Carbon Offsets and Patent Protection for Business Methods After In re Bilski

Transcription

1 Carbon Offsets and Patent Protection for Business Methods After In re Bilski Ronald M. Daignault, Stroock & Stroock & Lavan LLP* Abstract As carbon trading enters the mainstream, businesses will seek to devise unique and non-obvious business methods to differentiate themselves, fend off competitors and enhance their market value. One critical question these companies will encounter is whether their services or product offerings are eligible for intellectual property protection as business method patents. This article considers how the Federal Circuit s en banc decision in In re Bilski would answer this question and provides insight into plausible business method patents under the machine or transformation test. Key Words: carbon offsets, intellectual property, business-method patents, innovation, carbon trading, Bilski Ronald Daignault, Carbon Offsets and Patent Protection for Business Methods After In re Bilski," Issue 1.1, Clean Tech Law & Business (2009), is reprinted with permission of Clean Tech Law & Business, Copyright (c) All rights reserved. 101

2 1. Introduction The carbon offsets market is highly fragmented and includes markets for voluntary offsets and mandatory offsets. In voluntary offset markets, prices have swung wildly, from as low as $1 to as high as $20 per ton of carbon dioxide. Price differences are less extreme in the compliance market for carbon offsets, where governments and companies trade carbon credits, or Compulsory Emissions Reductions (CER), to meet emissions reductions targets under the Kyoto Protocol or the European Union's Emissions Trading Scheme. The number of private firms peddling offset products has seen explosive growth in the past five years. The diverse array of products and projects, which range from treating wastewater to planting trees, is equally impressive in size and scope. 2. Mechanics of Cap-and-Trade A cap-and-trade system requires specific industries and economic sectors to reduce the amount of greenhouse-gas (GHG) emissions they emit by specific amounts on specific dates. The trouble is that many of the cheapest emissions-reductions opportunities are found outside of the cap in sectors that are not subject to the cap for a variety of reasons. For example, agriculture and forestry are not likely to be included in a cap-and-trade system because they don t directly generate carbon emissions, 1 and yet those sectors could dramatically lower the amount of carbon dioxide that enters the atmosphere by enhancing natural sequestration. In many cases, total carbon dioxide emissions could be reduced at lower costs in non-capped sectors like agriculture than in capped sectors where costs are higher and technical cooperation is required. To avoid these gross inefficiencies, cap-and-trade systems allow regulated parties to pay entities not required to cut emissions to do so voluntarily. A. What Are Carbon Offsets? A carbon offset is a verifiable avoidance, reduction, or sequestration of carbon dioxide (CO2) or other greenhouse gas (GHG) emissions. 2 An offset or avoidance made by one party voluntarily can be sold as an emissions allowance to another party, which can use that allowance to comply with GHG-emissions regulations. 3 For example, a coal-fired power plant that emits 100 extra tons of carbon dioxide beyond its government-mandated emissions target could meet that target by purchasing 100 offset allowances from a farm that is sequestering the equivalent of 100 extra tons of carbon dioxide in its soil. B. Why Carbon Offsets Matter The core rationale for including offsets in a cap-and-trade system is saving money. In theory, if capped entities can pay for lower-cost offset allowances rather than making the presumably more expensive changes needed to directly reduce operational emissions, offsets can substantially lower the costs of a cap-andtrade program. In the absence of an offset mechanism, the cheapest possible emissions cuts may not be made. Offsets have been the most widely adopted policy mechanism for controlling costs associated with GHG-emissions reductions programs. 4 The EU s Emissions-Trading- Scheme used offsets as a principal cost-control mechanism, primarily as a result of the success experienced with emissions trading as part of the Acid Rain Program in the 1990s. Economic modeling of proposed cap-and-trade bills in the United States has shown that carbon offsets would dramatically lower the costs of a GHGemissions reduction program. 5 As a result, proposed legislation in the United States has used various mixes of domestic offsets and international credits as a principal cost-control mechanism

