method at the center of the controversy. In a complaint filed last year with the state's Public Utilities Commission, the Minnesota AG said that WeatherWise set up a fixed-price billing system for two local energy companies that has overcharged consumers by nearly $33 million since 2001. In four out of the five years studied, the vast majority of consumers on WeatherWise's programs paid 12-63 percent more than they would have on a standard billing program. The programs were ordered shut down at the end of 2007.

Bernard Bilski worked as the head of the natural gas division at Equitable Resources, Inc., a Pittsburgh-area natural gas company serving 275,000 customers. He filed a patent application together with Rand Warsaw, Equitable's head of operations, shortly before the two left to found their own company in 1996. Equitable still owns the patent application, and WeatherWise licenses the method from it. Bilski, who declined to comment for this story, was CEO of WeatherWise until 2003, when Warsaw took over.

Warsaw insists that he's done nothing improper. "You can't know that prices will drop," says Warsaw. "It's bad luck. I think this year we'd be paying for a lot of consumers' energy," but the fixed-bill programs, run by Xcel Energy Inc. and CenterPoint Energy, Inc., were forced to close. WeatherWise isn't a party to the proceedings directly-state utility regulators don't have authority over an out-of-state company.

State lawyers say that call center employees-possibly working with WeatherWise-refused to let dissatisfied customers go back to standard billing, telling one consumer that the only way to leave the program "was to die or be sent to Iraq." Investigators are now reviewing tapes from call centers that WeatherWise helped run, according to a PUC spokesman.

Warsaw sees his failure to get a patent, like the Minnesota investigation, as an example of visionless government bureaucracies. "Both these events are stifling creativity and innovation in areas where they should be encouraging them," says Warsaw. "We've invested tens of millions of dollars in our company. IP is no longer gears, valves, pipes, and wires."

Perhaps not, but insurance contracts and risk transfer "were well established in 1789," yet were not considered part of the "useful arts" and thus not patentable, wrote Patent and Trademark Office lawyers in July. A patentable process must transform matter or energy into a different state, or have a machine implementation; otherwise, dating strategies are patentable, says the PTO.

Equitable's lawyer, David Hanson of The Webb Law Firm, says that stance doesn't make sense in the new service-based economy. "If the only methods patentable are those that involve manufacturing, we'd have this huge area of the economy that can't take advantage of patents," he says. The American Intellectual Property Law Association has filed a brief supporting Hanson's position.

But some parts of the new economy are wary of patent lawyers bearing gifts. In 2005 banking and technology trade groups wrote amicus briefs for the LabCorp v. Metabolite Supreme Court case in which they slammed business method patents, arguing that they slow innovation and hinder competition. The Computer and Communications Industry Association condemned State Street for spawning weak patents that "drew hordes of would-be monopolists."

Similar battle lines will be drawn in the Bilski case, but the Supreme Court's decisions since then have changed the atmosphere decidedly. "This absolutely is a polar case, because there isn't even the pretense of being tied to a technology," says Ropes & Gray partner Jim Myers. He says he'd be "shocked" if Bilski's patent application gets a nod from the Federal Circuit, and he wouldn't be the only one. You don't need a weather hedge to know which way the wind is blowing.