07/05/2010

IP&T Alert: The U.S. Supreme Court's Bilski Decision Confirms Business Method Patents Are Alive...For Now

The long-anticipated decision by the U.S. Supreme Court in Bilski v. Kappos confirms that business methods may be eligible for patent protection under § 101 of the Patent Act – a victory for patent owners in the financial services, software, and medical industries.  In its decision, the Supreme Court held:

• The machine-or-transformation (MOT) test adopted by the Court of Appeals for the Federal Circuit is not the sole test for patent eligibility under § 101.  While the MOT test may provide a sufficient basis for evaluating processes similar to those in the industrial age, the test should not be the sole criterion for determining the patentability of processes in the information age.
• Section 101 precludes a reading of the term "process" that would categorically exclude business methods from patent-eligible subject matter.
• The Court's prior decisions provide three specific exceptions to the broad patent eligibility principles in § 101:  laws of nature, physical phenomena, and abstract ideas.

Bilski's invention was directed to a method of hedging risk in energy markets.  The Supreme Court affirmed the Court of Appeal's ruling that Bilski's invention was not patent-eligible on the basis that it was an attempt to patent an abstract idea.

While the Supreme Court's decision has breathed life back into a company's ability to obtain patent protection on business methods, it remains to be seen how courts will rule on this issue in the future.  In fact, the Supreme Court appears to have suggested the following test that the Court of Appeals could adopt to limit the patentability of business methods:

In searching for a limiting principle, this Court's precedents on the unpatentability of abstract ideas provide useful tools. . . . Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. . . . But beyond this or some other limitation consistent with the statutory text, the Patent Act leaves open the possibility that there are at least some processes that can be fairly described as business methods that are within patentable subject matter under § 101.

Notably, the Supreme Court limited its decision to business methods and did not specifically address the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals, all of which had been addressed in numerous amicus briefs submitted to the Court.  As such, the validity of patents directed to these types of inventions should not be impacted by the Bilski decision.