3 3. Market Innovation Could Optimize Tradeoffs of Transaction Costs and Verification Offset markets have a compelling need for economically efficient and effective ways of assuring the environmental integrity of an offset. Solving this problem would promote enormous growth in the offsets market. A. Risk of Bogus Offsets As the ongoing turbulence in financial markets has made abundantly clean, uncertainty about the value of an asset in the marketplace is never well received. The risks associated with bogus offsets has recently attracted increased attention as evidence has surfaced that administrators working for the United Nations Clean Development Mechanism (CDM) approved significant numbers of phony offset projects. 7 The primary policy response has been to ratchet up the approval requirements for offsets projects. Ironically, although more stringent oversight may resolve concerns about the integrity of carbon offsets, it has dampened investor enthusiasm for offsets in another way. B. Risk of High Transaction Costs Although there is a risk of bogus offsets, there is also a converse risk of making the offset registration process so burdensome that transaction costs discourage market growth. Until very recently, high transaction costs hurt the international offsets market under the CDM. In part, this reflects the fact that the CDM approves offset projects on an individual project-by-project basis to ensure offset integrity. Each individual project must prove additionality (the mitigation expected from a project over and above what would have occurred anyway) through a series of tests and complicated documentation procedures. This system has made it administratively cumbersome to register an offsets project and it has effectively lowered investment returns. To further complicate matters, concerns about the environmental integrity of carbon offsets have led the UN s CDM Executive Board to implement still more stringent approval procedures for offset projects. As a practical matter, concerns about offset integrity have substantially complicated negotiations between offset project managers and offset buyers. The Emissions Reductions Purchase Agreement (ERPA) the standard legal instrument used to buy and sell offsets under the CDM has become the primary tool for managing the uncertainty surrounding the ability of offsets to deliver future emission reductions. The need to develop adequate mitigating mechanisms has made ERPA negotiations inordinately complicated and expensive. These administrative hurdles have limited expansion of offsets markets by making the transaction costs so cumbersome that many offset projects no longer make sense economically. While carbon offsets may alleviate the financial burdens associated with emissions cuts, they may also compromise the integrity of the entire cap-and-trade system if they are administered improperly. Lax approval procedures could lead to carbon offset projects with fewer environmental benefits than advertised. In other words, unless proper oversight exists, there is a risk of proliferation of carbon offset projects that do not genuinely cut carbon emissions. On the other hand, there is also a risk that the regulatory oversight process will become so burdensome that approval and verification schemes and high-transaction costs will make it impossible for offsets to lower the costs of compliance under a cap-and-trade scheme. Finding the optimal balance between an offset system s low transaction costs and highly-reliable emissions-reductions is a key barrier to growth for carbon offsets markets. C. Policy Must Promote Innovation to Balance Integrity & Transaction Costs To some extent, concerns about the integrity of offsets 8 reflect more basic challenges associated with measuring and monitoring counterfactual emissions. These challenges are generally considered in the following schematic: additionality and leakage (a shift in emissions to another geographic location that 103

4 negates some or all of the gains of the mitigation project). 4. Proposed Solutions to Problems in the Offsets Market Just as innovations over the years in the financial services sector have enhanced the market s efficiency of trading various financial instruments, there is tremendous potential for the same result in the carbon offsets market. The question is whether entrepreneurs who pioneer these market innovations in the carbon offsets market can capture the value of their innovations. In a significant way, the answer to this question comes from patent laws and the evolving debate over business-method patents as recently seen in the Federal Circuit s Bilski decision. A. Counting Carbon The voluntary carbon markets have been described as the wild west. A central reason for using this moniker is that the quality of the offsets tends to vary, primarily as a result of the lack of commonly accepted standards. Some sellers offer offsets that comply with standards that are generally regarded as the most stringent: e.g., the CDM or the Gold Standard. These standards generally require robust tests for additionality, as well as more substantial monitoring and verification procedures. Meanwhile, several sellers rely on selfestablished protocols to ensure that their offsets embody the environmental benefits that underlie their market value. These self-established protocols can vary considerably. Moreover, companies often consider these protocols proprietary information and do not make them publicly available. For example, the CarbonNeutral Protocol, a proprietary standard developed by The CarbonNeutral Company, describes the requirements for achieving CarbonNeutral status and the controls employed by The CarbonNeutral Company to ensure