“Business methods” patents will be harder to obtain as a result of an en banc decision of the U.S. Court of Appeals for the Federal Circuit that nevertheless confirms that some such inventions are patentable. In In re Bilski, released October 30, 2008, the Federal Circuit rejected claims directed to a method of hedging risk in commodity purchases because the claims were neither limited to a particular machine nor did they recite an eligible transformation of an article and therefore were not directed to patentable subject material under 35 U.S.C. § 101. Two of the three dissents agreed with the majority that the claims were not directed to patentable subject material. However, the dissenting judges disagreed about the proper test for deciding the issue.

In a 130 page opinion, the Federal Circuit addressed the meaning of “process” under 35 U.S.C. § 101, which describes four categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. According to U.S. Supreme Court precedent, the meaning of “process” under the patent laws is narrower than its ordinary meaning, such that a claim directed to a process (or method) cannot claim “laws of nature, natural phenomena, [or] abstract ideas.” At least one of the dissents would have stopped the inquiry there, declaring that the claims at issue in this case were directed to an abstract idea. But the majority announced, after a canvas of existing case law, that the test—and the only test—for identifying a statutory § 101 “process” under Supreme Court precedent requires that a claimed process: (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing.

In announcing that the machine-or-transformation test is the only test for identifying a statutory process, the Court rejected other tests, including 1) determining whether a claimed process provided a “useful, concrete and tangible result” or 2) determining whether a claim reciting an algorithm applied the algorithm to physical elements or process steps. The Court also announced that there is no “technological arts” test and never was. The Court also clarified that its decision in the recent Comiskey case did not establish a “physical steps” test. However, the Court did not go so far as to overrule its decisions in State Street Bank & Trust Co. v. Signature Financial Group and AT&T Corp. v. Excel Communications, which are considered to be the foundations for the patentability of business methods. Instead it stated that the portions of those opinions relying solely on the "useful, concrete, and tangible result" analysis should not be relied on.

Under the machine-or-transformation test, use of either a machine or a transformation must impose meaningful limits on claim scope, and a claim cannot preempt use of a fundamental principle, even if it is tied to a particular machine. Furthermore, neither field-of-use limitations nor insignificant “extra-solution activity,” such as adding a step of gathering data for example, will save the patentability of a process claim that otherwise does not qualify as a § 101 process.

The Court explained that articles that can be transformed include 1) physical objects and substances, and 2) electronic representations (e.g. an electronic signal) of underlying physical objects and substances. The court included an example of a claim directed to transforming data representing physical objects for display, concluding that the claim was patent-eligible subject matter, and contrasted that example with “purported” transformations of public or private legal obligations, relationships, business risks, or “abstractions” that are ineligible because the transformed articles are neither physical objects nor representative of physical objects.

According to vigorous dissents, the Federal Circuit has added uncertainty and disrupted well-settled principles of law. Although the Federal Circuit refused to categorically exclude software and so-called “business method” patents from subject-matter eligibility, In re Bilski leaves unanswered questions regarding how process claims directed to software-related inventions will be considered in the future.

The fate of numerous software and business method patents may hinge on whether and how recitation of a general purpose computer affects subject-matter eligibility. This question, however, has been left for another day. From a patent procurement standpoint, the In re Bilski decision may lead to disagreements between applicants and Examiners, since a process claim that may be viewed as “broad” by an applicant may be deemed too “abstract” by an Examiner. Thus, what the applicant may see as a disagreement over claim scope, which generally can be narrowed in pursuit of patentability, the Examiner may see as a disagreement over eligibility for patentability, which cannot necessarily be achieved by simply narrowing claim scope. Ultimately the question may need to be resolved by the Supreme Court or legislation.