Although business methods have, at least arguably, never properly been excluded from the ambit of patentable subject matter in the United States, the U.S. Patent and Trademark Office ("USPTO") generally took the position prior to the 1998 decision of the U.S. Court of Appeals for the Federal Circuit ("CAFC") in State Street Bank & Trust Co. v. Signature Financial Group Inc., 149 F.3d 1368, Fed. Cir. 1998 ("State Street") that business methods were not patentable as a matter of principle. The State Street decision extinguished the so-called "business method exception," and established that a business method could be patented if it involved a practical application, in that it could be applied to produce a "useful, concrete and tangible" result.

A wave of business method patent applications followed in the wake of the State Street decision, many relating to methods of doing business on-line (such as, for example, Amazon.com's well-publicized "one click" e-commerce ordering system). Criticism of the USPTO's treatment of business method patent applications soon followed, largely as a consequence of the difficulty that the USPTO encountered in identifying relevant prior art in business method cases. This led to the issuance of numerous patents directed to business methods that (allegedly) were widely practiced or obvious at the time that the patent application claiming them was filed. Ironically, one reason that the USPTO encountered such difficulties in identifying relevant prior art in these cases is that, until State Street, business methods were commonly kept secret.

Against this backdrop, the CAFC held last October, in the much-anticipated en banc decision in In re Bilski, 545 F.3d 843, 88 U.S.P.Q.2d 1385, Fed. Cir. 2008 ("Bilski") that the "useful, concrete and tangible result" test enunciated in State Street was insufficient to determine whether claimed subject matter is patent-eligible, and that the single, definitive test to be applied in determining the patent eligibility of any claimed process (including business methods) is whether: (1) the process is tied to a particular machine or apparatus, or (2) the process transforms a particular article into a different state or thing. This test has become known as the "machine-or-transformation" test.

Although the machine-or-transformation test purports to clarify the analysis of patent eligibility for process claims, several key questions are left unanswered. Significantly, since the invention claimed by Bilski (a hedging method for "managing the consumption risk costs of a commodity provider at a fixed price") was not limited to any specific apparatus such a computer, the court declined comment on the question of whether a general-purpose computer may properly be considered to be a "particular machine." Also debatable is what constitutes a "particular article" being transformed by the claimed process. Would the transformation of financial data, such as was claimed in State Street, qualify under the new test?

The machine-or-transformation test also requires the claimed transformation or the tie to a particular machine to be central to the purpose of the claimed process such as to "impose meaningful limits on the claim's scope," and not to "pre-empt substantially all uses" of a fundamental principle. When is the claimed transformation "central" to the purpose of the claimed process? And when does the claimed process pre-empt substantially all uses of a fundamental principle?

However these and other questions may ultimately be resolved, it appears that the status of many business-method patents that were granted in the U.S. in the last decade is unclear, at least for the time being, since they may well be considered to be directed to patent-ineligible subject matter under the more stringent criteria enunciated in the Bilski decision for evaluating the patent eligibility of all processes. Furthermore, the standards for subject-matter eligibility that will be applied by the USPTO in currently pending patent applications claiming processes will also remain unsettled until redrafted guidelines for the examination of process claims in light of Bilski are prepared and issued.

In any event, these uncertainties are probably likely to be resolved (or perhaps be supplanted with new ones) when the Supreme Court of the United States hears Bilski's petition for a writ of certiorari filed on January 28, 2009. The writ presents the following two questions for consideration by the Supreme Court:

Whether the Federal Circuit erred by holding that a "process" must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing ("machine-or-transformation" test), to be eligible for patenting under 35 U.S.C. §101, despite this Court's precedent declining to limit the broad statutory grant of patent eligibility for "any" new and useful process beyond excluding patents for "laws of nature, physical phenomena, and abstract ideas."

and

Whether the Federal Circuit's "machine-or-trans-formation" test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect "method[s] of doing or conducting business." 35 U.S.C. § 273.

Pursuant to the Supreme Court Rules, amici briefs and those in support of the USPTO are due at the end of February, although the USPTO may (and probably will) seek an extension.

In the meantime, the Canadian approach to the patentability of business methods has not changed significantly over the past several years. Although there have been no judicial pronouncements in the area, the Canadian Intellectual Property Office ("CIPO") currently takes the administrative position that business methods "are not automatically excluded from patentability, since there is no authority in the Patent Act or Rules or in the jurisprudence to sanction or preclude patentability based on their inclusion in this category. Patentability is established from criteria provided by the Patent Act and Rules and from jurisprudence as for other inventions."

Section 2 of the Canadian Patent Act defines an invention as "any new and useful art, process, machine, manufacture or composition of matter, or any new and useful improvement in any art, process, machine, manufacture or composition of matter." To be considered as any one of an "art," "process," or manner of "manufacture" under section 2 (and therefore statutory subject matter for a patent in Canada), a method must produce an "essentially economic result in relation to trade, commerce, or industry," in that it is either: (a) a method for producing, making, constructing or building a vendible product; (b) a method of using or operating an inventive "thing," or a known "thing" for an inventive new use; or (c) a method of diagnosing a physical disease or physical medical condition in a human being.

Accordingly, claims directed to subject matter that relates solely to the skills of a professional are not considered patentable in Canada, but business methods implemented as computer programs may be patentable, provided that they involve "an act or series of acts performed by some physical agent upon some physical object and producing in such object some change either of character or condition" and "produce an essentially economic result in relation to trade, industry or commerce."

The requirements for a "change" in a "physical agent" in the Canadian approach are conceptually similar to the transformation element of the current "machine-or-transformation" test applied in the United States. Whether the U.S. approach retains such requirements following the Bilski appeal to the Supreme Court remains to be seen.