the correct use of CarbonNeutral logos. The protocol sets out the quality requirements for projects and schemes that produce offset credits that may be applied to make activities or entities CarbonNeutral under this program. Are the offsets accounted in such a way as to avoid double-counting? Are the offset projects verified by independent third parties? The Chicago Climate Exchange (CCX) is a voluntary, cap-and-trade emission trading system. Members commit to reduce their emissions by a certain amount each year, measured against their original baseline. Companies that achieve reductions that go above the commitment can sell these emissions reductions as CCX commodities called Carbon Financial Investments (CFIs). Companies can also invest in external carbon projects that are implemented in the United States, Canada, Mexico and Brazil. The Chicago Climate Exchange s standards and verifications procedures are proprietary (a business method patent awarded to CCX is discussed below). For example the Chicago Climate Exchange offers bundled offsets that include project-based emissions as well as emissions reductions achieved by member corporations that went above their emissions-reductions target. 5. Business Method Patents Background With the tremendous growth of the Internet over the past ten years, business method patents have become controversial. Courts, legal commentators and members of Congress have questioned the legality of business method patents and their value to the public. But the rationale underlying intellectual property is to promote innovation, and if an entrepreneur creates a novel and non-obvious way of doing business in the carbon offsets market, then that person presumably deserves patent protection. The heart of the controversy, therefore, is this question: What is a patentable business method? Just a few months ago, in In re Bilski, the United States Court of Appeals for the Federal Circuit (the court that hears virtually all patent-related appeals in the United States) addressed this question en banc. But a petition for writ of certiorari to the United States 104

5 Supreme Court has already been filed (January 28, 2009). Given the divided views of the Federal Circuit judges in the Bilski case and lingering questions surrounding the interpretation of earlier court of appeals and Supreme Court decisions, there is a strong chance the High Court will grant certiorari and hear the Bilski case. A. The Debate That Lead to the Bilski Decision Bilski involves the United States Patent and Trademark Office s rejection of a patent application claiming a method of hedging risks associated with commodities trading. Claim 1 of Bernard Bilski s patent application reads as follows: A method for managing the consumption risk costs of a commodity sold by a commodity provider at a fixed price comprising the steps of: 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 consumer; identifying market participants for said commodity having a counter-risk position to said consumers; and 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 transaction. 9 By way of example, the Federal Circuit offered the following scenario to illustrate the scope of Bilski s patent claim. As the court explained: [C]oal power plants (i.e., the consumers ) purchase coal to produce electricity and are averse to the risk of a spike in demand for coal since such a spike would increase the price and their costs. Conversely, coal mining companies (i.e., the market participants ) are averse to the risk of a sudden drop in demand for coal since such a drop would reduce their sales and depress prices. The claimed method envisions an intermediary, the commodity provider, that sells coal to the power plants at a fixed price, thus isolating the power plants from the possibility of a spike in demand increasing the price of coal above the fixed price. The same provider buys coal from mining companies at a second fixed price, thereby isolating the mining companies from the possibility that a drop in demand would lower prices below that fixed price. And the provider has thus hedged its risk; if demand and prices skyrocket, it has sold coal at a disadvantageous price but has bought coal at an advantageous price, and vice versa if demand and prices fall. 10 As the Federal Circuit pointed out, Bilski s patent claim is not limited to coal or any other commodity. Indeed, for our purpose here, Bilski s claim could cover hedging risks in the carbon offsets market. Bilski s claim is not limited to any physical apparatus, computer program or physical environment. Bilski is simply trying to patent a plain and untethered method or process for managing risks associated with commodities trading. When the patent examiner and the Board of Patent Appeals and Interferences reviewed Bilski s claim, they rejected it. Though their stated reasons were different, both the patent examiner and the Board concluded that Bilski s claim was not directed to patent-eligible subject matter under 35 U.S.C After a threejudge panel heard oral argument on Bilski s appeal in October, 2007, the Federal Circuit ordered, sua sponte, en banc review. This was a very unusual move for the court. The court also invited amicus briefing on five issues fundamental to the controversy over business method patents. Ultimately, thirty-seven amicus briefs were filed from companies and associations in the financial services, life sciences, computer and electronics, non-profit and industry trade sectors, and from bar 105

