Business Method Patents:  Still Viable after Bilski – at Least in Some Instances
08.09.10
If you were wondering whether the U.S. Supreme Court in Bilski v. Kappos would invalidate the entire category of business method patents, or provide a clear test for determining which business methods are patentable – the Court did neither.

BACKGROUND: Bilski had tried to patent a method of commodity risk hedging. The patent office rejected Bilski’s application as drawn to a non-patentable abstract idea, and the Board of Patent Appeals and Interferences agreed. The Court of Appeals for the Federal Circuit (CAFC) likewise affirmed. In doing so, the CAFC replaced various prior tests for determining business method patentability with a “sole test” – the “machine-or-transformation test.” Under the “machine-or-transformation test,” a process would be patentable only if it (1) was tied to a particular machine or apparatus or (2) transformed a particular article into a different state or thing. That test was stricter than those that the CAFC had rejected, and created considerable uncertainty in the legal and business communities about the viability of many existing and pending business method patents.

OUTCOME: The Supreme Court agreed to hear Bilski’s case, and – unsurprisingly – affirmed. However, those hoping for clear guidance from the Supreme Court on how to determine patentability of processes or methods were disappointed. The Supreme Court affirmed on the narrow basis that Bilski’s particular method was an unpatentable “abstract idea.” Its opinion was not unanimous. The Supreme Court majority refused to hold that business methods – as a broad category – were unpatentable, although four out of the nine justices would have so held. Furthermore, the Supreme Court held that the CAFC’s “machine-or-transformation test” was not the sole test, but rather “just an important and useful clue” and “investigative tool” to be used in evaluating patentability of methods. Instead of defining a new “test,” the Supreme Court relied on the patent statute and three of its prior cases in concluding that Bilski had tried to claim the “abstract idea” of hedging. That, according to the Supreme Court, would give Bilski an unwarranted general monopoly on hedging, thus effectively preempting others from managing risk in that way.

OUR PERSPECTIVE: In light of the Supreme Court’s Bilski decision, the patentability analysis may evolve to a multi-factor approach that incorporates various elements of past patentability tests – including the “machine-or-transformation test.” Abstract ideas, natural phenomena and mathematical formulae – even with a field-of-use limitation tacked on – remain unpatentable, but beyond that, the patentability of business methods will continue to be evaluated on a case-by-case basis. We expect that business method-type patents will continue to receive additional scrutiny, and those seeking patents that survive such scrutiny would probably be well-advised to integrate the method with tangible implementation.

Bilski will provide little comfort to those targeted by so-called “patent trolls.” Nevertheless, at least for now, the Supreme Court’s decision allows businesses to continue protecting not only science and technology innovation – but innovation on most, if not all, fronts.

Link to the Supreme Court’s opinion: Bilski v. Kappos, No. 08-964 (June 28, 2010).
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Derrick A. Pizarro
Court B. Allen
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