THE NOTION THAT "INDEPENDENT EXPENDITURE" GROUPS DON'T HAVE TO DISCLOSE THEIR DONORS IS PURE FICTION

The Sunlight Foundation's REPORTING GROUP is reporting that "Dark Money" groups spent $110,000,000 in 168 races during the 2010 election. http://reporting.sunlightfoundation.com/2010/dark-money-donors/.

 "Dark Money" is the new term of art for funds spent by independent expenditure groups following the Supreme Court's decision in Citizens United v. Federal Elections Commission and Court of Appeals decision relying on Citizens United, Keating v. Federal Elections Commission. The Keating case is known as the Speech Now case, even though SpeechNow.Org was not a party to the en banc proceedings before the Federal Court of Appeals for the D.C. Circuit.

That case went to the Supreme Court for a Writ of Certiorari. The Supreme Court denied the petition letting the judgment of the Court of Appeals stand.

The yet-to-be-certified victor in Illinois is Republican Mark Kirk. Kirk got the benefit of $4.4 million in dark money directed at his Democratic opponent Alexander Giannoulias.

In the State of Washington incumbent Democratic Senator stood up against an onslaught of Karl Rove' Crossroads GPS independent expenditures of $3.5 million.

The California Senate race between Democratic incumbent Barbara Boxer and Republican challenger Carly Fiorina saw an influx of $5.61 million in dark money. The U.S. Chamber of Commerce, through various dark money groups, spent $4.6 million in the California race, according to REPORTING GROUP.

Consensus says that most of these groups don't have to report. I am not certain where that whacky notion originated, but it is clearly wrong.

The question presented to the Supreme Court in  Speech Now was:

 "[w]hether, under the Free Speech Clause of the First Amendment, the federal government may require an unincorporated association that makes only independent expenditures to register and report as a political committee despite the fact that a more narrowly tailored means of disclosing its independent expenditures exists in 2 U.S.C. § 434(c)."

See, Brief for Petitioners at http://www.fec.gov/law/litigation/sn_sc_sn_writ_certiorari.pdf.

Respondent's brief in opposition similarly phrased the question as:

"[w]hether the en banc court of appeals correctly held that the reporting, organizational, and administrative requirements of the Federal Election Campaign Act of 1971, 2 U.S.C. 431 et seq., are constitutional as applied to the treasurer of a group whose major purpose is the making of independent expenditures to elect or defeat clearly identified federal candidates."

See Brief for Respondent in Opposition at http://www.fec.gov/law/litigation/sn_sc_fec_brief_in_opposition.pdf.

It looks like the independent expenditure groups assumed they would get relief from the Supreme Court and ran amuck with dark money. There may be consequences.

The Federal Elections Commission did a poor job of rulemaking to clarify what needed to be done for the independent expenditure groups. Clear lines were not drawn to keep independent expenditure groups from running afoul of FECA, the Federal Election Campaign Act. Independent expenditure groups still had adequate notice to report, in one of two forms, who gave all that dark money.

Instead the FEC issued a couple of advisory opinions rather than go into full rulemaking mode. The FEC dropped the ball and dark money has run through Campaign 2010 like raw sewage flowing into the nation's waterways.

FEC Advisory Opinion 2010-09 dealt with a request by the Club for Growth, which asked for opinions on three separate issues. The drafts of their opinions are at line at the FEC web portal. You have to read the footnotes. In answering one of the Club for Growth's questions they hit the nail on the head. 

Footnote One reads "The Commission notes that this advisory opinion implicates issues that will be the subject of forthcoming rulemakings in light of the Citizens United, EMILY's List, and SpeechNow decisions. The results of that rulemaking may require the Commission to update its registration and reporting forms to facilitate public disclosure. In the meantime, the Committee may include a letter with its Form 1 Statement of Organization clarifying that it intends to accept unlimited contributions for the purpose of making independent expenditures. See Attachment A. Electronic filers may include such a letter as a Form 99. 2 currently, the President of the Club serves as Treasurer of Club PAC. Statement of Organization, Club for Growth PAC (Apr. 14,2009), available at: http://www.fec.gov/ (last visited luI. 16,2010) ."

Footnote One says the FEC will most likely have to engage in full rulemaking. Believe me, they need to get in gear on this rulemaking.

