The Federal Circuit recently issued its closely watched decision in In re Bilski, No. 2007-1130 (Fed. Cir. Oct. 30, 2008) (en banc), regarding the proper test for determining patent eligibility of process claims under 35 U.S.C. § 101. Under § 101, patent-eligible subject matter includes: processes; machines; manufactures; and compositions of matter. In the past, process patents have been granted in a wide range of areas including software, Internet technologies, and for so-called business methods. However, in In re Bilski, the appellate court found that a claimed method for hedging risk in commodities trading was not patentable.

In its opinion, the majority held that for a claimed process to be patentable, it must satisfy the "machine-or-transformation test" set forth in previous U.S. Supreme Court precedent. To meet the "machine-or-transformation test" the process must (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing. In finding the "machine-or-transformation test" as the sole test for determining patent eligibility of processes, the court made clear that previously articulated tests for patent eligibility, such as the "Freeman-Walter-Abele test," the "useful, concrete and tangible result test," and the "technological arts test" were inadequate and should no longer be relied on.

As noted above, applying the "machine-or-transformation" test, the court found Bilski's claims unpatentable. The Federal Circuit did not need to apply the "machine" branch of the "machine-or-transformation test" as Bilski admitted the claims were not tied to a particular machine or apparatus, such as a computer system. Thus, the court left open to future cases the circumstances under which reciting the use of a computer in a process claim suffices to tie that process to a particular machine. Slip op. at 24.

In applying the transformation branch of the "machine-or-transformation test," the Federal Circuit found that Bilski's claimed method for managing consumption risks of a commodity did not transform any article to a different state or thing. The court found that "[p]urported transformations or manipulations simply of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances, and they are not representative of physical objects or substances." Slip op. at 28. The Federal Circuit's ruling appears to have narrowed the scope of patent eligible business methods, but has not eliminated them per se. In particular, the Federal Circuit confirmed that "business method claims (and indeed all process claims) are subject to the same legal requirements for patentability as applied to any other process or method." Slip op. at 21.

In its opinion, the court looked to several prior Supreme Court decisions to emphasize that fundamental principles such as laws of nature, natural phenomena, mental processes and abstract ideas, are not patentable. They are "part of the storehouse of knowledge of all men … free to all men and reserved exclusively to none." Slip op. at 7. However, a claimed process involving a particular application of a fundamental principle may be patent eligible where the claimed process would not restrict all uses of the fundamental principle that do not also apply the fundamental principle in the specific manner claimed.

The Federal Circuit also noted two caveats to the "machine-or-transformation test." First, adding "field of use" type limitations to a patent claim does not make an otherwise unpatentable process patentable. In other words, a claimed method drawn to an unpatentable fundamental principle (e.g., law of nature, natural phenomenon or abstract idea) but limited to a particular field of use still preempts all uses of that fundamental principle within that field of use. Second, reciting insignificant, post-solution activity in a claim also does not change an unpatentable principle into a patentable process. Thus, even if a process relating to an unpatentable fundamental principle is tied to a particular machine or apparatus, or a particular transformation of a specific article, if the machine or transformation constitutes mere insignificant post-solution activity, the claimed process is still unpatentable.

The opinion offered some discussion relating to software patents. Claims for software-based methods, it appears, like other processes, must pass the "machine-or-transformation test." The opinion, for example, confirmed earlier precedent noting that "the electronic transformation of data itself into a visual depiction" was sufficient to meet the "machine-or-transformation test." Slip op. at 26. The majority additionally stated that "we decline to adopt a broad exclusion over software or any other such category of subject matter beyond the exclusion of claims drawn to fundamental principles set forth by the Supreme Court." Slip op. at 21-22, FN 23.

The Federal Circuit has made clear that there is a single test for determining patent eligibility of claimed processes. Of course, In re Bilski may be appealed to the U.S. Supreme Court, and even the Federal Circuit noted that the Supreme Court may ultimately decide to provide its own views on the issues raised in its opinion. Slip op. at 15. How the "machine-or-transformation test" is applied by the courts and the Patent Office remains to be seen, but for now, In re Bilski offers a basic framework for drafting claimed processes and potential invalidity defenses for business method patents already in litigation.