United States: The Supreme Court Rules That The Process in Bilski is Not Patentable, But Refuses to Foreclose The Patentability of Business Methods

The intellectual property community has been waiting over six months since the oral argument in Bilski v. Kappos, No. 08-964, 2010 WL 2555192 (U.S. June 28, 2010) for a decision from the United States Supreme Court clarifying what is a patentable "process" under the Patent Act. During that long wait, many predicted that the Court's decision would have drastic effects on the patentability of business methods, including software and medical diagnostic methods. On June 28, 2010, the Supreme Court finally issued its ruling in Bilski. What does this decision really mean for patent applications? According to a Memorandum issued by the U.S. Patent and Trademark Office ("USPTO"), not much will change, and it will continue to apply the "machine or-transformation test" to determine patentability of inventions directed to processes or methods.

Factual and Procedural Background in Bilski

The inventors ("petitioners") sought protection for a claimed invention that explained how buyers and sellers of commodities in the energy market can protect (or hedge) against the risk of price change. The key claims at issue were claims 1 and 4. Claim 1 in the patent application described a series of steps instructing how to hedge a risk. Claim 4 put those steps into a simple mathematical formula.

The patent examiner rejected the petitioners' claims on the grounds that the claimed process is "not implemented on a specific apparatus" and that it "merely manipulates an abstract idea and solves a purely mathematical problem without any limitation to a practical application." The Board of Patent Appeals and Interferences ("BPIA") affirmed.

The Court of Appeals for the Federal Circuit ("Federal Circuit") heard the case en banc, with all of the judges initially hearing the case, and affirmed the BPAI's rejection of the petitioners' claims, holding that a claimed process is patent-eligible if "(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing." The court concluded that the "machine-or-transformation test" was "the sole test governing § 101 analyses." Applying the machine-or-transformation test, the Federal Circuit held the petitioners' claims were not patentable.

The Supreme Court's Ruling

In a split decision, the Supreme Court affirmed the decision of the Federal Circuit that the petitioners' claimed process was not patentable. The petitioners' claimed process was rejected because it was an unpatentable abstract idea. The Supreme Court, however, stated that "[t]he Court of Appeals incorrectly concluded that this Court has endorsed the machine-or-transformation test as the exclusive test." Bilski, 2010 WL 2555192, at *7. The Supreme Court explained: "This Court's precedents establish that the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101." Id. at *8. The Supreme Court then explicitly stated that "[t]he machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible 'process.'" Id.

In reaching this determination, the Supreme Court noted it has cautioned courts not to read into patent laws any limitations and conditions that Congress has not expressed. Id. at *7. Addressing the further issue of the patentability of business methods, five justices agreed that § 101 should not be interpreted "to exclude all business methods simply because business methods were rarely issued until modern times . . ." Id. at *10. The majority, however, stated that support for the patentability of business methods "does not suggest broad patentability of such claimed inventions." Id.

The USPTO's Immediate Response to the Ruling

After the Supreme Court issued its decision in Bilski, the USPTO immediately responded on the same day with interim guidance to its patent examiners. In a June 28, 2010 Memorandum, the Acting Associate Commissioner for Patent Examination Policy, Robert W. Bahr, provided instruction to examiners in light of the new ruling.

The USPTO stated in its Memorandum that examiners should continue to use current guidance: "Examiners should continue to examine patent applications with section 101 using the existing guidance concerning the machine-or-transformation test as a tool for determining whether the claimed invention is a process under section 101." In light of the Bilski holding that the machine-or-transformation test is not the sole test, the Memorandum clarified: "If a claimed method does not meet the machine-or-transformation test, the examiner should reject the claim under section 101 unless there is a clear indication that the method is not directed to an abstract idea."

A copy of the USPTO's Memorandum can be found at: http://www.uspto.gov/patents/law/exam/bilski_guidance_28jun2010.pdf

What Does This Mean for Patent Applications?

Despite the speculation of significant change at the USPTO regarding the patentability of processes, that scenario has not materialized. The USPTO will continue to rely primarily on the machine-or-transformation test for analyzing claims directed to processes or methods. Only where there is a "clear indication" that the process or method is not directed to an abstract idea will the examiner engage in a closer look at the patent application and deviate from the machine-or-transformation test. Thus, there will not likely be any significant changes for process claims, at least initially. The extent to which business methods may be patented, however, remains an undefined issue and will certainly be addressed in additional decisions in the future.

The USPTO indicated that it is continuing to review the Bilski decision and will be developing further guidance for its examiners based on that decision. Larkin Hoffman will continue to update you as new developments arise. Contact one of Larkin Hoffman's experienced patent attorneys if you require assistance on your patent application or the impact of the Bilski decision.

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