Footnote Ten reads "The court also upheld the Act's "organizational and reporting requirements" as applied to SpeechNow.org. Upon meeting the applicable thresholds, the group would be required to register with the Commission as a political committee and abide by the disclosure and reporting requirements applicable to political committees. SpeechNow, 599 F.3d at 696-98."

But hold on for the wrinkle in Footnote Eleven, which reads "On May 27, 2010, in compliance with the D.C. Circuit's opinion, the United States District Court of the District of Columbia issued an order that the Act's contribution limits (2 U.S.C. 441 a(a)(1 )(C) and 441 a(a)(3)) and implementing regulations could not be constitutionally applied against SpeechNow.org or those who contribute to it. On June 11,2010, the Commission filed a Motion to Alter or Amend the Judgment to reflect that the organizational, administrative, and reporting provisions of the Act are constitutional as applied to the plaintiffs. The Commission's motion remains pending. These, as well as other documents related to the SpeechNow litigation, are available at www.fec.gov/law/litigation/speechnow.shtml. The Solicitor General is not petitioning the Supreme Court to review the court's decision, but SpeechNow.org has requested and received an extension of time to file a Petition for a Writ of Certiorari on the questions addressing registration, disclosure, and reporting." (Emphasis Added).

Footnote Ten says hold on the District Court's Order only spoke to the issues the Court of Appeals said didn't pass Constitutional muster. There's more, the Court of Appeals said the reporting requirements did not violate the Constitution. On March 26th the District Court amended its order and said " there is no constitutional infirmity in the application of the organizational, administrative and reporting requirements set forth in certified questions 4 and 5."

So what did the United States Court of Appeals for the District of Columbia say? Here it is.

SpeechNow, as we have said, intends to comply with the disclosure requirements applicable to those who make independent expenditures but are not organized as political committees. Those disclosure requirements include, for example, reporting much of the same data on contributors that is required of political committees, 2 U.S.C. § 434(c); information about each independent expenditure, such as which candidate the expenditure supports or opposes, id.; reporting within 24 hours expenditures of $1000 or more made in the twenty days before an election, § 434(g)(1); and reporting within 48 hours any expenditures or contracts for expenditures of $10,000 or more made at any other time, § 434(g)(2). 19 Because SpeechNow intends only to make independent expenditures, the additional reporting requirements that the FEC would impose on SpeechNow if it were a political committee are minimal. Indeed, at oral argument, plaintiffs conceded that “the reporting is not really going to impose an additional burden” on SpeechNow. Oral Arg. Tr. at 14 (“Judge Sentelle: So, just calling you a [PAC] and not making you do anything except the reporting is not really going to impose an additional burden on you right? . . . Mr. Simpson: I think that’s true. Yes.”). Nor do the organizational requirements that SpeechNow protests, such as designating a treasurer and retaining records, impose much of an additional burden upon SpeechNow, especially given the relative simplicity with which SpeechNow intends to operate. Neither can SpeechNow claim to be burdened by the requirement to organize as a political committee as soon as it receives $1000, as required by the definition of “political committee,” 2 U.S.C. § 431(4), 431(8), rather than waiting until it expends $1000. Plaintiffs argue that such a requirement forces SpeechNow to comply with the burdens of political committees without knowing if it is going to have enough money to make its independent expenditures. This is a specious interpretation of the facts before us. As the district court found, SpeechNow already has $121,700 in planned contributions from plaintiffs alone, with dozens more individuals claiming to want to donate. SpeechNow can hardly compare itself to “ad hoc groups that want to create themselves on the spur of the moment,” as plaintiffs attempted at oral argument. Oral Arg. Tr. at 17. In addition, plaintiffs concede that in practice the burden is substantially the same to any group whether the FEC imposes reporting requirements at the point of the money’s receipt or at the point of its expenditure. Oral Arg. Tr. at 15-16. A group raising money for political speech will, we presume, always hope to raise enough to make it worthwhile to spend it. Therefore, groups would need to collect and keep the necessary data on contributions even before an expenditure is made; it makes little difference to the burden of compliance when the group must comply as long as it anticipates complying at some point. We cannot hold that the organizational and reporting requirements are unconstitutional. If SpeechNow were not a political committee, it would not have to report contributions made exclusively for administrative expenses. See 2 U.S.C. § 434(c)(2)(C) (requiring only the reporting of contributions “made for the purpose of furthering an independent expenditure”). But the public has an interest in knowing who is speaking about a candidate and who is funding that speech, no matter whether the contributions were made towards administrative expenses or independent expenditures. Further, requiring disclosure of such information deters and helps expose violations of other campaign finance restrictions, such as those barring contributions from foreign corporations or individuals. These are sufficiently important governmental interests to justify requiring SpeechNow to organize and report to the FEC as a political committee.

