By ROB TILLER, Red Hat Assistant General Counsel

Editor’s note: Rob Tiller is vice president and assistant general counsel for Red Hat (NYSE: RHT), where he manages patent, trademark, and copyright matters. (Red Hat granted Local Tech Wire permission to reprint this blog after LTW requested comment about the Supreme Court’s verdict in the Bilski case.)

RALEIGH, N.C. – The Supreme Court finally on Monday. For those troubled by the problems surrounding software patents, the opinion will be disappointing, because it does not resolve those problems. But it would be a mistake to view the opinion as a victory for the proponents of expanding software patents. In fact, there are some aspects of the opinion that auger well for the future.

To be sure, the Court did not establish a definite limitation on software patents. From listening to the oral argument of the case, I got the impression that the Court understood that its decision would have an impact on software patents, and it seemed possible that it would address the issue. It’s disappointing that it didn’t do so.

But the Court’s silence shouldn’t be interpreted too broadly. The issue before the court concerned a business method patent, rather than a software patent. The Court’s traditional jurisprudence calls for deciding only the case before it on narrow grounds, rather than speaking to related legal issues. Here it followed the traditional methodology, and addressed only the issue of business method patents. Its discussion of that issue should not be understood as any kind of approval of software patents.

In fact, there are several points in the Court’s discussion of business method patents that are positive. The Court didn’t entirely reject the Federal Circuit’s machine-or-transformation test. This test has been used by some lower federal courts to reject some software patents. Although the Bilski Court found that the test was not the exclusive test of patentable subject matter, it also found that it was a “useful and important clue, an investigative tool for determining whether some claimed inventions are processes under Section 101.”

The Court also made clear that the Federal Circuit’s pre-Bilski approach is no longer valid. Justice Kennedy’s majority opinion made explicit that the Court was not endorsing the “useful, concrete, and tangible result test” of State Street, and the Justice Stevens’s concurring opinion stated that following that test would be “a grave mistake.” Thus the Federal Circuit’s test that contributed to opening the floodgates on software patents is no longer operative.

Even more encouraging, the rationale for invalidating the Bilski patent is one that could easily be applied to void some software patents. The Court found the business method patent at issue was an unpatentable abstract idea. It reaffirmed the validity of its prior case law rejecting attempts to patent abstract ideas, including mathematical algorithms. As Ben Klemens has explained in Math You Can’t Use, software is properly viewed as consisting entirely of algorithms.

Finally, the Court took note of the purpose and function of patent law in a way that could be important in a future case. Justice Stevens (joined by Justices Ginsburg, Breyer, and Sotomayor), acknowledged that patents were not always necessary to encourage innovation. He wrote that business innovation does not entail the high costs and risks of some other types of innovation. Citing James Bessen and Michael Meurer, Stevens noted the business methods are made of intangible steps and involve problems of vagueness. He acknowledged that business method patents could stifle competition and hinder innovation.

Each of these points apply to software patents. As explained in Red Hat’s amicus brief to the Court, there is abundant evidence that the existing system does not at all work to encourage software innovation, but rather discourages it. The Bilski decision does not fix the problem, but it points toward the possibility of a solution in a future case.