6 associations, scholars, and law school and business school faculty. On October 30, 2008, the Federal Circuit issued its decision and affirmed the examiner s and the Board s rejections. The Federal Circuit held that Bilski s method for hedging risks associated with commodities trading is not patentable subject matter because Bilski s purported invention encompasses a purely mental process of performing... mathematical calculations and essentially pre-empts others from applying the fundamental concept of hedging and mathematical calculations inherent in hedging. 11 The court s decision, however, was not unanimous; there was one concurring opinion and three dissents. B. After Bilski, What Is A Patentable Business Method? Section 101 of the United States Patent Code states: Whoever invents or discovers any new and useful process, machine, manufacture or composition of matter, or any new and useful improvement thereof, may obtain a patent therefore, subject to the conditions and requirements of this title. 35 U.S.C For business-method patent protection, the critical language in the statute is the phrase any new and useful process. The Federal Circuit noted that Bilski s method of hedging risks is, on its face, a process. But, under Supreme Court precedent, there are limitations on what a patentable process is. As the Federal Circuit explained, the Supreme Court has held that a claim is not a patent-eligible process if it claims laws of nature, natural phenomena, [or] abstract ideas. 13 Turning to Bilski s patent claim, the Federal Circuit stated that the question before the court was whether Bilski s process for hedging risks associated with commodities trading recites a fundamental principle [or mental process] and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed. 14 Conceding that the inquiry is hardly straightforward, the court asked, [h]ow does one determine whether a given claim would preempt all uses of a fundamental principle? 15 In other words, how does one determine whether a patent covers only a particular application of a fundamental principle (and is therefore patent eligible) or whether a patent covers and seeks to exclude others from using the principle itself (and is therefore not patent eligible)? After reviewing Supreme Court precedent, the Federal Circuit held that a claimed process is patent-eligible subject matter if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. 16 This test is referred to as the machine or transformation test. One of the potential problems with the Federal Circuit s holding, however, is that other Supreme Court cases have stated that a valid patent could issue even if it did not meet the requirements of the machine-or-transformation test. 17 In that regard, the Federal Circuit agreed that future developments in technology and the sciences may present difficult challenges to the machine-or-transformation test, just as the widespread use of computers and the advent of the Internet has begun to challenge it in the past decade. 18 Though the Federal Circuit saw no need to depart from the machine-ortransformation test, it noted that the Supreme Court may amend or set aside the test at some point in the future. Adding to the uncharted nature of what lies ahead for business method patents, the Federal Circuit also left to future cases the elaboration of the precise contours of machine implementation and such questions as whether a fundamental principle or process becomes patentable subject matter simply because it is tied to a computer or electronic network. 19 Accordingly, because Bilski sought to protect a financial process without tying it to a machine (e.g., a computer or electronic network), the court focused on the transformation prong of the test. The court defined three main areas in which transformations could be found: (1) the traditional arts (e.g., manufacturing processes transforming raw materials into finished products); (2) information-age processes (e.g., 106

7 transforming electronic signals and data); and (3) business methods (e.g., the manipulation of legal obligations, organizational relationships, and business risks). The critical issue on the transformation side of the machine-or-transformation test is identifying what article is allegedly being transformed. Without doubt, processes that transform physical objects and substances as in the traditional chemical or mechanical arts are patent-eligible processes. But when it comes to business methods, and the processing or manipulation of electronic data and signals, the transformation analysis is not so clear. On the one hand, adding a data-gathering step, a recordation step or other insignificant extra-solution activity to an algorithm or mental process does not convert that algorithm or mental process into patentable subject matter. 