Patentability of business methods, Bilski v. Kappos, 08-964

by Allen M Lee28. June 2010 08:44

On June 28, 2010, the U.S. Supreme Court finally ruled in Bilski v. Kappos, 08-964, on the long contentious issues of whether business methods are patentable subject matter under the patent laws, and whether the Federal Circuit’s machine-or-transformation test was the exclusive test in making this determination.       

To provide some context, the patent laws provide that there are four independent categories of inventions or discoveries that are patentable: (1) processes, (2) machines, (3) manufactures, and (4) compositions of matter.  The Supreme Court has held that there are three specific exceptions to these categories that do not constitute patentable matter: (i) laws of nature, (ii) physical phenomena, and (iii) abstract ideas.   

In Bilski, the Supreme Court held that “process” does not categorically exclude business methods.  Rather, a business method is simply one kind of “method” that is, at least in some circumstances, patent-eligible. 

The Court also held that the Federal Circuit’s machine-or-transformation test, while useful, is not the sole or exclusive test for deciding whether an invention is patent-eligible.  Under the machine-or-transformation test, an invention is a “process” only if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.     

In deciding Bilski, the Court declined to determine whether petitioners’ underlying patent application for hedging against the risk of price fluctuations in the commodities and energy market constituted patentable “processes,” or to define further what constitutes a patentable “process” beyond the definitions provided in Section 100(b) of the Patent Act or the Court’s guideposts in Gottschalk v. Benson, 409 U. S. 63 (1972), Parker v. Flook, 437 U. S. 584 (1978) and Diamond v. Diehr, 450 U. S. 175 (1981).  Instead, the Court held that the petitioners’ patent application was not patentable simply because it claimed an abstract idea. 

Allen M. Lee.  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (408) 249-2735, Fax: (408) 260-8263, Email: info@allenmlee.com, Internet: www.allenmlee.com.

 

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Supreme Court to decide what kind of “business methods” are entitled to patent protection

by Allen M Lee9. June 2009 12:10

On June 1, the U.S. Supreme Court granted review of the case In re Bilski, 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008).  This was the landmark decision issued on October 30, 2008 by the U.S. Court of Appeals for the Federal Circuit which set forth a test requiring that a patentable process either be tied to a machine or apparatus or involve a transformation of one thing into something else (see May 21, 2009 blog entry for a discussion of In re Bilski).  A ruling isn’t expected until sometime next year.  

  

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

 

Can business methods be patented?

by Allen M Lee21. May 2009 09:34

One question I often get asked is whether a business method can be patented.  Prior to 1998, the U.S. Patent and Trademark Office (“PTO”) rarely granted patents for methods of doing business under the reasoning that most business methods were abstract ideas and thus did not qualify under one of the five statutory categories of patentable subject matter under 35 U.S.C. § 101.  In 1998, the Federal Circuit held in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (Fed. Cir. 1998) that a business method is patentable so long as "it produces a useful, concrete and tangible result."  This decision opened the door to a tidal wave of more than 15,000 business-method patents.  However, in the seminal case In re Bilski, 545 F.3d 943, 88 U.S.P.Q.2d 1385 (Fed. Cir. 2008), the Federal Circuit overruled State Street, holding that a claimed process is patent-eligible under § 101 if: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.  This test is known as the “machine-or-transformation test.”

To provide some context for the Court’s decision, the patent laws provide for only five statutory categories of patentable subject matter: processes, machines, manufactures, compositions of matter, and any new and useful improvement thereof.  In interpreting these categories, the Supreme Court has broadly stated that Congress intended anything under the sun that is made by humans to be patentable except for fundamental principles, which the Court defined as “laws of nature, natural phenomena, [or] abstract ideas,”  Diehr, 450 U.S. at 185.  While a claim drawn to a fundamental principle is unpatentable, "an application of a law of nature or mathematical formula to a known structure or process may well be deserving of patent protection."  Id. at 187.  Accordingly, courts draw a distinction between claims that seek to pre-empt the use of a fundamental principle, on the one hand, and claims that seek only to foreclose others from using a particular application of that fundamental principle, on the other.    

The key inquiry behind the Bilski test is whether the patent on the business-method would allow the patentee to pre-empt substantially all uses of that fundamental principle. If so, the claim is not drawn to patent-eligible subject matter.  Hence, the machine-or-transformation test.  A claimed process involving a fundamental principle that uses a particular machine or apparatus would not pre-empt uses of the principle that do not also use the specified machine or apparatus in the manner claimed.  And a claimed process that transforms a particular article to a specified different state or thing by applying a fundamental principle would not pre-empt the use of the principle to transform any other article, to transform the same article but in a manner not covered by the claim, or to do anything other than transform the specified article. 

In Bilski, Applicants filed a patent application for a method of hedging risks in commodities trading.  The method claimed involved selling options on a commodity at a fixed price, then reducing the risk of price fluctuations by making a second set of hedging transactions at a second price.   The Court found that applicant’s process did not satisfy the machine-or-transformation test.  First, Applicant’s method did not require a computer nor was it limited by any specific apparatus.  Second, Applicant’s method failed to transform any article to a different state or thing.  Applicant’s process encompassed only the exchange of options, which are simply legal rights to purchase some commodity at a given price in a given time period, and were not representative of physical objects or substances.

Bilski is the latest in a series of decisions that have limited the scope of patentability.   Patent practitioners expect more to come. 

 

Allen M. Lee  Mr. Lee’s practice focuses on business, corporate and intellectual property matters, including the creation, protection and exploitation of intellectual property assets.  He counsels clients on business formation, general corporate matters, trademark, copyright, trade secret, patent, licensing, internet and domain name issues, among other things.  For more information contact: Allen M. Lee, a Professional Law Corporation, Tel: (650) 254-0758, Fax: (650) 967-1851, Email: allen@allenmlee.com, Internet: www.allenmlee.com.

 

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