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Supreme Court Reaffirms Patentability of Business Methods

Intellectual Property Update Terri S. Flynn, Gavin J. Milczarek-Desai, Rowan P. Smith

In its long-awaited decision in Bilski v. Kappos, on June 28, 2010 the Supreme Court found that the Patent Act does not categorically exclude business methods from patent eligibility. However, the Court rejected the Federal Circuit's "machine-or-transformation test" as the sole test for determining whether process or method claims are patentable subject matter, and provided only general guidelines for determining what does constitute a patent-eligible process.

The Bilski case raised the issue of patentability of computer-implemented processes - particularly business methods - which were last significantly dealt with by the Federal Circuit in the State Street Bank v. Signature Financial in 1998. In State Street, the Federal Circuit held that all processes that produce "a useful, concrete and tangible result" were patent-eligible and specifically endorsed the patentability of business methods.

The patent application at issue in Bilski discloses a business method for mitigating risk in financial transactions. The claims at issue in the case did not include a computer and were directed at processes that could conceivably be carried out by human beings. These claims were rejected by the United States Patent and Trademark Office as directed to unpatentable subject matter, and Bilski appealed to the Federal Circuit.

In a decision in October of 2008, the Federal Circuit found the claims to be unpatentable, and found that to be patent-eligible, processes must meet a "machine-or-transformation" test. The machine-or-transformation test specifically required a process to be either "tied to a particular machine or apparatus" or to "transform a particular article into a different state or thing." Bilski appealed this decision to the Supreme Court.

In Bilski v. Kappos, the Supreme Court held that the Federal Circuit's "machine-or-transformation" test provides a clue as to patentability, but is not the sole test for determining whether a particular process may be patented. The Court also refused to endorse the Federal Circuit's previous "useful, concrete, or tangible" result test from the 1998 State Street decision.

The Court, rather, reiterated that laws of nature, physical phenomena and abstract ideas are exceptions to patentable subject matter, and relied particularly on the Supreme Court decision of Parker v. Flook (1978) (holding that a mathematical algorithm cannot be made patentable by limiting its use to a particular technological environment or by adding insignificant post-solution activity) to find Bilski's claims to be unpatentable as an abstract idea. The Court also suggested that previous Supreme Court decisions of Gottschalk v. Benson (1972) (holding that a claim is an unpatentable abstract idea if it would wholly pre-empt the use of a mathematical formula) and Diamond v. Diehr (1981) (holding that an application of a law of nature or mathematical formula to a known structure or process may be deserving of patent protection) provide guideposts to determining patentable subject matter.

Therefore, the Court's decision in Bilski provides little new guidance for claim drafting and claim interpretation other than, in general, eliminating uncertainty as to the patentability of business method patents. In rejecting the exclusive use of the "machine-or-transformation" test and refusing to provide a new or more specific rule, the Court has left the door of patentability under 35 U.S.C. ยง 101 relatively wide open. This is almost certain to place more focus on the other conditions and requirements of the Patent Act, such as novelty, non-obviousness, and a full and particular description of the claimed invention.

A link to the decision can be found here.

For more information on the Patent Act or any other patent issues, please contact Terri Flynn at (414) 277-5229 / terri.flynn@quarles.com, Gavin Milczarek-Desai at (520) 770-8716 / gavin.milczarek-desai@quarles.com, Rowan Smith at (602) 229-5733 / rowan.smith@quarles.com or your local Quarles & Brady attorney.