A decade ago, the Federal Circuit in the State Street Bank case confirmed that methods of performing largely abstract processes such as business methods (in that case, calculating mutual fund share prices) could be the subject of valid patents. In the aftermath of that case, the Patent Office has issued thousands of patents directed to business methods in the financial-services and other industries. Maintaining the viability of those patents just got a lot more complicated.

Although it confirmed the decision reached in State Street Bank and refused to adopt a per-se rule that software and business methods are unpatentable, in its October 30, 2008 en banc ruling in In re Bilski (http://www.cafc.uscourts.gov/opinions/07-1130.pdf), the Federal Circuit has overruled the tests employed in many of its prior precedents confirming the patentability of various business methods and other process claims. From now on, unless changed by the Supreme Court or Congress, the Patent Office and the courts will require a process or method claim to meet at least one of the following two conditions in order to be patentable: (1) it must be limited in a non-trivial way to a particular machine implementation; or (2) it must act to transform a particular article into a different state or thing.

The claimed invention in Bilski was an allegedly novel method for balancing risk for consumers or producers of consumable commodities. The en banc Court ruled that this method was not patentable subject matter, because (1) the claims were usable in a variety of contexts and not tied to a particular machine implementation; and (2) the claims operated on abstract concepts like "risk" and did not transform any physical article or even data corresponding to a physical article.

While the Bilski opinion itself does not automatically invalidate any existing patents, businesses in fields where business method patents are significant should consider various steps to improve their post-Bilski positions. For example, companies with pending patent applications directed to business methods or other processes should review those claims in light of Bilski, and perhaps add new claims meeting the new standard for patentable subject matter. Similarly, businesses with issued software or business method patents or soon to issued patents may wish to consider filing continuation applications, delaying or withdrawing a patent from issue, or (assuming the other requirements are met) pursuing reissue proceedings to amend or add claims. On the other hand, businesses involved in litigation over such patents or facing claims of infringement may wish to consider the possible additional defense in litigation or declaratory-relief actions that the patent in question is invalid because it does not claim patentable subject matter.