20 But on the other hand, if the claimed process is limited to the application of a fundamental principle to transform specific data and the claim is limited to a visual depiction that represents physical objects or substances, then the scope of the claim would not exclude others from all uses of the principle. 21 Because Bilski s method of hedging risks associated with commodities trading does not transform any article to a different state or thing, under the majority s thinking, it is not a patent-eligible business method. Bilski is simply trying to patent a stand-alone process where an intermediary purchases and sells commodities between sellers and buyers at fixed prices, thereby protecting against risks caused by market fluctuations. As the Federal Circuit explained, [p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances. 22 But in her dissent, Judge Newman stated that Bilski s method of hedging risks associated with commodities trading should be patentable because it is a process within the plain meaning of the statute that is set out in successive steps, for obtaining and analyzing information and carrying out a series of commercial transactions for the purpose of managing the consumption risks of a commodity sold by a commodity provider at a fixed price. 23 Rather than focusing on what is a flawed machine-or-transformation test, Judge Newman believes that a straightforward and fair approach is to ask whether a purported process claim seeks to cover a fundamental truth, law of nature or abstract idea. If the process claim preempts none of those things, then it is patenteligible subject matter. Judge Mayer in complete contrast to Judge Newman s expansive thinking believes that the Federal Circuit s willingness to affirm patent protection for business methods has launched a legal tsunami of applications filed with the U.S. Patent & Trademark Office, and issued patents that range from the somewhat ridiculous to the truly absurd. 24 According to Judge Mayer, the Patent Act is supposed to protect technological innovations, not ideas about the best way to run a business. 25 Clearly there are distinct and divided views about patenting business methods among the appellate judges holding primary responsibility for interpreting United States patent law. Although the Supreme Court may grant certiorari and review Bilski, until that time, businesses and inventors are left with the Federal Circuit s machine-or-transformation test and future decisions interpreting that test. 6. Business Method Patents, Bilski and Carbon Offsets According to a recent study 26 by the World Bank Carbon Finance Unit, global interest in clean energy solutions from carbon funds and technology giants is stimulating a surge in green patents. About half of the one-hundred seventy-one (171) relevant business method patent families identified in this study were directly related to carbon trading tools or forms of carbon administration. Other relevant categories that emerged from the study were emission measurement and monitoring, policy implementation and software. 27 The report, Carbon Trading: Patently Set for Growth, shows a strong link between disbursements from 107

8 the World Bank Carbon Finance Unit and patent filings for clean technologies from 2000 onwards. The report also tracks the effects of the 1997 Kyoto Protocol, which made detailed provisions for carbon trading. There is no doubt that Bilski and the continuing debate and development of the law (not to mention the possibility of the Supreme Court weighing in) will affect the carbon-trading-related business method patent applications already on file and those to come. Perhaps the best way to illustrate the impact Bilski is likely to have on patentable innovations in the offsets market is by articulating Bilski s clear boundaries and its clear gaps, and by taking a look at potential innovations in the offsets market. In the first instance, it is clear that under the majority s view, business methods involving the use of machinery or mechanical devices or the transformation of physical objects are patentable. Thus, for example, a carbonoffsets-related business method that involves sequestering, measuring or analyzing physical greenhouse gas emissions would be patentable. Similarly, a business method that involves the transformation of data such as the amount of carbon pollutants emitted from a particular source to calculate the amount of offsets necessary to meet a required government cap should be patentable after Bilski. This can be seen in a number of leading-edge technologies for measuring and monitoring carbon emissions as well as a system for consolidating small emissions into packages large enough to trade on offsets markets. 