Business Method Patents after Bilski v Kappos

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The United States Court of Appeals for the Federal Circuit (CAFC), on October 30, 2008, decided In re Bilski (545 F.3d 943), which had serious implications for the future of business method patents. The eleven members of that court found that a method of hedging risk in the field of commodities trading was ineligible subject matter and soundly rejected the broad “useful, concrete and tangible result” test of State Street Bank and Trust Company v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998). Instead, the nine judges of the majority opinion adopted the “machine or transformation test” as the exclusive test to determine if a claimed invention qualifies as a “process” under 35 U.S.C. § 101.  Under this test, a claimed process qualifies only if it: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” (545 F.3d at 954). Under this test, the vast majority of business patents were in danger of being disqualified.

On June 28, 2010, the Supreme Court of the United States handed down Bilski v. Kappos (08-964), affirming the CAFC’s decision. The Court, however, rejected the CAFC’s assertion that the “machine or transformation” test is the sole test for determining if an invention is an eligible process under § 101. The Court, citing concerns that the “machine or transformation” test causes uncertainty in software and other high-tech patents, determined that although the test is “a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under §101”, but the CAFC was free to develop “other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.” The majority opinion, written by Justice Kennedy, declined to “define further what constitutes a patentable process, beyond pointing to the definition of that term provided in § 100(b) and looking to the guideposts in Benson, Flook, and Diehr. “

Thus, the majority decision in Bilski is remarkably unhelpful in determining the bounds of § 101 eligibility. The court specifically states that business method patents are eligible subject matter, but offers no guidelines beyond referring to thirty year old precedents – precedents decided before business method patents were seriously considered. Kennedy writes that there is a need to protect innovation relating to the “information age”, but only states that the bar for eligibility needs to be high enough to prevent the patent office from being flooded with claims that would chill “creative endeavor and dynamic change.” Yet, while the court endorses the “machine or transformation test”, it very noticeably refrains from commenting on the validity of the State Street Bank “useful, concrete, and tangible” test.

Despite the inscrutable majority opinion, hints as to the future of the State Street Bank “useful, concrete, and tangible” test can be found in the two concurring opinions. Justice Stevens’ concurrence, joined by Breyer, Ginsberg, and Sotomeyer, would have categorically barred all business patents. It is very likely that Stevens could not garner the necessary support from Justice Scalia to make such a broad shift in patent law. Scalia did join in a short, separate concurrence written by Breyer that rejects the “useful, concrete, and tangible” test. Thus, at least five members of the Supreme Court view the State Street Bank test unfavorably.

The failure of the court to make any real distinctions on the eligibility of business method patents may spur congress into action. Kennedy’s opinion relied on 35 U.S.C. § 273, which grants a defense of prior use against business method infringement claims, to come to the conclusion that Congress “left open the possibility of some business method patents.” However, Senator Leahy, chairman of the judiciary committee, recently posted a short note on his website criticizing Bilski for “needlessly [leaving] the door open for business method patents to issue in the future” and stating that it was now “time for Congress to act.”

While the CAFC Bilski decision in 2008 may have temporarily closed the door on business method patents, it would be a fallacy to think that this Supreme Court decision opens the door wide again. A majority of the Justices on the Court, nearly all of the CAFC judges, and important members of congress are highly skeptical of business method patents.  Furthermore, by relying on a quirk of statutory interpretation to preserve the technical validity of business methods instead of making a substantial argument for or against, the Court is making it clear that they lack the will to act decisively on the matter.

Under State Street Bank rule, most business methods were eligible for patentability. After the CAFC Bilski decision, the vast majority of business methods were not eligible. Now, in the wake of Bilski v Kappos, there is only uncertainty. Those seeking to obtain patents on business methods will need to proceed cautiously and with full awareness of all developments in the area.

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July 3rd, 2010 at 9:38 pm

2 Responses to 'Business Method Patents after Bilski v Kappos'

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  1. […] Supreme Court ruled on patentable subject matter in Bilski v. Kappos. Cnet, The MTTLR Blog, and IP Watchdog give their takes on the […]

  2. I love this article. Bilski is a momentous decision with enormous consequences for business method patents.

    Anonymous

    8 Aug 10 at 7:19 pm

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