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Patent Law: How a recent Supreme Court ruling may affect your business method patents
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Does your company hold business method patents? A recent US Supreme Court ruling may affect the business method patents you currently hold, and any you might pursue in the future. The Court ruled last month in Bilski v. Kappos that a business method for hedging risk in commodities trading was not patentable under the U.S. Patent Act. However, the Court did confirm, at least for now, that business methods are eligible as patentable subject matter in certain instances.

Background: Bilski v. Kappos 

The Bilski case involved a patent application for a business method to manage “consumption risk” associated with the sale of commodities. Businesses and schools could use this method to hedge against the seasonal risks of buying energy. The patent application for this method was rejected in 1997. The applicants appealed the rejection to the Federal Circuit, which held that an invention or discovery was a patentable “process” only if (1) it was tied to a particular machine or apparatus, or (2) it transformed a particular article into a different state or thing. Using that test, the Federal Circuit ruled in October 2008 that Bilski's “method for managing the consumption risk costs of a commodity” was not patentable.

What Determines Patent Eligibility?

The Patent Act specifies four independent categories of inventions or discoveries that are eligible for protection:

  1. processes,
  2. machines,
  3. manufactures, and
  4. compositions of matter.

In addition to the Patent Act, courts have recently relied on the “machine-or-transformation” test to determine whether a business method or process is patentable. The test requires that an invention be "tied to a particular machine or apparatus" or "transform a particular article into a different state or thing" in order for it to be a patentable process. This test was applied by the Federal Circuit in its Bilski opinion.

Machine-or-Transformation is not the Sole Test

The Supreme Court ruled that the specific process claims contained in the patent application submitted by Bilski and Warsaw were not patentable because they represented “attempts to patent abstract ideas” and not a “process.”

More importantly, the Supreme Court found that the machine-or-transformation test “is a useful and important clue” for determining whether something is a patentable process; however, it “is not the sole test.” The Court indicated that future guidance on the patentability of process claims should be found in its past rulings that discussed patentable subject matter. The Supreme Court also encouraged the Federal Circuit to develop other criteria for determining the patentability of process claims in line with the Patent Act.

How will This Case Affect Business Method Patents?

The most important outcome of the Bilski case is that the Supreme Court held that business methods remain eligible as patentable subject matter. Many anticipate this question of what constitutes a patentable “process” under the federal patent law to receive considerable judicial scrutiny over the next few years. Many of the justices (4 of 9) joined in a concurring opinion that, while agreeing that the Bilski claims were not patentable because they were directed to abstract ideas, attacked the majority’s opinion by contending that business methods were never intended by Congress to be patentable subject matter under U.S. patent law. This issue may well find its way back up to the Supreme Court sooner rather than later.

If you have questions about patent law issues, contact us.

  • Partner

    Dan is a senior partner of the Intellectual Property and Technology (IP&T) group (former chair 1997-2009), concentrating his practice on counseling emerging and established businesses in all areas of intellectual property and ...

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