Bilski's patent application text

"The Bilski patent" is application 08/833,892 filed at the USPTO. The application has been rejected at all possible levels: first by a USPTO examiner, then by the USPTO's BPAI in 2006, by the CAFC in 2008 in re Bilski case, and finally by the US Supreme Court in the 2010 Bilski v. Kappos case. However, the authors still have the option of rewording their application and pursuing it, and they have stated their intention to do so.

Because it is an application, not a granted patent, the contents are not published by the USPTO. However, during the course of the appeals and court cases, nine of the eleven claims from the patent have been published, including the most important claims.

For information on the consequences that this rejection, see patentability in the USA after Bilski.

Description

The Supreme Court's 2010 decision says there are eleven claims. The USPTO-BPAI's 2007 documents give the text of claims 1-9. Maybe they decided to omit the last two claims, or maybe the last two claims were added afterward. Either way, there's nothing to indicate that they're important. The Supreme Court describes the application as:

The key claims are claim 1, which describes a series of steps instructing how to hedge risk, and claim 4, which places the claim 1 concept into a simple mathematical formula. The remaining claims explain how claims 1 and 4 can be applied to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand.

Where to find the text

The most complete source is the Joint Appendix file from the appeal to the BPAI. This PDF document has 115 pages and pages 88-91 contain claims 1-9 from the application. (2007-1130bilski_joint_appendix.pdf)

The text

Claim 1

A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumers;

(b) identifying market participants for said commodity having a counter-risk position to said consumers; and

(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions.

In the US Supreme Court's opinion document, these are cited as "App. 19-20" - probably the page numbers of the application. This excerpt is introduced by the text "Claim 1 consists of the following steps", so it seems to be the complete text of Claim 1.

This claim is also cited on page 2 of the CAFC's 2008 ruling (PDF page 6).

Claim 2

The method of claim I wherein said commodity is energy and said market participants are transmission distributors.

Claim 3

The method of claim 2 wherein said consumption risk is a weather-related price risk.

Claim 4

The method of claim 3 wherein the fixed price for the consumer transaction is determined by the relationship:

Fixed Bill Price = F_i + [(C_i + T_i + LD₁) x (α + βE(W_i)]

wherein,

F_i = fixed costs in period i;

C_i = variable costs in period i;

T_i = variable long distance transportation costs in period i;

LD_i = variable local delivery costs in period i;

E(W_i) = estimated location-specific weather indicator in period i; and α and β are constants.

Claim 5

The method of claim 4 wherein said location-specific weather indicator is at least one of heating degree days and cooling degree days.

Claim 6

The method of claim 4 wherein said energy provider seeks a swap receipt to cover the marginal weather-driven cost.

Claim 7

The method of claim 4 wherein the energy price is determined by the steps of:

(a) evaluating the usage and all costs for a prospective transaction;

(b) performing a Monte Carlo simulation across ail transactions at all locations for a predetermined plurality of years of weather patterns and establishing the payoffs from each transaction under each historical weather pattern;

(c) assuming that the summed payoffs are normally distributed;

(d) performing one-tail tests to determine the marginal likelihood of losing money on the deal and the marginal likelihood of retaining at least the design margin included in the initial evaluation of the fixed bill price; and

(e) adjusting the margin of the fixed bill price if the transaction as initially priced leads to a reduced expected margin or increases the likelihood of a loss until the expected portfolio margin and the likelihood of portfolio 10s; is acceptable.

Claim 8

The method of claim 4 wherein a cap on the weather-influenced pricing is established by the steps of

(a) evaluating the usage equation and all costs for a prospective transaction;

(b) performing a Monte Carlo simulation across all transactions at all locations for a predetermined plurality of years of weather patterns and establishing the payoffs from each transaction under each historical weather pattern assuming that the price in the transaction being priced floats down when the weather is below normal;

(c) assuming that the summed payoffs are normally distributed;

(d) performing one-tail tests to determine the marginal likelihood of losing money on the transaction and the marginal likelihood of retaining at least the design rnargin included in the initial evaluation of the fixed price bill;

(e) continuing to reprice the margin in the transaction until the expected portfolio margin and likelihood of portfolio loss is acceptable; and

(f) establishing the margin as a call option on weather at a predetermined location.

Claim 9

The method of claim 1 wherein said commodity provider seeks a swap receipt to cover the price risk of the consumer transaction.

Related pages on ESP Wiki

• USA patent courts and appeals
• Case law in the USA

External links

• Rejection by the USPTO's BPAI: fd022257.pdf, March 2006
• Rejection sustained by CAFC: 07-1130.pdf, October 2008
• Rejection sustained by Supreme Court: 08-964.pdf, June 2010