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Determination of Patentable Subject Matter Not Limited to Machine-or-Transformation Test; Some Business Method Patents Survive
By Davis Doherty – Edited by Matt Gelfand

Bilski v. Kappos, No. 08-964 (U.S. June 28, 2010)
Slip Opinion

In a 9-0 decision, the Supreme Court affirmed an en banc ruling by the Court of Appeals for the Federal Circuit, which held that the petitioners’ claimed invention, a commodities risk-hedging method, was unpatentable. At the same time, a 4-1-4 split on the broader issue of patentable subject matter resulted in a narrow opinion that  leaves open the possibility that some business method patents may be appropriate.

In an opinion penned by Justice Kennedy, joined by Chief Justice Roberts and Justices Thomas and Alito, and in part by Justice Scalia, the Supreme Court held the petitioners’ claimed invention was unpatentable under the Patent Act because it was an abstract idea. See 35 U.S.C. § 101 (2006). While the Court affirmed the Federal Circuit’s en banc ruling, its decision overturned the appellate court’s holding that a “process” is patent eligible under § 101 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 re Bilski, 545 F. 3d 943, 954 (Fed. Cir. 2008) (en banc opinion). The Court noted that while this “machine-or-transformation” test may be a useful indicator of patentability in most cases, the text of the Patent Act is incompatible with the use of the test as an exclusive standard. Justice Stevens wrote a concurrence, joined only by Justices Ginsburg, Breyer, and Sotomayor, that would have struck down business method patents as categorically patent-ineligible subject matter.

Briefs and relevant court documents are available at SCOTUSwiki. SCOTUSblog provides an overview of the case. Inventive Step criticizes the decision for its failure to provide guidance on patent eligibility. Patently-O provides analysis regarding the import of the Court’s concurring opinions.

Petitioners sought to patent a method for commodities traders in the energy market to protect against the risk of price changes. Their application claimed the steps involved in hedging risk, a mathematical formula modeling those steps, and a resulting method that allows energy traders to minimize their exposure to price fluctuations. The patent examiner rejected the patent application and the Board of Patent Appeals and Interferences affirmed, applying the “mental steps” and abstract idea tests. Slip op., at 3. The Federal Circuit affirmed en banc, in the process overturning its prior standard that a process must produce a “useful, concrete, and tangible result,” see State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F. 3d 1368, 1373 (Fed. Cir. 1998), in favor of the machine-or-transformation test. In affirming on different grounds, the Supreme Court looked to the common meaning of § 101, reiterating its stance “that courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’”  Diamond v. Diehr, 450 U.S. 175, 182 (1981) (quoting Diamond v. Chakrabarty, 447 U.S. 303, 308 (1980)).

Justice Stevens wrote a separate opinion, joined by three other Justices, concurring in the judgment but asserting that “a method of doing business is [categorically] not a ‘process’ under § 101.” Justice Scalia joined neither the Stevens concurrence nor the portions of the Kennedy opinion that endorse the idea of an evolving body of patent law to accommodate the changing nature of innovation. Scalia also denied Justice Kennedy’s opinion a majority in its brief discussion of the patentability of “software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.” Justice Breyer, joined in pertinent part by Justice Scalia, wrote a short concurrence that reiterates the usefulness of the machine-or-transformation test despite its non-exclusivity.

This decision concludes a long-running doctrinal dispute by essentially maintaining the status quo as it existed before the Federal Circuit opinion; contrary to some predictions, Bilski provides no sweeping rule regarding business method or software patents.  By handing down a characteristically narrow opinion, the Court suggests an unwillingness to judicially impose rules that may hinder the progress of future technologies.  It may eventually fall upon Congress to resolve the patentability questions left unresolved here.

Davis Doherty is a 2L at Harvard Law School.

Posted On Jun - 29 - 2010 Comments Off

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