U.S. Supreme Court Grants Review in Business Methods Case

The Supreme Court has agreed to review the Federal Circuit’s decision in In Re Bilski.  This will be the first time the Supreme Court has weighed in on patent eligibility under §101 in more than 25 years.  The Supreme Court is expected to review Bilski’s “machine or transformation test”, and in the process, it may establish a new test for patent-eligible subject matter.

Just last year the Federal Circuit excluded pure business methods from patent protection and set some roadblocks in the way for obtaining software patents.  The Federal Circuit, sitting en banc, affirmed the Board of Patent Appeals and Interferences’ finding that Bilski’s invention, a commodities trading method for hedging risks, did not meet the 35 U.S.C. § 101 patentable subject matter requirement.  The Court held that in order to be patent eligible, a claimed process must either: (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing.

In its decision, the Court stepped back from its prior decision in State Street, which opened the door in 1998 to business-method patents.  The Court expressly overruled the “useful, concrete and tangible result test” of State Street, along with other prior tests in adopting the machine or transformation test as the gatekeeper of §101.

Addressing the transformation prong of the test, the Court acknowledges that transformations involving physical materials, such as a process for vulcanizing rubber, are undoubtedly patent-eligible.  In addition, the Court reasoned that processes involving a transformation of signals representative of physical parameters, such as medical test data, are likely patent-eligible.   However, the Court explained that processes involving a transformation of financial data, or more generally data representing specific intangibles, are not patent eligible.  As such, the Court appears to place the determination of patentability upon the physicality of the thing to which the data transformed refers.

The Bilski decision has been hotly debated both for its holding as well as for the questions it leaves open.  Most notably, since Bilski admitted that its claim did not require a computer, the decision does not answer the question of whether claims reciting general machines, such as a “computer,” will be considered to be tied to a “particular machine.” However, by declining to adopt a broad exclusion over software, as it was invited to do, the Court seemingly recognizes that software and other computer-implemented inventions still constitute patentable subject matter.

These unanswered questions have left potential patentees with a great deal of uncertainty.  It appears now that the Supreme Court will clarify the situation.  However, the Federal Circuit’s Bilski decisions remains in effect, and it is certain that potential patentees will need to raise the level of detail regarding the hardware utilized in any patent application claiming a computer-implemented process for the time being.  In addition, the current Bilski decision will surely be used as a sword to attempt to invalidate business method and software patents in ongoing litigation and add additional uncertainty to those considering enforcing their patents in the near future until the Supreme Court weighs in, which isn’t expected until late 2009 or early 2010.