On June 1, 2009, the U.S. Supreme Court granted certiorari to review the “machine or transformation test” recently established by the Federal Circuit Court of Appeals decision in In re Bilski. To put it mildly, these are interesting times for companies whose business plan includes making significant investments in the research and development of business methods and the software that implements these methods.

Prior to the Federal Circuit’s 1998 State Street Bank decision there was a generally understood court-created exception blocking business methods from patentability — which essentially required those seeking patent protection to take the awkward step of claiming the medium on which the instructions were stored or the machines that implemented these instructions. State Street did away with the so-called “business method exception,” which in-turn opened the flood gates to patents on subject matter that the U.S. Patent and Trademark Office had not previously considered. Admittedly, plenty of bad patents were granted.

Fast forward 20 years to Bilski, in which the Federal Circuit, although expressly reaffirming that there is no such thing as a general business method exception, created a new test, which looks a lot like the pre-State Street case law. This test holds that a process is patentable if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” Left unresolved by the Bilski decision is whether a software process operating on a general purpose computer is considered to be tied to a “particular machine or apparatus.” If a general purpose computer is not a “particular machine,” and several Board of Patent Appeals decisions indicate that it is not, then many software claims could be invalid.

Many speculate that the U.S. Supreme Court has taken up the Bilski case in order to once again reverse the Federal Circuit’s attempt to create mechanical, one-size-fits-all legal tests. This is precisely what the Supreme Court did in the 2007 KSR vs. Teleflex decision by reversing the Federal Circuit’s rigid application of a test for combining multiple prior art references in obviousness determinations.

One potential outcome is that the Supreme Court could scrap the Federal Circuit’s statutory subject matter test in Bilski, making novelty and obviousness, per KSR, the main gate keepers for the patentability of business methods and software. Subject matter would revert back to the low threshold established by the express language of the patent statute, excluding from patentability only “laws of nature, physical phenomena, and abstract ideas.” Interesting times indeed.