The US Supreme Court in its long awaited decision, Bilski v Kappos, has rejected a patent application for a method of hedging risk on the basis that the claims were directed to an abstract idea. Yet, in doing so, the Court did not rule out patents for all business methods and reinforced only three exceptions to US patent eligibility: laws of nature, physical phenomena, and abstract ideas.

Justice Kennedy, in delivering the Opinion of the Court, said the US Patents Act indicated US Congress plainly contemplated that patent laws should be given a wide scope and that a permissive approach to patent eligibility ensured that "ingenuity should receive a liberal encouragement". The exclusion of laws of nature, physical phenomena, and abstract ideas was consistent with the notion that a patentable process must be new and useful. The Court made it clear that the "machine-or-transformation test", that had been adopted by the Court of Appeals for the Federal Circuit, was not the sole test for deciding whether a process is patent eligible and was only a useful and important clue, and an investigative tool. Kennedy J. accepted arguments that if the test was made the sole criteria it would create uncertainty as to the patentability of software, advanced diagnostic medical techniques, and inventions based on linear programming, data compression and manipulation of data signals, which would be unsatisfactory.

With regard to business methods, Kennedy J. said a business method is simply one kind of method that is, at least in some circumstances, eligible for patenting, and in searching for a limiting principle the Court's precedents on the unpatentability of abstract ideas provide a useful tool.

Four Justices joined Kennedy J.'s opinion, but Scalia J. did not concur with the opinion in relation to or comment on patents for business methods. Stevens J. delivered a concurring opinion with three other Justices who agreed the machine-or-transformation test was not the sole test, but held that business methods are not patentable.

In summary, the Court has opted to maintain a broad approach to patentable subject matter to allow inventors to obtain patents for a wide range of inventions. The shackles of the limiting machine-or-transformation test that has been used by the Patent Office have been removed and a positive approach can now be adopted. As mentioned by Kennedy J., the US patentable subject matter provisions are dynamic and designed to encompass new and unforseen inventions. Patent law can now continue its journey in the US.