Supreme Court Holds Business Methods May Be Patentable

January 1, 0001


Today, the United States Supreme Court ruled in Bilski v. Kappos (Case No. 08-964) that some business methods may be eligible for patent protection under United States law. The Supreme Court rejected the Federal Circuit’s "machine-or-transformation test" as the sole test for determining what constitutes a patent-eligible process. But the Court declined to adopt any specific test for determining the patentability of business methods, other than affirming its previous decisions and three, previously-identified exceptions: "laws of nature, physical phenomena, and abstract ideas." The Court held that the particular claims involved in the case (methods of hedging risk in the field of commodities trading) were ineligible for patent protection because they were "attempts to patent abstract ideas."

The Court's decision does not provide the certainty regarding business method patents that many had hoped for. Some had hoped it would be the death of business method patents, and four justices advocated that position. Others had hoped it would provide clear guidance to applicants, the PTO, and the courts regarding the patentable scope of business methods. This result, however, perpetuates uncertainty and guarantees continued litigation.

The Patent Act defines patentable subject matter to include "any new and useful process . . ." 35 U.S.C. § 101. The majority opinion, authored by Justice Kennedy, rejected a contention that the term "process" categorically excludes business methods. The majority found the term "process" is broad enough to include such methods and another, later-enacted statute contemplates the existence of at least some business method patents. The majority also held that nothing requires the term "process" as used in the Patent Act to be tied to a machine or to transform an article, as the Federal Circuit had previously ruled. Accordingly, although the majority described the "machine-or-transformation test" as "a useful and important clue" and "an investigative tool," it is not the sole test for determining the patentability of processes.

The justices unanimously agreed that the patent claims at issue in the case were unpatentable and that the machine-or-transformation test is not the sole test for patentability. Beyond that, the decision was fractured. Portions of the majority opinion joined by only four justices (Kennedy, Roberts, Thomas, and Alito) expressed concerns about relying on categorical rules given the pace of technological development. These justices recognized the challenges of striking a balance between protecting inventors and not granting monopolies over procedures that others would discover through application of general principles. But they cautioned that "[n]othing in this opinion should be read to take a position on where that balance ought to be struck." Justice Scalia declined to join these portions of the majority opinion, although he was otherwise in the majority.

Justice Stevens, in a concurring opinion joined by Justices Ginsburg, Breyer, and Sotomayor, "strongly disagree[d]" with the majority’s decision that some business methods are eligible for patent protection. They criticized the majority’s conclusion that the claims were directed at "abstract ideas" as lacking analysis, and instead they would have held that methods of doing business are not patentable based on the "limited textual, historical, and functional clues" available. Justice Breyer issued a concurring opinion that outlined four areas of supposed agreement among the opinions, but Justice Scalia was the only justice to join Justice Breyer’s concurrence.

Today's Supreme Court decision can be viewed as merely another example of the Court rejecting the use of a bright-line test proposed by the Federal Circuit. In this case, although the Federal Circuit had attempted to build a foundation of Supreme Court precedent for the "machine-or-transformation" test, the Supreme Court’s decision today rejected the use of any definitive test. The Supreme Court also cautioned that "nothing in today's opinion should be read as endorsing interpretations . . . that the Court of Appeals for the Federal Circuit has used in the past," even while inviting the Federal Circuit to develop "other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text."

Bilski provides little concrete guidance and perpetuates uncertainty regarding the status of business method patents. The PTO, which had issued interim examination guidelines following the Federal Circuit’s decision in Bilski, may continue to evaluate applications based on the non-exclusive machine-or-transformation test. Applicants can be expected to argue that their process claims are allowable even if they don’t satisfy that test. Accused infringers will challenge many business method patents by comparing them to the three exceptions and limited precedent confirmed today by the Supreme Court. And courts will have to resolve those challenges without the benefit of a definitive test. The Supreme Court's decision guarantees that the law in this area will continue to develop on a case-by-case basis, rather than by judicially-created bright-line rules or categorical exclusions.