We therefore answer the last two certified questions in the negative. The FEC may constitutionally require SpeechNow to comply with 2 U.S.C. §§ 432, 433, and 434(a), and it may require SpeechNow to start complying with those requirements as soon as it becomes a political committee under the current definition of § 31(4).

Conclusion

We conclude that the contribution limits set forth in certified questions 1, 2, and 3 cannot be constitutionally applied against SpeechNow and the individual plaintiffs. We further conclude that there is no constitutional infirmity in the application of the organizational, administrative, and reporting requirements set forth in certified questions 4 and 5. We further conclude that because of our decision today, as guided by Citizens United, which intervened since the entry of the district court’s denial of plaintiffs’ petition for injunctive relief, the district court’s order denying injunctive relief is vacated and remanded for further proceedings consistent with our decision.

So ordered.

The matter returned to the United States District Court for the District of Columbia which entered an order enforcing the judgment of the Court of Appeals.

The notion that independent expenditure groups are not or were not subject to the reporting requirements of 2 U.S.C. §§ 432, 433, and 434 is pure fiction. 2 U.S.C. § 434 (c) (2) (c) pertains to individuals making independent expenditures and says the identity of each person making a contribution of $200 or more must be disclosed. 2 U.S.C. § 434 (b) (3) (A) makes a similar disclosure requirement. 2 U.S.C. § 434 (f) (2) (E) require identification of all persons contributing $1,000 or more to segregated accounts used for electioneering. 2 U.S.C. § 434 (f) (2) (E) makes similar requirements for funds which were not segregated.

The U.S. Chamber of Commerce is among groups who infused the dark money into Campaign 2010. The Chamber is a 26 U.S.C. §501 C (6) business league organization. That means it is tax exempt. 26 U.S.C. §527 (f) (3) requires the Chamber to have segregated its membership dues from any political activities. Reporting during Campaign 2010 indicated that was not the case. The Chamber may face penalties, perhaps a revocation of their tax exempt status?

The FEC, the IRS, and the FBI must immediately begin investigations and audits of those who polluted the campaign process with this dark money.  Above all else, the FEC needs to go into full rulemaking mode to prevent anymore toxic dark money from polluting the waters of American politics.

LAME DUCK SESSION POISED TO PASS FIRST SUBSTANTIVE BILL SINCE RETURNING TO WORK - H.R. 1722 THE TELEWORK ENHANCEMENT ACT OF 2010

The first substantive legislation to be considered by the House in the lame duck session of this 111th Congress appears to be H.R. 1722, the Telework Enhancements Act of 2010. This bill passed the House back on July 14th, on roll call 441. Just before the Congress recessed for the elections the Senate passed a version of H.R. 1722 by unanimous consent.

The Senate proposed an amendment, S. Amendment No. 4689. Unlike other Senate Amendments, this time the changes were germane to the underlying bill. The Amendment was introduced by Hawaii's Democratic Senator Daniel Akaka and Ohio's Republican Senator George Voinovich.

The Rules Committee has scheduled a meeting, which is being postponed until after a series of votes are concluded today. No doubt the postponement was precipitated by the Leadership Elections by the House Democratic Caucus that are taking place today.

Lynn Jenkins and the Party of No voted against passage back in July. Confronted with the prospect of governing and not merely obstructing it will be interesting to see what she and the other naysayers will do when H.R. 1722 returns to the floor.

MORE HOUSE REPUBLICANS ARE ON THE DEBT RETIREMENT TRAIN - BUT IT'S CAMPAIGN DEBT THAT DOESN'T NECESSARILY APPEAR TO BE REAL!

Apparently it's all the rage in D.C. for incoming Republican Representatives-elect to have "Debt Reduction" fundraisers, even where their campaign reports that they have cash on hand. If these Republicans can't tell the difference between a deficit and a surplus then what can we expect of them when it comes to the Federal Government's budget?

