On October 30, 2008 the U.S. Court of Appeals for the Federal Circuit, which is the court of appeals for all patent matters, announced a much anticipated decision relating to the patentability of methods of doing business. The decision, entitled In re Bilski, involved an application for a patent on a risk management process applied to the business of commodities trading. The Patent and Trademark Office refused to issue a patent on the process, claiming the underlying subject matter was not eligible for a patent. The Federal Circuit agreed, and in the decision defined a test for identifying what methods of business are patentable.

The media fallout following the Bilski decision has been confusing as many publications discussing the impact of the Bilski decision are contradictory. One article touts the end of patentability for all methods of business. Another article calls the decision vague with its long term impact nothing more than a formalistic hurdle having no real impact on patent acquisition for a method of business. The best interpretation is probably somewhere between the two extremes.

While the overall impact of the Bilski decision is yet to be determined, the court certainly does not signal the end of business method patents. In fact, the court in Bilski provides clarification and a tool for determining patentable methods of business. This article will discuss the evolution of business method patents and the new standard set out by the Federal Circuit in the Bilski case.

An Overview of Patent Requirements

United States patent law stems from the United States Constitution, which provides Congress the power to “promote the progress of science and useful arts, by securing for limited times to…inventors the exclusive right to their respective…discoveries.” From this grant, Congress adopted a series of statutes which comprise the majority of patent law today.

Not all inventions are eligible for a patent. The series of federal statutes define the requirements for patentability. Among the requirements, an invention must be new, useful, not obvious and must fall within a specific category of defined subject matter. It is this last requirement of patentable subject matter that is the crux of the Bilski decision.

Patents on Methods of Business

The patent at issue in the Bilski decision falls within a recently added category of patentable subject matter known as “business method patents.” These patents cover processes relating to aspects of operating a business or any other economic endeavor. For example, Amazon.com possesses a business method patent on its “1-Click” process of purchasing items over the internet. Another example is a patent on a computerized method of financial planning held by a prominent insurance company. Thousands of business method patents exist relating to a wide variety of industries including investment, health care, e-commerce, mortgage lending, insurance and banking.

At one time, methods of business were explicitly excluded from patent protection. In 1998, the Federal Circuit eliminated the exclusion, announcing that methods of doing business were eligible for patent protection. Unfortunately, the court did little to define or implement meaningful limitations on patentable subject matter of business methods.

This resulted in a flood of business method patent applications at the Patent and Trademark Office. Examiners with little experience and even fewer references to properly examine business method applications were overcome with the volume of filings. It was not uncommon for an application to sit for over four years before reaching an Examiner for the first time. Further, many of the applications which issued as patents contained overly broad claims covering more processes than just the underlying method of business. The Bilski case provided the Federal Circuit an opportunity to address these two issues by placing meaningful boundaries on the scope of business method patents. While it is not yet known how Bilski will impact the immense application backlog, patent applicants will be able to use the new standard to evaluate whether their method of business qualifies as patentable subject matter.

The Bilski Decision

The Federal Circuit in the Bilski case announced a two branch “machine-or-transformation test” for evaluating whether subject matter of business methods is eligible for patent protection. A patent application need only satisfy one of the two branches to pass the test. Though the test sounds like a significant hurdle, the requirements are straight forward.

The machine branch of the test requires the proposed process be tied to a particular machine or apparatus. To pass this branch of the test, a business method must be integrally tied to a machine, which could be virtually anything from a computer to an oscilloscope. The key is the specific machine must be an integral element of the method of doing business. The machine must impose a meaningful limit on the business method. For example, merely incorporating a computer with a business method may not be enough to obtain patent protection.

If the business method does not include a machine, the second branch of the test applies. The transformation branch of the test requires the proposed process transform an article, which could potentially comprise anything, including data or electronic signals. In Bilski, the article generally comprised data. In applying the transformation branch of the test, the Court expressed that data (i.e. the article) must not be ambiguous, but instead be specifically described; and further that the data must represent physical and tangible objects. For example, the Court described a process as unpatentable that broadly claims data, but fails to “specify any particular type or nature of data, nor…how or from where the data was obtained or what the data represented.” The proposed process must transform the data into another state or thing. One can assume that this analysis extends similarly to articles other than data as well. The transformation must be an integral step in the process, imposing a meaningful limitation.

Conclusion

Although opinions vary as to the eventual impact of the Bilski decision, the case itself clearly defines patentability requirements for proposed methods of business. The new test is designed to eliminate issuance of overly broad business method patents. As long as the potential applicant clearly defines data in the proposed process, and integrally connects the proposed process to a machine or transformation of the specified data, the process should easily qualify as patentable.

While the long term impact of Bilski remains to be seen, it is safe to say business method patents are alive and well. There is just a new test to determine whether a particular business method qualifies as patentable subject matter.