Supreme Court Rules in Bilski
June 28, 2010. The Supreme Court issued its opinion [71 pages in PDF] in Bilski v. Kappos, affirming the judgment of the U.S. Court of Appeals (FedCir). It offered more flexibility than clarity on when processes that can be described as business methods can be patentable subject matter.
Background. The Court of Appeals issued its 9-3 en banc opinion [132 pages in PDF] on October 30, 2008, in In re Bernand Bilski and Rand Warsaw. The Court of Appeals heard an appeal from the U.S. Patent and Trademark Office's (USPTO) Board of Patent Appeals and Interferences (BPAI), regarding patentable subject matter.
The Court of Appeals affirmed the September 26, 2006, opinion [71 pages in PDF] of the BPAI, which affirmed the rejection of a claim for an invention that discloses a method of doing business -- a method of hedging risk in the field of commodities trading.
The Court of Appeals held that the "claims are not directed to patent-eligible subject matter" under 35 U.S.C. § 101. The Court of Appeals held that the Supreme Court's machine or transformation test is applicable to process patents, and that the Federal Circuit's useful, concrete and tangible result inquiry, discussed in State Street, is no longer to be relied upon. See, 1998 opinion in State Street Bank & Trust v. Signature Financial Group, reported at 149 F.3d 1368, that business methods can be patentable subject matter
See, story titled "Supreme Court Grants Cert in In Re Bilski" in TLJ Daily E-Mail Alert No. 1,945, June 1, 2009; story titled "Federal Circuit Curtails Business Method Patents" in TLJ Daily E-Mail Alert No. 1,850, October 30, 2008; and story titled "Federal Circuit Receives Amicus Briefs Re Business Method Patents and Patentable Subject Matter" in TLJ Daily E-Mail Alert No. 1,743, April 8, 2008.
Supreme Court. Justice Kennedy wrote the opinion of the Court. Justice Stevens, who is retiring, wrote a lengthy concurring opinion joined by Justices Ginsburg, Breyer, and Sotomayor.
The Supreme Court affirmed the judgment below, and all concurred in this.
The Court held, and Justice Stevens concurred, that the claims at issue in this case are unpatentable abstract ideas. Also, the Court held, and Justice Stevens concurred, that the machine or transformation test is useful, but not the sole test for determining patentability.
The following are some key excerpts from the majority opinion.
"Interpreting §101 to exclude all business methods simply because business method patents were rarely issued until modern times revives many of the previously discussed difficulties. ... At the same time, some business method patents raise special problems in terms of vagueness and suspect validity."
"The Information Age empowers people with new capacities to perform statistical analyses and mathematical calculations with a speed and sophistication that enable the design of protocols for more efficient performance of a vast number of business tasks. If a high enough bar is not set when considering patent applications of this sort, patent examiners and courts could be flooded with claims that would put a chill on creative endeavor and dynamic change."
"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.
In this case "all members of the Court agree that the patent application at issue here falls outside of §101 because it claims an abstract idea."
"Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas. The Court, therefore, need not define further what constitutes a patentable ``process,´´ beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr. And nothing in today's opinion should be read as endorsing interpretations of §101 that the Court of Appeals for the Federal Circuit has used in the past. See, e.g., State Street, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357."
"It may be that the Court of Appeals thought it needed to make the machine-or-transformation test exclusive precisely because its case law had not adequately identified less extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Actand are not inconsistent with its text."
Reaction. The USPTO stated in a release that "The Supreme Court today affirmed the USPTO's decision that Mr. Bilski’s invention was not patentable subject matter as his claims were drawn to an abstract idea. Significantly, the Court ruled that the ``machine or transformation´´ test is not the sole determinant of patent eligible subject matter for process claims, but is nevertheless an important ``investigative tool´´ for evaluating their patent eligibility. The Court also indicated that a business method is, at least in some circumstances, eligible for patenting under Section 101."
It added the "The USPTO will be issuing guidance further interpreting the decision as soon as possible. The USPTO is distributing interim guidance for the examining corps today."
Ed Black, head of the Computer and Communications Industry Association (CCIA), stated in a release that "This narrow ruling does little to curb the explosion of patents and patent lawsuits that are crushing real innovators. The majority's decision exacerbates the uncertainty that characterizes the IP system today. It will give no notice to the public about when ordinary business practices can lead to ruinous liability. Businesses will be forced to navigate an increasing abstract patent minefield, raising business uncertainty and legal costs."
Black added, "Ultimately, today's decision benefits few except patent lawyers. Absent action by Congress, the patent lottery will inhibit business and create no jobs -- except for within the patent bar."
Tom Sydnor of the Progress & Freedom Foundation (PFF) stated in a release that the Supreme Court's opinion is "moderate" and "sensible". He wrote that the Supreme Court "rejected implausible bright-line rules that would prohibit the patenting of any subject matter -- be it a business method or software -- that otherwise satisfies the requirements for patentability."
He continued that "The flexibility that the Bilski ruling preserves should promote innovation by ensuring that patents can still protect a broad range of American creativity. Bilski also reminds us of the critical role of the U.S. Patent & Trademark Office: Flexibility requires careful examination of patent applications, particularly in areas, like business methods, in which prior art may be incompletely collected or indexed."
Robert Holleyman, head of the Business Software Alliance (BSA), stated in a release that "“We strongly applaud the Supreme Court's ruling in the Bilski case ... The court specifically recognized that applying the lower court's very narrow ‘machine or transformation test’ would chill innovation in critically important 21st century technologies such as computer software."
Holleyman added that "Software is a critical tool of production for
businesses in every sector of the US and global economies ... Our industry is
built on innovation, and the patent law provides critically important incentives
to innovators. Today's ruling will enable the software industry to continue to
make important contributions to our economy and our common welfare."