The first of these clowns was New York's Michael Grimm with his Fairytale that he needed a debt reduction party, even though he was reporting a whopping $1.00 surplus. Now comes Illinois' Republican Representative-elect Randy Hultgren with a fundraiser this morning at Covington & Burling, LLP. Covington & Burling is a high power law firm with offices in D.C., Beijing, Brussels, London, New York, San Diego, San Francisco, and the Silicon Valley.

Covington & Burling lists Dodd-Frank Regulation Tracker, Health Care Reform, and Financial Regulatory Reform as "Hot Topics" on their website. See, http://www.cov.com/.

The Center for Responsive Politics' OpenSecrets.org reports Hultgren's FEC filings at http://www.opensecrets.org/politicians/summary.php?cid=N00031104&newMem=Y. Hultgren's campaign reports that it raised $1,274,438, spent $1,161,980, and ended up, as of October 13th with $111,957.

Representative-elect Hultgren drops the pretense with a second invitation for the same fundraiser at the same time at the offices of Covington & Burling. The difference is that for the former invitation the checks are to be made out to""2010 General Election Debt" - P.O. Box 446 Batavia, IL 60510," while at the latter the checks are to be signed over to " Hultgren for Congress - PO Box 446 Batavia, IL 60310" The suggested donation is $1,000 for PAC's and $500 for individuals.

The man who defeated Pennsylvania's Democratic Representative Patrick J. Murphy is not going to be left behind on this "Debt Retirement" bonanza. Republican Representative-elect Michael G. Fitzpatrick is having his own money-grab today as well. OpenSecrets.org report that as of October 13th Fitzpatrick was more flush with campaign cash than either Grimm or Hultgren. Fitzpatrick raised $1,590,663, spent $1,097,929, and had $492,732. The Fitzpatrick fundraiser is at the Strategic Health Care Townhouse.

According to their website "Strategic Health Care is an advocacy firm specializing in health care. It is widely respected for its expertise in congressional and regulatory affairs, public policy analysis and solutions, federal grant development, managed care contracting and association management. The firm is well-known for its ability to impact decisions made at the federal and state levels of government." See, http://associationdatabase.com/aws/SHC/pt/sp/home_page.

Washington Republican Dave Reichert, an established Representative with his own leadership PAC, the Sheriff PAC, is not missing the gravy train when it comes to the "Debt Retirement" circuit. Reichert's gala is being held at the Associated General Contractors (AGC) of America's Townhouse. According to the OpenSecrets.org data Reichert raised $2,382,863, spent $1,782,753, and had cash on hand in the amount of $606,777, and had a debt of $1,320. Meanwhile, Reichert's Sheriff PAC raised, according to OpenSecrets.org, $37,000, spent $35,572, and had cash on hand in the sum of $4,426. The bulk of the Sheriff PAC money was spent on contributions to the National Republican Congressional Campaign Committee.

Texas' new Republican Representative-elect William "Bill" Flores isn't going to miss autumn under the money tree. His "Debt Retirement" event is today at the Capitol Hill Club. OpenSecrets.org reports that Flores raised $2,644,543, spent $2,537,226, and had cash on hand of $107,317. Flores is a little different from his cohorts. Flores actually reported campaign debt in the amount of $825,000.  Finally, a debt retirement event for a person with a demonstrable debt!

Michigan's Republican Representative-elect Dan Benishek's "Debt Retirement" breakfast is scheduled for tomorrow at the Capitol Hill Club. According OpenSecrets.org Benishek raised $963,676, spent $755,259, had cash on hand in the amount of $208,416, and held a debt in the amount of $133,000. Note that his cash on hand is more than his debt. Another disconcerting fact about Benishek is that a little more than a third of his campaign's expenditures went to administrative expenses. It doesn't look like he's running a taut ship.

New York's newly minted Republican Representative-elect Chris Gibson is riding the "Debt Retirement" rodeo bull at an event to be held at the Associated General Contractors (AGC) of America's Townhouse on the 18th. OpenSecrets.org reports the Gibson campaign as having raised $1,318,867, spent $1,120,050, had cash on hand in the amount of $198,817, while reporting no debt as of the October 13th reporting date.