28 Even though such an approach may involve a mathematical calculation or formula, it is nonetheless patentable because, much like the physical x-ray data discussed in Bilski, carbon emission data represents the measurement of physical greenhouse gases. Business methods using data generated from carbon sources like power plants, automobiles and cement factories and from carbon offsets like trees, soil sequestration and solar or wind power should be patentable. Thus, step-by-step business processes to verify the physical quality and integrity of a specific carbon offset or the data generated by the physical carbon offset should be patentable. The critical aspect of the machine-or-transformation test to patentability is the meaningful involvement of something physical in the business process. But as the Federal Circuit noted, the line gets blurry when the subject matter of the patent is a process for manipulating public and private relationships and obligations, business risks and other abstract business concepts. As discussed above, offset discounting is emerging as a way of addressing the uncertainties and risks to both buyers and sellers in the carbon offsets markets. According to the Federal Circuit s holding in Bilski, novel methods of discounting offsets should be patentable. If the method is a bare allocation of risk or mathematical formula, however, such as a way of exchanging and mutually discounting multiple bids between buyers and sellers to reach an agreed value, then under the majority s view, that trading process may not be patentable. Though the Federal Circuit left for another day the question of whether that process would be patentable subject matter if implemented over a computer or electronic network, the point is that the closer the business method resembles a simple algorithm, abstract idea, manipulation of public or private relationships or business risks, or way-of-thinking, the greater the chance of rejection under the machine-or-transformation test. A potential corollary or related point is whether the business method preempts something that is in the public domain domain, similar in principle to Judge Newman s focus on a fundamental truth, natural law or abstract idea. Illustrating this point is a patent awarded to the Chicago Climate Exchange, titled Systems and Methods for Trading Emission Reductions (patent no. 7,343,341). Claim 1 of CCX s patent recites the following: 1. A computer-implemented method of promoting the reduction of emissions, comprising: registering participants voluntarily with an established entity; establishing an emission reduction schedule for a set future period of time, including several years, for each registered participant that produces 108

9 emissions based on emissions information over previous years provided by each registered participant establishing tradable financial instruments, including emission allowances, emission offsets, and credits; issuing tradable emission allowances to each registered participant based on the established reduction schedule; collecting emissions data for each registered participant during each year of that future period of time; comparing the collected emissions data with the corresponding data in the established reduction schedule for each registered participant for each year of that period of time; based on the comparing step, determining debits or credits for each registered participant for each year of that period of time; and based on the determining step, if the registered participant s yearly emissions exceed the corresponding data in the established reduction schedule, debiting each registered participant a quantity of tradable financial instruments, thereby penalizing the registered participant, wherein the registered participant is required to purchase tradable financial instruments to achieve compliance with the reduction schedule; and based on the determining step, if the registered participant s yearly emissions are below the corresponding data in the established reduction schedule, crediting each registered participant a quantity of tradable financial instruments thereby rewarding the registered participant, wherein the registered participant can trade or bank those tradable financial instruments. After Bilski, there is the unresolved question of whether CCX s claim is patentable because it involves a computer-implemented method. Future Federal Circuit decisions may take a bright-line approach and hold that a business process is patentable subject matter as long as a machine, such as a computer or even a handheld device, carries out the process. But ultimately, patent examiners and courts will be pushed to look deeper and examine business method claims for their true nature. Thus, a party looking to strip CCX of its patent monopoly will argue that CCX is simply trying to patent a purported transformation or manipulation of public or private legal obligations or relationships or business risks, which, according to Bilski, is improper. Looking at CCX s patent claim, that is not a bad argument. On the other hand, CCX created what it believes to be a new and efficient cap-andtrade system. It is a voluntary, private system that CCX offers to registered participants; there is no preemption of legal obligations or relationships or anything else in the public domain. Further, it is a system based on emission reduction schedules, tradable financial instruments and emission allowances, and emissions data that the CCX system generates. And those reduction schedules, financial instruments and emissions data interact in a stepby-step process that achieves emissions reductions. There is more to CCX s system than extra-solution activity, such as data gathering, added to an algorithm. CCX s business method should therefore be patentable subject matter under Bilski s machine-or-transformation test and the rationale supporting that test. But if CCX s patent were to wind up in an infringement suit, an accused infringer wouldn t miss the opportunity of arguing that CCX s business method is not patentable. 29 Of course, if the Supreme Court grants certiorari in the next few months and leans in the direction of Judge Mayer s dissent in Bilski, business methods will have little or no patent protection, even if they were tied to a machine or involved the transformation of a physical object or data representative of a physical object. Business method patent protection is therefore an area that participants in the carbon offsets 109

