A Madness to the Method? The Impact of Bilski on Method Patents

For more than a year, the software/information technology, financial, and even biotech industries, along with the patent bar, waited for the Supreme Court to weigh in on the issue of business methods and patent-eligible subject matter under ‘ 101 of the Patent Act. In its recent decision in Bilski v. Kappos, 561 U.S. __ (2010), the Supreme Court provided an answer for the business method claimed by Bilski, but not a lot of detailed guidance for future cases. Although reaching the same ultimate conclusion as the Federal Circuit about the unpatentability of Bilski’s claims to a method for hedging risk, the Supreme Court’s opinion effectively overruled the narrow test established by the Federal Circuit in its decision below. The Federal Circuit had established that a claimed process was eligible for patenting only if it was tied to a particular machine or transformed an article into a different state or thing, but the Supreme Court held that the “Machine or Transformation” test is not the exclusive test for determining whether a claimed process is eligible for patenting under the patent statute, 35 U.S.C. ‘ 101.

Faulting the Federal Circuit’s interpretation of the patent statute, the Supreme Court explained that ‘ 101 broadly describes subject matter eligible for patenting. Looking to the Court’s prior case law, the opinion identified only three exceptions to the statute’s broad patent-eligibility principles: laws of nature, abstract ideas, or natural phenomena. Bilski, slip op. at 5. While the Court recognized that the Machine or Transformation test is a useful tool for analyzing processes under ‘ 101, it rejected as inconsistent with the broad statutory language the Federal Circuit’s conclusion that the test is the sole or exclusive way in which to determine patent-eligibility for processes. Id. at 16.

Nevertheless, the Supreme Court affirmed the Federal Circuit’s judgment that the claims of Bilski’s patent application were not patentable subject matter under ‘ 101, yet did so on different grounds. Rather than applying the Machine or Transformation test to the Bilski claims, the Supreme Court focused on the question of abstractness, and found that the claims were merely directed to abstract ideas. According to the Court, the Bilski application attempted to patent the concept of hedging risk, but allowing such a patent would pre-empt use of the risk hedging approach in all fields. Other claims in the Bilski application were similarly ruled unpatentable as nothing more than attempts to limit the risk hedging concept to the energy market field or to add token post-solution activity; but the limitations were deemed insufficient, in light of the Court’s precedents, to make the claims patent-eligible.

In analyzing the Bilski claims to hedging risk, the Court summarized its most recent jurisprudence under ‘ 101. Beginning with Gottschalk v. Benson, 409 U.S. 63 (1972), the Court explained that the invention in Benson of an algorithm for converting binary-coded decimals to binary code was an unpatentable abstract idea, because it would “wholly pre-empt the mathematical formula and in practical effect be a patent on the algorithm itself.” Bilski, slip op. at 13. Continuing with Parker v. Flook, 437 U.S. 584 (1978), the Court explained that the claim in Flook to a process for monitoring catalytic conversion using a mathematical algorithm was unpatentable because the patent merely attempted to limit the use of an algorithm to a particular technical environment while including only insignificant post-solution activity. Bilski, slip op. at 14. Finally, addressing Diamond v. Diehr, 450 U.S. 175 (1981), the Court explained that a process for molding uncured rubber into cured rubber products using a mathematical formula to complete some of the steps with a computer was patentable subject matter under ‘ 101 because it was an application of a mathematical formula to produce molded products and not just an attempt to patent the formula itself. Bilski, slip op. at 14-15. This discussion of the Court’s prior cases, along with the pre-emption analysis of the Bilski claims, likely provides the Court’s main guidance for parties and courts to follow in considering whether other processes are patent-eligible under ‘ 101.

As for business methods generally, the Supreme Court did not, as some had hoped, rule them categorically unpatentable. Rejecting the broad notion that “business methods” are excluded from patentable subject matter, the majority opinion concluded that some business methods may be patent-eligible, citing the prior use defense set forth in ‘ 273 of the patent statute. As a caution, however, the majority opinion also stated that while ‘ 273 contemplates the possibility of some business method patents, “it does not suggest broad patentability of such claimed inventions.”

In a lengthy concurring opinion, Justice John Paul Stevens agreed with the Court’s determination that Bilski’s claims are not patentable, but starkly disagreed as to the potential patentability of “business method” patents generally. According to Justice Stevens, whose concurring opinion was joined by three other justices, Congress and the courts understood that when ‘ 101 was enacted as part of the 1952 Patent Act, methods of doing business were not patentable subject matter and, accordingly, such methods should be deemed outside of the scope of patent protection.

Lessons from Bilski