AGC contributed $223,150 to Democratic candidates and $644,349 to Republican candidates for the 2010 campaign cycle. ASG favored incumbents by a margin of $724,400 to $148,349. ASG's PAC gave Gibson $4,849, according to OpenSecrets.org's reports if Gibson's top twenty contributors. See, http://www.opensecrets.org/politicians/contrib.php?cycle=2010&cid=N00031998&type=I. The ASG PAC gave Representatives-elect Dave Reichert $7,500 and Randy Hultgren $2,000.

Neither Grimm, Hultgren, or Fitzpatrick said their campaigns had any debt.

The Lame Duck 111th Congress kicks off lamely demonstrating that Representative Paul Broun is the Lamest Duck of All

Will the lame duck session of the 111th Congress be a do-nothing session? It's starting off that way. The session opened yesterday with the House considering two perfunctory, could-have-been-done-anytime, safe, and polite measures. You'd have to think that the Speaker of the House, Nancy Pelosi, looked to her old comrades in arms and said give me a couple of pitches, soft and belt-high, so we can knock a couple out of the park and go home early.

The first measure the lame duckers took up was H. Res. 1713, a bill titled "Recognizing the 50th anniversary of Ruby Bridges desegregating a previously all-White public elementary school" which was introduced by Georgia's Democratic Representative John Lewis. When I say introduced, it was introduced - first seen- yesterday.

The Problem We All Live With, by Norman Rockwell

Ruby Nell Bridges was the little girl depicted by a famous Norman Rockwell panting called "The Problem We All Live With". H. Res. 1713 passed by a margin of 385 to 1 with 46 Representative not voting on roll call 567. The sole negative vote came from another Georgia Representative, Republican Paul Broun, Jr. Representative Broun has been busy earning himself a reputation as a wing-nut. He voted against H.R. 5566, a bill to banning "crush" videos, which depict animal cruelty. He has called the President a socialist, comparing the President to Adolf Hitler and Joseph Stalin. He has made outrageous allegations against the Council on American Islamic Relations, This is the man who said the Center for Disease Control was going to call Americans on the phone to force them to eat more fruits and vegetables.

I think if Norman Rockwell were still alive he might paint a picture of Georgia's atavistic Republican Representative Paul Broun  calling it "The Problem We All Live With".

H. Con. Res. 328 was the second order of business in the House yesterday. H. Con. Res. 328 is another bill introduced for the first time yesterday. The measure called, "Expressing the sense of the Congress regarding the successful and substantial contributions of the amendments to the patent and trademark laws that were initially enacted in 1980 by Public Law 96-517 (commonly referred to as the "Bayh-Dole Act") on the occasion of the 30th anniversary of its enactment", was introduced by Michigan's Democratic Representative John Conyers, Jr. The margin of victory for H. Con. Res. 328 was 385 to 1 with 46 Members of Congress not voting. Apparently Representative Broun has "just say no" stuck in his head as he again cast the House's sole negative vote. I bet his report card from elementary school contained comments like "Paul does not get along well with others."

A GRIMM FAIRYTALE - REPUBLICAN MICHAEL GRIMM THE REPRESENTATIVE-ELECT FROM NEY YORK'S 13TH AND HIS DUBIOUS DEBT

Michael Grimm, Republican Representative-elect

New York, well Staten Island to be specific, has elected themselves one slick operator by the name of Michael Grimm. Republican Representative-elect Grimm of New York's 13th Congressional District raised $925,231 for his race against Democratic incumbent Representative Michael McMahon. Grimm spent $900,322 and reported having $24,908 as cash on hand. The Center for Responsive Politics' OpenSecrets.org provided Grimm's financial data, http://www.blogger.com/goog_616981730

Let's do the math. $900,322 + $24,908 = $925,230. Grim raised $925,231 and either spent or has $925,230. The difference between $925,231 & $925,230 is $1. Indeed, Grimm claims to have no campaign debt! http://www.opensecrets.org/politicians/summary.php?cid=N00031401&newMem=Y.

So what is an incoming Republican Representative to do when his campaign coffers are down to a measly buck? Michael Grimm goes to Washington, D.C. and his first order of duty is to hold a campaign fundraiser. No not just any campaign fundraiser. He wants to have a campaign fundraiser to retire his debt. Even though he has a surplus of $1.00.

