Supreme Court Strikes Business Method Claim as Seeking to Patent an Abstract Idea

In a much anticipated decision, the U.S. Supreme Court in Bilski, et al. v. Kappos, 561 U.S. ____ (2010), held that a claim to a method of hedging against price fluctuations is unpatentable. The narrow majority opinion relied upon the Court’s precedent prohibiting the patenting of abstract ideas. However, the Court refused to hold that so-called “business methods” are always unpatentable. The Court also indicated that the “machine or transformation” test established by the Federal Circuit Court of Appeals in 2008 is not the sole test for determining whether subject matter is eligible for patent protection. The ruling has particular implications for the financial services, software, and biotechnology industries.

In a 2008 ruling, the Federal Circuit held that to be patentable, a process must either be implemented by a machine or transform a physical object, material or data that represents a measurable quality or a physical object. By rejecting the “machine or transformation” test as the exclusive test for deciding what qualifies as patentable subject matter, the Supreme Court broadened the scope of patentable inventions previously restricted by the Federal Circuit. Although the Supreme Court failed to provide a bright line rule, some guidance can be gleaned from the Court citing its own precedent that “Congress plainly contemplated that the patent laws would be given wide scope” and that “ingenuity should receive a liberal encouragement.”