The Supreme Court recently issued its long-awaited ruling in Bilski v. Kappos, 561 U.S. ___ (2010). This case presented the question of whether a business method may be patented, and if so, whether patentability of a business method should be determined using the so-called “machine or transformation” test advanced by the Federal Circuit. Under the “machine or transformation test,” the Federal Circuit had limited the patentability of methods to those which (1) were tied to a particular machine or apparatus, or (2) transformed a particular article into a different state or thing. In re Bilski, 545 F.3d 943, 961 (Fed. Cir. 2008).*
On June 28, 2010, the Supreme Court reaffirmed that business methods can be patented but rejected the Federal Circuit’s “machine or transformation” test as the sole test for determining whether a business method invention is patentable, thereby at least temporarily setting aside any concerns that the Court might eliminate the patentability of business methods altogether. Instead, the Court held that the “machine or transformation” test is but one of multiple tools for determining whether a business method is patentable subject matter. The Court further explained that it did not endorse any one of the Federal Circuit’s prior tests for determining whether a business method was patentable, including a test which considered whether the method produced some “useful, concrete and tangible result.” In doing so, the Court refused to restrict the patentability of business methods or “processes” beyond the long-standing exclusions of laws of nature, natural phenomena and abstract ideas.
Despite rejecting the Federal Circuit’s approach for determining the patentability of business methods, the Court nevertheless affirmed the Federal Circuit’s decision that the Bilski invention was not a patentable process because it claimed an “abstract idea.” Like laws of nature and physical phenomena, abstract ideas have always been foreclosed from patent protection. The Bilski invention claimed a method for hedging against price changes in the energy market based, in relevant part, on (a) initiating a series of transactions between a commodity provider and consumers at a fixed rate based upon historical averages, the rate corresponding to a risk position of the consumers; (b) identifying market participants for the commodity who have a counter-risk position to the consumers; and (c) initiating transactions between the commodity provider and the market participants who have the counter-risk position at a second fixed rate to balance the risk position of the consumer transactions. In holding that the Bilski invention was not patentable, the Court reasoned that the broadest claims would preempt use of hedging in all fields, thereby effectively granting a monopoly over an abstract idea. Even the Bilski claims that were restricted to energy markets or required additional steps involving random analysis techniques were adjudged unpatentable because those claims simply involved the limitation of an abstract idea to one field of use or the addition of token post-solution activity to the abstract idea of hedging.
The decision provides practical guideposts for patent applicants and their attorneys by framing how the courts and patent examiners should evaluate business method patents. On the one hand, patents for business methods can no longer be rejected by patent examiners simply because the claimed methods are not tied to a particular machine or apparatus, or because they do not transform a particular article into a different state or thing. On the other hand, a patent must claim more than just an “abstract idea” in order to avoid a rejection. Thus, when drafting patents directed to business methods, it will be important for patent applicants and their attorneys to execute patent drafting and claiming strategies that ensure that the invention is directed to more than just an abstract idea. Patent drafting strategies linking claimed business methods to computers or other machines involved in execution of the methods, identifying a transformation created by the methods and identifying the useful results created by the methods will help avoid rejections and/or invalidation of business method patents as being merely directed to an abstract idea.
Perhaps most importantly, Bilski confirms that business method patents may continue to be an important weapon in a patent holder’s portfolio that can enable inventors of business methods to gain significant advantages over competitors by patenting those methods.