Today, the federal appeals court charged with overseeing all patent litigation matters posted its long-awaited en banc decision in In Re Bilski[1]. Bilski had been billed as the appellate court's opportunity to review its 1998 decision in State Street Bank v. Signature Financial Group, which opened the door to patents on business methods and computer-implemented methods of doing business. State Street Bank has been criticized over the years on many different fronts, and many were waiting to see if the opinion would be overturned. The Bilski decision, however, does not overturn State Street Bank, and it does not revert back to the older position of outlawing business method patents per se. Instead, it reaffirms the Supreme Court's 1981 "machine or transformation" test enunciated in Diamond v. Diehr, adding some specific insights regarding the application of that test in the computer age. In a word, business methods will continue to be patentable, so long as applications for those patents carefully define the method so as to embody it in a device or show that use of the method effects a transformation on specific goods. Applying the new standard to Bilski's patent application on a method of hedging commodity purchases, the court found that there was no patentable subject matter in the claims.

The Bilski decision starts from the basic position that "fundamental principles" -- i.e., laws of nature, natural phenomena, and abstract ideas -- may not be patented "as they are basic tools of scientific and technological work." From this basic principle, the decision analyzes under what circumstances a claimed business method may improperly seek to patent such a "fundamental principle." Central to this question is whether the patent attempts to restrict all uses of such a fundamental principle, or only seeks to restrict use of such a principle when applied to, for example, the manufacture of a specific good.

Methods that are "tied to a particular machine or apparatus" or that "transform a particular article into a different state or thing" are declared clearly patent-eligible by the Bilski decision, based upon the 1981 Supreme Court Diehr case. The Bilski decision also rejects one of the bases on which the earlier State Street Bank decision rested -- the so-called "useful, concrete, and tangible result" test -- holding that only the "machine or transformation" test is appropriate in assessing method claims for their patentable subject matter.

The Bilski decision, however, does not give a lot of guidance on the question of "software patents," other than to say 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." Bilski also reaffirms the appellate court's earlier position that "transformation of data into a visual depiction" is a sufficient "transformation" to meet the "machine or transformation" test. It seems that software patents will continue to be acceptable, so long as they are carefully written to fit within the "machine or transformation" test.

Of course, the Bilski decision may not be the final word on the subject. The decision may be appealed to the U.S. Supreme Court, and that Court may choose to examine the issue further. Even the appellate court notes that "we recognize that the Supreme Court may ultimately decide to alter or perhaps even set aside this [machine or transformation] test to accommodate emerging technologies. And we certainly do not rule out the possibility that this court may in the future refine or augment the test or how it is applied."[2]

However, for now, the Bilski decision -- while continuing to allow certain types of business method patents if properly written -- provides an additional weapon to litigants seeking to avoid the effect of a patent on a business method that attempts to monopolize fundamental principles.