10 market should follow. The law in this area will develop further and those developments will have a significant impact on innovation in the carbon offsets markets. ENDNOTES Ron Daignault is a partner at Stroock & Stroock & Lavan LLP. Based in New York, Mr. Daignault has counseled clients on intellectual property issues in various technology areas and has litigated a number of intellectual property disputes in federal courts. The opinions expressed in this article are those of the author, are subject to change, and do not necessarily reflect the opinions of his firm or any of its clients. 1 Lydia Oleander, Designing Offsets Policy for the U.S., DUKE UNIVERSITY: NICHOLAS INSTITUTE, 2008, at Jonathan Ramseur, Voluntary Carbon Offsets: Overview and Assessment, Congressional Research Service, p. 1, (November 7, 2007). 3 An emission allowance, as defined in S. 2191, means authorization to emit 1 CO2 equivalent of greenhouse gas. One carbon dioxide equivalent is defined as the quantity of greenhouse gas that makes the same contribution to global warming as 1 MtCO2. 4 Michael Wara and David Victor, A Realistic Policy on Carbon Offsets, PESD Working Paper #74, p. 7 (April 18, 2008). 5 The EPA estimates that the inclusion of offsets and international credits in the Liebermann- Warner bill reduces the predicted allowance price for capped sectors from $77 to $40 in OFFICE OF ATMOSPHERIC PROGRAMS, U.S. ENVTL. PROT. AGENCY, EPA ANALYSIS OF THE LIEBERMAN-WARNER CLIMATE SECURITY ACT OF 2008 (2008), available at _EPA_Analysis.pdf. See also ENVIRONMENTAL PROTECTION AGENCY, EPA ANALYSIS OF THE CLIMATE STEWARDSHIP AND INNOVATION ACT OF 2007 (July 2007); U.S. ENERGY INFORMATION ADMINISTRATION, ENERGY MARKET AND ECONOMIC IMPACTS OF S.280, THE CLIMATE STEWARDSHIP AND INNOVATION ACT OF 2007, Report #: SR-OIAF (August, 2007); S. Paltsev et al., Assessment of U.S. Cap-and-Trade Proposals, MIT Global Change Joint Program Report 146 (April 2007, updated February 2008); Richard G. Richels et al., Managing the Transition to Climate Stabilization, AEI-Brooking Joint Center Working Paper No (January 2007). 6 See, S. 2191, 110th Cong (2008). 7 Schneider, L., Is The CDM Fulfilling Its Environmental And Sustainable Development Objectives? An Evaluation Of The CDM And Options For Improvement. Oeko-Institute, report prepared for World Wildlife Fund. While this may seem daunting, there are a number of activities likely to be part of an offsets market in the U.S. that are already using accounting procedures and methodologies that address these issues. For example, Clean Development Mechanism projects under the Kyoto Protocol, new standards for the Regional Greenhouse Gas Initiative, and projects in the voluntary market using standards like the Voluntary Carbon Standard and the California Climate Action Registry Protocols are all accounting for these five issues in some manner. 9 Bilski, 545 F.3d at Id. at Id. at Unless indicated otherwise, all emphasis is added. 13 Bilski, 545 F.3d at ; Diamond v. Diehr, 450 U.S. 175, 185 (1981) (citing Parker v. Flook, 437 U.S. 584, 589 (1978); Gottschalk v. Benson, 409 U.S. 63, 67 (1972) ( Phenomena of nature, though just discovered, mental processes, and abstract intellectual concepts are not patentable, as they are the basic tools of scientific and technological work. )); see also In re Comiskey, 499 F.3d 1365, (Fed. Cir. 2007) (holding that mental processes, processes of human thinking, and systems that depend for their operation on human 110

11 intelligence alone are not patent-eligible subject matter under Benson). 14 Bilski, 545 F.3d at Id. 16 Id. 17 See, e.g., Parker v. Flook, 437 U.S. 584 (1978); Gottschalk v. Benson, 409 U.S. 63 (1972). 18 Bilski, 545 F.3d at Id. at Id. at Id. at Id. 23 Id. at Id. at Id. at CARBON FINANCE UNIT, WORLD BANK, CARBON TRADING: PATENTLY SET FOR GROWTH (2008) 27 See Carbon Trading Drives Green Patents Surge, CPA GLOBAL, Sept. 26, 2008, ts_surge. 28 See, e.g., IBM Case Study, C-Lock Technology Streamlines Greenhouse Gas Emission Monitoring Processes to Help Save the Planet Using an SOA Solution from IBM and EIM, available at 01.ibm.com/software/success/cssdb.nsf/CS/JKI N- 7K8PQQ?OpenDocument&Site=default&cty=e n_us (last visited Mar. 04, 2009). 29 It is important to understand that determining whether a business method is patentable subject matter under 35 U.S.C. 101 in view of Bilski is a separate and completely different inquiry as to whether that patentable subject matter is new and non-obvious under 35 U.S.C. 102 and