On June 28, 2010, the U.S. Supreme Court issued its much-awaited decision on patent-eligible subject matter in Bilski v. Kappos. In this case update, partners Michael P. Sandonato and Brian L. Klock examine the implications of this ruling.
Today the U.S. Supreme Court issued its long-awaited decision in Bilski v. Kappos, concerning patent eligibility. Although the Court unanimously affirmed the Federal Circuit’s decision that the patent claims at issue are unpatentable, the Court disapproved the lower court’s ruling that the sole test for determining whether a process is patent-eligible is the so-called “machine-or-transformation” (“MOT”) test, indicating that instead the focus should be on whether a claim is directed to an abstract idea. The Court also rejected a categorical rule that business methods are not patentable.
Justice Kennedy delivered the opinion of the Court. The majority opinion characterized the MOT test as a useful and important clue and an investigative tool for determining patent-eligibility, but found that the Federal Circuit’s adopting it as the exclusive test violated statutory interpretation principles. The Court found that as a textual matter the terms “process” and “method” found in 35 U.S.C. § 100(b) do not require a tie to a machine or a transformation and may include at least some methods of doing business, and that there are no “ordinary, contemporary, common meaning[s]” of those terms that suggest differently. In addition to this textual analysis, the Court looked to the prior use defense in 35 U.S.C. § 273(b)(3), which explicitly refers to “a method of doing or conducting business,” concluding that if the Patent Statute utilizes such terminology, at least some business methods may be eligible for patenting under Section 101.
Although the Court rejected the MOT and business method categorical limitations on patent eligibility, it nevertheless found the claims at issue to be directed to unpatentable subject matter, specifically to an unpatentable abstract idea. The claims were directed to a method of hedging risk, and recited steps such as initiating a series of transactions and identifying market participants, and the Court found risk hedging to be an abstract concept akin to the algorithms found to be unpatentable in the earlier Supreme Court decisions of Benson (a method of converting binary-coded decimal numbers into binary numbers) and Flook (a method of monitoring conditions during a catalytic conversion process). The Court also found that those claims that were limited to the commodities and energy markets were no more patentable than the broader ones, since those simply added field of use or postsolution components, which do not help the case for patentability.
While the Supreme Court did reject a categorical rule that business methods may not be patented, Justice Kennedy’s opinion (in a section which Justice Scalia did not join) recognized that “some business method patents raise special problems in terms of vagueness and suspect validity,” and that it could be appropriate for the Federal Circuit to define as unpatentable a “narrower category or class of patent applications that claim to instruct how business should be conducted.” The opinion also observed that even though a particular business method might pass muster under the patent eligibility standard under 35 U.S.C. § 101, the novelty (35 U.S.C. § 102), nonobvious (35 U.S.C. § 103) and written description (35 U.S.C. § 112) requirements of the Patent Statute will also play a critical gatekeeper role.
Significantly, the majority opinion noted that it was not endorsing the “useful, concrete and tangible result” test promulgated by the Federal Circuit in State Street, and in a concurrence Justice Breyer (with Justice Scalia joining) went as far as to express the view that the Court is in unanimous agreement that that test was too broad, and resulted in patents ranging from “the somewhat ridiculous to the truly absurd.” And the Court was by no means unanimous that there should not be a categorical business method exception to patentability, with Justices Ginsburg, Breyer and Sotomayor joining Justice Stevens in a concurring opinion that such a categorical exception should exist. Justice Scalia may be on the other end of the spectrum on that point, given that he declined to join in that part of the majority’s opinion which discusses the possibility of the Federal Circuit defining a narrower class of business methods that are unpatentable.