On June 28, 2010, a divided U.S. Supreme Court issued its long-awaited ruling in Bilski v. Kappos. The Court affirmed the patentability issue decided by the U.S. Court of Appeals for the Federal Circuit (CAFC), noting that “all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea” (Bilski attempted to claim a method for commodity traders to hedge against price fluctuations in energy markets). However, the CAFC’s ruling that the “machine-or-transformation test” is the exclusive test for determining whether a claim is directed to patentable subject matter under 35 U.S.C. § 101 was rejected. The Court opined that the test is merely a “useful and important clue or investigative tool.” Many believed that this case presented dire implications for not only “business method” patents, but for software-based patents as well. While the Court’s decision does not foreclose the patenting of business methods, claims directed to such inventions must clearly define a scope of protection that covers more than just an “abstract idea.”
The Court began its analysis with the plain language of 35 U.S.C. § 101, and stated that “[s]ection 101 [] specifies four independent categories of inventions or discoveries that are eligible for protection: processes, machines, manufactures, and compositions of matter.” Then, based on its precedents which “provide three specific exceptions to §101’s broad patent-eligibility principles: ‘laws of nature, physical phenomena, and abstract ideas,’” it determined that the claims at issue are “not patentable processes because they are attempts to patent abstract ideas.” The Court’s analysis continued with a consideration of the machine-or-transformation test and the patentability of business method patents generally.
Regarding the machine-or-transformation test, the Court stated that it “is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” The Court explained that the machine-or-transformation test may be proper for evaluating inventions grounded in a physical or other tangible form, but may not be as applicable to inventions of the Information Age.
The Court then addressed the patentability of business methods generally. Citing Section 273(b)(1) of the Patent Act, it pointed out that: “federal law explicitly contemplates the existence of at least some business method patents . . . [but] it does not suggest broad patentability of such claimed inventions.” The Court explicitly provided for the possibility/probability that the CAFC would limit the scope of business method patents in the future stating: “. . . we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.”
A lengthy four judge concurring opinion, authored by retiring Justice Stevens, agreed with the conclusion that the claims at issue are invalid. But the concurrence pointed out that the majority opinion fails to provide clear guidance to practitioners regarding what is patentable, and further argued that based on historical precedent patents based on business methods should not be allowed.
As a result of this ruling, the Supreme Court has narrowly confirmed the status of business method patents as valid statutory subject matter. However, the Court delegated the task of determining precisely which business methods and processes are patentable to the CAFC. In view of this decision, patent owners should review their patents and applications to ensure that they are not seeking to preempt an abstract idea.
For more information, please contact any member of Baker Hostetler’s Patent Team.
Authorship Credit: Richard M. Lehrer, Adam M. Treiber and Jeffrey E. Salomon
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