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Supreme Court Decision on Patentability of Business Methods

In a long-awaited opinion, the Supreme Court issued a decision in the Bilski v. Kappos case (No. 08-964) on June 28, 2010. Those of us in the patent world have been anxiously watching for guidance on the patentability of business methods since the Court agreed to take up the case and heard arguments in November 2009.

Background of the Case

Applicants Bernard Bilski and Rand Warsaw filed a patent application in 1997 directed to a method of hedging risk in commodities trading. The Examiner at the U.S. Patent and Trademark Office ("PTO") rejected the claims of the application under 35 USC 101 as being drawn to unpatentable subject matter in reciting the manipulation of an abstract idea.

Section 101 specifies four independent categories of inventions that are patent eligible: processes, machines, manufactures, and compositions of matter. Three specific exceptions to these broad principles are: laws of nature, physical phenomena, and abstract ideas.

Bilski appealed the Examiner’s decision to the Board of Patent Appeals and Interferences. The Board disagreed with the Examiner’s analysis, but affirmed the rejection on the grounds that the claimed method did not involve a physical transformation to produce a useful, concrete, and tangible result.

Bilski then took the case to the US Court of Appeals for the Federal Circuit, which affirmed the Appeal Board, concluding that the sole and proper test for patentability is whether a process is tied to a particular machine or transforms a particular article into a different state or thing, the so-called "machine or transformation" test. The PTO has been implementing the use of this test to determine patentability since the Federal Circuit’s 2008 decision.

In January 2008, Bilski filed a petition for a writ of certiorari with the Supreme Court, seeking to overturn the Federal Circuit decision.

The Supreme Court Decision

The Court’s decision, authored by Justice Kennedy, unanimously affirmed the invalidity of the Bilski claims on the grounds that the claims were directed to a patent-ineligible abstract idea. However, the decision further set forth that the "machine or transformation" inquiry promulgated by the Federal Circuit should not be the exclusive test for determining whether a claimed process is statutory, apparently leaving the door open to patents directed to software, medical diagnostic methods, signal manipulation, and even some business methods.

A concurring opinion presented by Justice Stevens, and joined by Justices Ginsburg, Breyer, and Sotomayor, posited categorically that business methods are not patentable subject matter, a view that failed to win majority support. The concurring opinion also noted that the majority failed to provide adequate guidance for determining what is "abstract." Clearly Bilski did not solve this question, which will have to await further Federal Circuit determinations.

How to Proceed with Business Method Inventions?

Applicants should continue to seek patent protection for their inventive business processes. Such inventions should be described and claimed in a variety of ways to convince a Patent Examiner that they satisfy the conditions for patentability under Section 101. Specifically, inventions should be tied where possible to a "machine" for implementation, such as a computer system. It may also be valuable to review pending patent applications in the business method arena to ensure that inventions are claimed in as "tangible" language as possible.

Conclusion

In some ways the Bilski decision was anticlimactic – no bright line was drawn as to the patentability of business methods. At least the Court decided that business methods could be patentable, and rejected a rigid application of the "machine or transformation" test. It should be noted, however, that, with the retirement of Justice Stevens, the 5-4 split on this issue might fall the other way next time, leaving open the question of how the next "Bilski" could be decided.
 

©Lowndes, Drosdick, Doster, Kantor & Reed, PA, 2021. All rights reserved.National Law Review, Volume , Number 190
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About this Author

Founded in Orlando, Florida in 1969, Lowndes, Drosdick, Doster, Kantor & Reed, P.A., is a multi-practice law firm with over 100 attorneys. We represent clients across a myriad of industries locally, nationally and beyond our borders, advising on almost every aspect of business: from high-stakes, high-profile litigation to labor and employment law; from tax issues to trademark and patent protection; from bankruptcy and creditors’ rights to wealth management; from complex commercial and residential real estate issues to healthcare; from capital raising and entity...

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