Bilski: Business Methods Here to Stay (for Now)

Posted on June 28, 2010 by Brian Wm. Higgins
  • Bilski et al. v. Kappos, slip op., No. 08-964, 561 U.S. ____ (Jun. 28, 2010)

In Bilski v. Kappos, the Supreme Court affirmed the U.S. Court of Appeals for the Federal Circuit's decision, holding that claims describing “a series of steps instructing how to hedge risk” and their associated mathematical formula are not eligible for patent protection under 35 U.S.C. § 101 (link to opinion).  But in an opinion reminiscent of KSR International Co. v. Teleflex Inc., 550 U.S. 398 (2007), the Court found the Federal Circuit’s doctrine to be too rigid and not in line with Congressional direction under the Constitution or the Court’s precedent.  The Court demoted the Federal Circuit's "machine-or-transformation" test from the sole test for business method patent eligibility to a “useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101,” and more importantly, found that a “categorical exclusion of business method patents” does not exist. In short, the Court echoed its policy that patents that belong in the public domain will not be tolerated, while true innovation should be rewarded with patent protection.

Deciding the Fate of Business Method Patents

The central question addressed by the Court in Bilski was whether a patent can be issued for a claimed invention designed for the business world. Bilski had sought claims directed to a business method for instructing buyers and sellers on how to protect against the risk of price fluctuations in energy commodities trading—i.e., a method of hedging applied to the energy markets. Bilski's patent claims were rejected by the Patent Office, confirmed as not being patent eligible by the Patent Office's Board of Patent Appeals and Interferences, and affirmed by the Federal Circuit, sitting en banc.

Following fundamental statutory construction, the Court first noted that the term "process" found in 35 U.S.C. §101 is defined in § 100(b) as a “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.” The ordinary, contemporary, and common meaning of "process," the Court said, would not require the term to be tied to a machine or the transformation of an article. Nor would the terms "process" or "method" categorically exclude business methods from the scope of §101.

In Bilski's case, the Court said the claims were drawn to an abstract idea—an algorithm—that if patented, would effectively grant Bilski a monopoly over the abstract idea, an idea that belongs in the public domain. Citing its precedent, the Court affirmed the rejection of the claims under § 101.

The Road Ahead

The machine-or-transformation test has been reduced in stature from a mandatory road-block to a cautionary sign that requires further analysis under §101. The machine-or-transformation test will still likely be used by the courts and, more importantly, by the Patent Office, which could use the test to find an invention is not eligible for patent protection and then swing the burden to the patent applicant to craft arguments as to why his or her claims satisfy §101.

But it won't be until the courts begin to fashion "new inquiries" about what types of business method processes are patent eligible under §101 that the inventive community will have a better understanding of the impact of the Court's decision. Where the balance should be struck for business methods, however, is still up in the air. As the Court stated,

"With ever more people trying to innovate and thus seeking patent protections for their inventions, the patent law faces a great challenge in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles. Nothing in this opinion should be read to take a position on where that balance ought to be struck."

Leaving the question of where to strike the balance to others, the Court noted that the focus should be on remaining consistent with the Patent Act and its previous “guideposts in Benson, Flook, and Diehr [decisions],” all dealing with the issue of the patent eligibility of abstract ideas.

In striking down the machine-or-transformation test as the sole test, the Court specifically acknowledged the technological areas whose patent eligibility status would be uncertain under such a strict test, such as “software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.” Although the Court did not state that these areas are patentable per se, the Court did leave the door open in these areas for “securing valuable patents for valuable inventions without transgressing the public domain.” Thus, Bilski does not preclude patenting business methods, or software, as many in that industry feared might result. Issued software patents should be valid post-Bilski, as long as the claims recite at least, for example, a computer or hardware, or some kind of machine. New software patents can be obtained using the same claim language. Of course, such software, hardware, or machine must still pass the Diehr abstract test. And as the Court reminds us, getting past § 101 is just the first gate; patent applicants must still demonstrate their claims are patentable under §§ 102, 103, and 112 of the statute.

In summary, the Court remained true to its form in KSR by reminding the Federal Circuit that the application of rigid rules without statutory foundation should be avoided, and that patentability should remain consistent with “the purposes of the Patent Act”—rewarding true innovation without monopolizing that which belongs in the public domain.
 