The Sunlight Foundation's Party Time has Grimm's fairytale fundraiser on line at http://politicalpartytime.org/party/24012/. The fundraiser is for this evening in the Capitol Club's Roosevelt Room. That refers to Teddy not Franklin! The suggested shakedown is $2,500 for a host, $1,000 for a PAC, and $500 for a person.

Welcome to Washington, Mr. Grimm. You have started to show that truth doesn't matter, money matters. You'll have a grand time playing the legalized money laundering game, you son-of-a-gun!



COMPROMISE ON THE FAT CAT TAX BOONDOGGLE WILL SPELL THE END OF THE OBAMA PRESIDENCY

The Fat Cat Tax Boondoggle hasn't created any jobs and it won't create any jobs. If the Fat Cat Tax Boondoggle worked then Fat Cats wouldn't be either hoarding money or shipping cash overseas to create work opportunities elsewhere. If the Fat Cat Tax Boondoggle was so bad, then stripping the Fat Cats of their Tax Boondoggle would force them to hire people, that would reduce their above the line income, and they could avoid the higher tax rate altogether by coming within the quarter million dollar save haven. That's right, everyone is supposed to get a tax break on the first quarter of a million dollars of taxable income. Everyone!

This isn't about creating jobs. This is about greed not wealth. Wealth doesn't trickle down. If you don't know what trickles down call your plumber, but I'll give you a hint. What trickes down is what's left of wealth after all of its value has been squeezed out by greed.

Seldom have I recently heard an encouraging word from Kentucky. That changed the other day with an op-ed by Nathan Sivers Boyce published in the Lexington Herald-Leader's on line edition called Kentucky.com. The op-ed is posted at: http://www.kentucky.com/2010/11/08/1515353/extending-tax-cuts-for-wealthy.html. Sivers is an Assistant Professor of Economics at Salem, Oregon's Willamette University. He earned his Ph.D. in Engineering Economics Systems from Stanford University. This fellow is no propaganda spewing slouch, he is one smart person.

Sivers first points out that hiring full time employees is down, that more persons are working part time, and more persons are spending their savings. Then he demonstrates that big businesses are borrowing cheap money to refinance their existing debt at lower interest rates, not to create more jobs. Banks, Sivers argues, are more risk averse today because they got their proverbial teat caught in the ringer during the economic meltdown. Businesses, Sivers says, are waiting for demand for their products to increase before hiring workers to make more products.

The Fat Cat Tax Boondoggle doesn't create jobs and Sivers agrees. The problematic loop between lenders lending, businesses not producing more, and jobs not being created is not worsened by eliminating the Fat Cat Tax Boondoggle. The additional tax revenue will be spent. Sivers argues for targeted spending designed to create jobs, stimulate demand, and break the problematic loop.

"Our economy is trapped in a loop. Businesses will not hire more workers until people have more money to spend, but people won't have more money to spend until they are put back to work.

As politically unpopular as this idea has become, we need carefully targeted government spending to create jobs and help break the cycle.

Allowing tax breaks for the highest-income classes has not and will not solve this problem. Letting those tax breaks expire will not worsen the problem. Rather, it will provide the resources to allow the government to spend money without saddling future generations with significantly more debt.

Don't be confused by false connections and partial arguments. There are serious problems with our economy, but extending tax cuts for the wealthy doesn't belong" [as part of the solution].

Not only will the Fat Cat Tax Boondoggle not work it will exacerbate the problem with the deficit. At the low end it will add $36 Billion to next year's deficit. That's $36 Billion we don't need to borrow. If the old adage about what to do when you are in a hole is correct, then we have to stop digging. If ending the Fat Cat Tax Boondoggle doesn't start to stop the digging, then I don't know beans.

If President Obama goes along with this ridiculous idea and makes this his first post-shellacking compromise, then the President can expect a vigorous primary challenge, one which I will support.

Obama caved in on the American Recovery and Reinvestment Act and got a stimulus too small to work.

Obama caved in on Health Care Reform and we got Mitt Romney's plan with no public option.

If Obama caves in on the Fat Cat Tax Boondoggle then the rich will be getting richer, the poor will be getting poorer, and that isn't change I believe in.

