Guest Commentary

Michael L. Kiklis, Akin Gump Strauss Hauer & Feld LLP*

In a highly anticipated opinion, the U.S. Supreme Court has decided the fate of business method patents, holding that business methods may indeed constitute patentable subject matter.  Bilski v. Kappos, No. 08-964.  In so doing, the Supreme Court rejected the Federal Circuit’s rigid approach for determining whether processes are patentable and, instead, relied on its existing case law and the long-held exclusion against patenting abstract ideas to resolve the case.

Bernard Bilski and Rand Warsaw (hereafter “Bilski”) filed a patent application describing a process of hedging against the risk of price changes in the energy market.  The U.S. Patent and Trademark Office rejected Bilski’s application because it did not constitute patentable subject matter.  Bilski appealed to the Federal Circuit, which pronounced a new test for determining whether processes are patentable, known as the machine-or-transformation test.  Using this test, a process is only patentable if “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.”  Since Bilski’s patent claims were directed to human activity rather than a method in a machine or a method that transforms a particular article into a different state or thing, the Federal Circuit found Bilski’s process to be unpatentable.

The Supreme Court reviewed its precedent and held that, although the machine-or-transformation test is “a useful and important clue, an investigative tool, for determining” whether a process is patentable, “[t]he machine-or-transformation test is not the sole test for deciding whether an invention is a patent eligible ‘process.’”  Also, the Supreme Court rejected the contention that the term “process” in 35 U.S.C. § 101—the statute that defines patentable subject matter—categorically excludes business methods.  The Court noted that the term “method,” which appears within the patent statute’s definition of process, “may include at least some methods of doing business.”  To bolster its rationale, the Supreme Court stated that the existence of the prior use defense of 35 U.S.C. § 273, which is available to business method users, recognizes that business method patents may exist, and to adopt such a categorical exclusion would render this statute meaningless.  The Supreme Court cautioned, however, that § 273 “does not suggest broad patentability of such claimed inventions.”

The Supreme Court found Bilski’s patent claims to be unpatentable because they constitute an abstract idea, one of the Court’s long-held exceptions to patentable subject matter:

Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr, which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas.

The Supreme Court stated that Bilski’s claims simply recite the basic concept of hedging, and to allow such a patent would “preempt use of this approach in all fields and would effectively grant a monopoly over an abstract idea.”

The Supreme Court followed the language of § 101 and its prior case law to reject Bilski’s patent application without espousing new criteria for determining patentable subject matter.  The Court also rejected the Federal Circuit’s machine-or-transformation test as the sole factor for identifying patentable subject matter.  Although the Supreme Court did not endorse prior tests used by the Federal Circuit, it did not foreclose the Federal Circuit from adopting “other limiting” criteria for patentable subject matter determinations.  The question now is:  How will the Federal Circuit develop its patentable subject matter case law?

*Mr. Kiklis was Of Counsel to the American Bar Association in its amicus brief in Bilski.