 
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Court Clarifies Patent Eligibility Standard for Inventions Involving Process Steps

Posted on October 31, 2008 by Brian Wm. Higgins
  • In Re Bilski (Fed. Cir.; October 30, 2008)

     In In Re Bilski, the Court of Appeals for the Federal Circuit in Washington, DC, sitting en banc, considered the issue of whether certain so-called business methods and other “processes” are eligible for patent protection. Less than a day after the court’s eagerly-anticipated decision, general and legal news media outlets proclaimed the end of patent protection for software-related business methods, and shortly thereafter business associations called for patent reform legislation to expand the Patent Act’s scope to reestablish protections for software inventions. It may take days and perhaps weeks for the debate to subside over exactly how far the Bilski court swung the pendulum away from the pro-patent apex. What is clear, however, is that Bilski did not do away with business methods and general software process patents entirely, although it did tighten the patent eligibility standard for inventions involving processes.

     Section 101 of the Patent Act identifies four categories of patent-eligible subject matter: processes, machines, manufactures, and compositions of matter. The patent claims at issue in Bilski involved a computerized process, specifically a method of hedging risk in the field of commodities trading. 

     Drawing extensively from the Supreme Court’s holding and analysis in Diamond v. Diehr, 450 U.S. 175 (1981) and Gottschalk v. Benson, 409 U.S. 63, 67 (1972), the Federal Circuit recognized that “the question before us then is whether Applicants' claim recites a fundamental principle [i.e., "laws of nature, natural phenomena, and abstract ideas"] and, if so, whether it would pre-empt substantially all uses of that fundamental principle if allowed.” The definitive test, the court said, involves a determination of whether a process claim is tailored narrowly enough to encompass only a particular application of a fundamental principle rather than to pre-empt the principle itself.

     A claimed process, the court said, is patent-eligible under § 101 if:  (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.

     Thus, a claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed, and therefore would be potentially protectable under the patent laws. And, a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article, and therefore would also be potentially protectable under the patent laws.

     The court recognized two corollaries to the machine-or-transformation test. First, a mere field-of-use limitation added to a process claim is generally insufficient to render an otherwise ineligible process claim patent-eligible. Also, “insignificant postsolution activity” will not convert an unpatentable principle into a patentable process (e.g., recording bids in an auction without citing the manner of recording may be “extra-solution activity”).  The court also noted that the inquiry into whether a claim is eligible under § 101 does not involve whether the claim is also novel and not obvious under §§ 102 and 103, and also eligibility is not defeated by an individual step or limitation that by itself would be ineligible, one must look at the claim as a whole.

     But what exactly does “machine or apparatus” and “transform” mean in the context of the two-part machine-or-transformation inquiry? Because the claims at issue in Bilski did not limit any process step to any specific machine or apparatus, the court did not elaborate as to the factual evidence important in determining whether a process claim is sufficiently tied to a machine or apparatus.

Transformative process steps

     The court did, however, considered in detail the “transformative” step. A claimed process is patent-eligible, the court said, if it transforms an article into a different state or thing. This transformation must be central to the purpose of the claimed process. Physical transformation of physical objects or substances is patent-eligible subject matter. The transformation of raw data stored in a computer into a particular visual depiction of a physical object on a display is sufficient to render that more narrowly-claimed process patent-eligible (even if the underlying physical object being displayed is not transformed). On the other hand, a data gathering step added to a claim does not convert an algorithm into a patent-eligible process. Also, purely mathematical optimization algorithms are also not patent-eligible.  Moreover, Bilski’s claimed transactions involving the exchange of legal rights is not drawn to patent-eligible subject matter.

State Street

     Finally, with regard to the court’s earlier State Street decision, in which it announced the "useful, concrete, and tangible result" test relied upon extensively by the courts and the PTO to determine patent eligibility, the decision has been criticized as causing a flood of patent applications upon the PTO for a wide variety of non-technological inventions involving such things as processes for calculating indices, conducting arbitration, tax-planning, and performing legal methods. In Bilski, the court said that in many instances, the “useful, concrete, and tangible result” test may provide useful indications of whether a claim is drawn to a fundamental principle or a practical application of such a principle, however, the inquiry is insufficient to determine whether a claim is patent-eligible under § 101. Moreover, the test was “never intended to supplant the Supreme Court's test.” This holding has many believing that State Street was overturned, when in fact it was not. The court said that those portions of State Street that relied solely on the “useful, concrete, and tangible result” test should not longer be relied upon.

 
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