VOLATILE ENERGY HEDGE FUNDS - PATENT LAW - & BIRDS OF FEATHER FLOCKING TOGETHER

Another unanimous fractured opinion has emerged from the nation's Marble Palace. The case is Bilski v. Kappos, No -08-694. Bernard Bilski and Rand Warsaw applied for a patent. They didn't invent a "thing" as much as they figured out a really complex mathematical problem. Their discovery explains how buyer and sellers of commodities in the energy market can protect, or hedge, against the risk of price changes. I wonder how Bilski and Warsaw account for fraud in their calculations. Fraud was the issue with Enron in the largest collapse of a company in the energy market to date.

The patent examiner rejected Bilski and Warsaw's application because their "invention" is not implemented on a specific apparatus, but merely manipulates an abstract idea solving a purely mathematical problem. The Board of Patent Appeals and Interferences agreed and affirmed. The Federal Circuit, in turn, affirmed.

The Federal Circuit sitting en banc rejected its prior test for determining whether a claimed invention was a patentable “process” under Patent Act, 35 U. S. C. §101— i.e., whether the invention produced a “useful, concrete, and tangible result,” — holding instead that a claimed process is patent eligible if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. Concluding that this “machine-or-transformation test” is the sole test for determining patent eligibility of a “process” under §101, the court applied the test and held that the application was not patent eligible.

The Supreme Court upheld the judgment of the Federal Circuit, but took that court to task for its narrow interpretation of Patent Law.

The Patent Law specifies four independent categories of inventions or discoveries that are patent eligible: “processes,” “machines,”“manufactures,” and “composition[s] of matter.” “In choosing such expansive terms, . . . Congress plainly contemplated that the patent laws would be given wide scope. Prior decisions of the Supreme Court provide precedents provide three specific exceptions to §101’s broad principles: laws of nature, physical phenomena, and abstract ideas. The Bilski/Warsaw concept is clearly an abstract idea.

Even if the Bilski/Warsaw concept had been otherwise patent eligible it would have still been required to demonstrate novelty, nonobviousness, and demonstrate a full and particular description. The invention at issue is claimed to be a “process,” which the Patent Law defines as a “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”

The Court ruled that the Machine-or-Transformation Test was not the sole test determining patent eligibility. The Court said this test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process”.

The Federal Circuit violated two principles of statutory interpretation, the Court said. Courts should not read into the patent laws limitations and conditions which the legislature has not expressed. Unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. The Court is unaware of any ordinary, contemporary, common meaning of “process” that would require it to be tied to a machine or the transformation of an article.

The Patent Director argued that looking at all sections of the Patent Law where the term "process" was used led to the confining opinion that the "process" need be tied to the Machine-or Transformation Test. Associate Justice Kennedy said that the doctrine of noscitur a sociis does not apply here. Noscitur a sociis is a Latin phrase meaning "it is known by the company it keeps". Hence the translation is "birds of a feather flock together". This legal maxim originated in England with the dicta of Judge Stamp in the 1967 case of Bourne v. Norwich Crematorium, Ltd where he said:

"Sentences are not mere collections of words to be taken out of the sentence, defined separately by reference to the dictionary or decided cases, and then put back into the sentence with the meaning you have assigned to them as separate words."

What Kennedy is saying that there wasn't anything unclear about the word "process." It was not necessary for the Patent Office and the Federal Circuit to limit the language provided by the Congress.

Kennedy refers to the Federal Circuit's sole test as the categorical exclusion argument. He says, "The categorical exclusion argument is further undermined by the fact that federal law explicitly contemplates the existence of at least some business method patents: Under §273(b)(1) [ of the Patent Law], if a patent-holder claims infringement based on “a method in [a] patent,” the alleged infringer can assert a defense of prior use. By allowing this defense, the statute itself acknowledges that there may be business method patents. Section 273 thus clarifies the understanding that a business method is simply one kind of “method” that is, at least in some circumstances, eligible for patenting under §101. A contrary conclusion would violate the canon against interpreting any statutory provision in a manner that would render another provision superfluous."

Having corrected the Federal Circuit the Court goes on to explain that Bilski and Warsaw fail because they are trying to "patent both the concept of hedging risk and the application of that concept to energy markets". Kennedy said "these are not patentable processes but attempts to patent abstract ideas."

Abstract ideas are not patent eligible.

I called this a fractured opinion because Associate Justice Kennedy delivered the opinion of the Court except as to Parts II-B-2 and II-C-2.  The Court agreed in the outcome only.