Summary:

The U.S. Supreme Court issued its decision in Bilski v. Kappos and eliminated some of the uncertainty that had been caused by the Federal Circuit’s bright-line machine-or-transformation test for patentable subject matter of method patents. The Court ruled that the machine-or-transformation test is not the exclusive test for determining patent-eligibility for method patents, and there is no single test to determine whether method patents are patent eligible. Importantly, business methods are not categorically unpatentable, but the Bilski invention was ineligible for patent protection because it is an abstract idea. In so doing, the Supreme Court effectively rolled back the clock to pre-Bilski, such that patentable subject matter will again be considered on a case-by-case basis. As a result, there will be continuing patent protection for computer software, computer-based business methods, and medical diagnostics.

Background:

The claims in the Bilski application included methods of hedging risks in commodity transactions between consumers, a commodity provider, and market participants and a mathematical formula used in the hedging. The remaining claims explained how to allow energy suppliers and consumers to minimize the risks resulting from fluctuations in market demand from energy.

The Bilski patent application was initially rejected by the Patent Office under Section 101 of the Patent Act on the grounds that the invention was not implemented on a specific apparatus and merely manipulated an abstract idea. Historically, Section 101 of the Patent Act prohibits an applicant from obtaining patent protection against laws of nature, natural phenomenon, or abstract ideas (e.g., the general concept of gravity, magnetism, or electricity).

The Patent Office’s rejection of the Bilski application was first affirmed by the Board of Patent Appeals and Interferences (BPAI) and again affirmed by the Court of Appeals for the Federal Circuit (Federal Circuit). In affirming the rejection of the Bilski application, the en banc court of the Federal Circuit overturned the previous State Street Bank test for patentability (i.e., the “useful, concrete, and tangible result” test) and replaced it with an exclusive “machine-or-transformation test.” The machine-or-transformation test provided that, “A claimed process is patent eligible if:

1) it is tied to a particular machine or apparatus, or
2) it transforms a particular article into a different state
     or thing.”

Generally, the machine-or-transformation test was only relevant to method claims and did not cover other types of patentable subject matter, such as articles of manufacture, machines, or compositions of matter.

The Supreme Court subsequently granted certiorari to review the Federal Circuit’s Bilski decision and the machine-or-transformation test articulated therein.

Supreme Court's Decision in Bilski:

The Supreme Court struck down the Federal Circuit’s “machine-or-transformation test” as the exclusive test for patentability (“[T]he machine-or-transformation test is not the sole test for patent eligibility under § 101.”). Nevertheless, the Court held that the Bilski patent application impermissibly attempted to patent an abstract idea, which is not allowed under Section 101. The Court specifically determined that the Bilski application was an improper attempt to patent both the concept of hedging risk and the application of that concept to energy markets. In addition to the above, the Court specifically ruled against the categorical exclusion of business method patents, but did not go so far as to say that business methods were per se patentable.

In arriving at its Bilski ruling, the Supreme Court appeared to chastise the Federal Circuit for reading “into the patent laws limitations and conditions which the legislature has not expressed,” and failing to observe that, ”words will be interpreted as taking their ordinary, contemporary, common meaning.” “The Court of Appeals incorrectly concluded that this court has endorsed the machine-or-transformation test as the exclusive test.” “Section 101 similarly precludes a reading of the term ‘process’ that would categorically exclude business methods.”

Notably, the Supreme Court cited approvingly to the Diamond v. Chakrabarty decision, reciting that, “In choosing such expansive terms . . . Congress plainly contemplated that the patent laws would be given wide scope.” 447 U.S. 303, 308 (1980). It also acknowledged only three established exceptions to patent-eligibility under § 101, including: “laws of nature, physical phenomena, and abstract ideas.” In addition, the Court noted the support of the amicus briefs for giving adequate protection for emerging technologies.

To summarize, “the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr . . . .” Therefore, although the exclusive machine-or-transformation test of the Federal Circuit was struck down, the Bilski case was decided narrowly on the grounds that Bilski attempted to patent the abstract concept of hedging risk; the Court thus followed a more traditional application of Section 101.

Conclusion:

In the final analysis, the Supreme Court’s Bilski decision held that the machine-or-transformation test is not the sole or exclusive test and that business methods are not categorically excluded from patent-eligibility in the United States. Laws of nature, physical phenomena, and abstract ideas remain unpatentable under Section 101, and claims in patent applications are likely to be decided on a case-by-case basis. Since the specific invention at issue in Bilski was an abstract idea of hedging risk, it was unpatentable. Nevertheless, software and some forms of business methods will remain patent-eligible subject matter, as will diagnostic medicine techniques.

For More Information

If you would like more information, please contact the following Polsinelli Shughart attorneys:

• Patrick Woolley, 816.360.4280, pwoolley@polsinelli.com
• Gregory Durbin, 720.931.8133, gdurbin@polsinelli.com
• Jim Stipek, 816-360-4191, jstipek@polsinelli.com

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