On June 28 the U.S. Supreme Court issued its long-awaited opinion in Bilski v. Kappos addressing patent eligible subject matter under Section 101. In particular, the opinion considered whether the U.S. Court of Appeals for the Federal Circuit had correctly stated the test for determining whether process claims (which include business method claims) are eligible for patent protection. As discussed further below, the Court agreed with the Federal Circuit that the machine-or-transformation test is a proper test for determining patent eligibility for process claims but disagreed that this test was the only test. In a 5-4 split, the Court further declined to establish a prohibition against the patenting of business method inventions. As to the business method invention itself in Bilski, the Court held that the claims where not patent eligible.
Turning to the opinion, the Court confirmed the machine-or-transformation test set forth in the Federal Circuit’s en banc decision. According to the machine-or-transformation test, a process claim is patent eligible under Section 101 if (1) the claim is tied to a particular machine or apparatus, or (2) the claim transforms a particular article to a different state or thing. The Court, however, disapproved of this test being used as the sole test for determining whether a claimed process satisfies Section 101. “The machine-or-transformation test is not the sole test for deciding whether an invention is a patent eligible ‘process.’” Slip Op. at 8.
The Court further confirmed that there is no per se exclusion of business methods from being patent eligible subject matter. “Section 101 similarly precludes the broad contention that the term ‘process’ categorically excludes business methods.” Slip Op. at 10. However, four of the Justices (namely, Justices Stevens, Ginsburg, Breyer, and Sotomayor) would have held that business methods should be excluded from patent eligible subject matter under Section 101. Stevens, J., concurring, at 2; Breyer, J., concurring, at 1.
Regarding one of the previous Section 101 tests set forth by the Federal Circuit, the Court did not endorse the “useful, concrete, and tangible result test” from State Street Bank as a test for determining patent eligible subject matter under Section 101. “[N]othing in today’s opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past.” Slip Op. at 16. “It would be a grave mistake to assume that anything with a ‘useful, concrete and tangible result’ may be patented.” Stevens, J., concurring, at 2 n.1 (citation removed). “[A]lthough the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything which produces a ‘useful, concrete, and tangible result’ is patentable.” Breyer, J., concurring, at 3 (citation removed).
As to the facts of the case, the Bilski invention was directed to a process for hedging, or protecting, against the risks of price changes encountered in buying and selling commodities in the energy markets. Slip Op. at 2. The Court analyzed the claims at issue using the abstract idea test but, interestingly, did not mention the machine-or-transformation test in its analysis. The abstract idea test is taken from the three historic exceptions to patent eligible subject matter under Section 101, namely natural phenomena, laws of nature, and abstract ideas. Slip Op. at 5.
In applying the abstract idea test to the claims at issue, the Court appears to be extracting an underlying algorithm from the claim (i.e., risk hedging) and determining that this extraction falls within the abstract idea exception to Section 101. The Court, as in previous decisions, further discounted any field of use or post-solution activity that could possibly have saved the claim. Slip Op. at 15.
In its reasoning, the Court discussed three of its previous decisions, namely Benson (1972), Flook (1978), and Diehr (1981). Slip Op. at 13-15. Then, by relying on these three previous decisions, the Court held that the concept of risk hedging was an unpatentable abstract idea. Slip Op. at 15. “It light of these precedents, it is clear that petitioners’ application is not a patentable ‘process.’” Slip Op. at 15.
Based on the Court’s decision in Bilski, patent practitioners may still use the machine-or-transformation test when drafting process claims to ensure that process claims recite patent eligible subject matter under Section 101. Under this test, the body of the claim should be drafted to recite either (1) a particular machine or apparatus for performing the process or (2) a transformation by the process of a particular article into a different state or thing.
Patent practitioners may still wish to consider the memorandum and guidelines from the U.S. Patent and Trademark Office regarding the application of the machine-or-transformation test. See Andrew H. Hirshfeld, “Interim Examination Instructions for Evaluating Subject Matter Eligibility Under 35 U.S.C § 101,” U.S. Patent and Trademark Office Memorandum, Aug. 24, 2009 (available at http://www.uspto.gov/patents/law/comments/2009-08-25_interim_101_instructions.pdf), and Andrew Hirshfeld et al., “Interim Examination Instructions for Evaluating Subject Matter Eligibility Under 35 U.S.C § 101,” U.S. Patent and Trademark Office presentation, Aug. 2009 (available at http://www.uspto.gov/patents/law/exam/101_interim_training.pdf).
In addition, patent practitioners should not rely upon the “useful, concrete, and tangible result test” from State Street Bank for determining patent eligible subject matter under Section 101.
Finally, business methods are still available for patent protection, but the claims for a business method should be drafted so as to satisfy the machine-or-transformation test.