Are business methods patentable under Bilski in the US?

July 2nd, 2010 by Barry Sookman Leave a reply »

Earlier this week, the US Supreme Court released its opinion in the BILSKI ET AL. v. KAPPOS case. The Court affirmed the decision of the Federal Circuit Court of Appeals that the invention in issue, a method of hedging risk, was not-patentable. However, there appears to be some significant disagreement in deciding exactly what the Court decided, as relates to the question of the patentability of business methods. On my reading of judgment, by a majority of 5 to 4, the Court was of the view that pure business methods are not patentable subject matter in the US.

Justice Kennedy delivered the opinion of the Court, except as to Parts II–B–2 and II–C–2, concluding that Bilski’s claimed invention was not patent eligible. Roberts, C. J., and Thomas, and Alito, JJ., joined the opinion in full. Scalia, J., joined except for Parts II–B–2 and II–C– 2. Stevens, J., filed an opinion concurring in the judgment, in which Ginsburg, Breyer, and Sotomayer, JJ., joined.  Breyer, J., filed an opinion concurring in the judgment, in which Scalia, J., joined as to Part II.

All members of the Court concurred with the opinion of Justice Kennedy that the Federal Circuit was wrong in holding that “the machine-or-transformation test” is the only test for patentability of a claimed process. The Court stated that while that test has always been a “useful and important clue,” it has never been the “sole test” for determining patentability. Rather, the Court emphasized that a process claim meets the requirements of §101 when, “considered as a whole,” it “is performing a function which the patent laws were designed to protect (e.g., transforming or reducing an article to a different state or thing).” The machine-or-transformation test is thus an important example of how a court can determine patentability under §101, but the Federal Circuit had erred in by treating it as the exclusive test.

The Court agreed that Bilski’s claimed invention was not patentable because it was an attempt to patent an abstract idea. According to Justice Kennedy:

“Petitioners seek to patent both the concept of hedging risk and the application of that concept to energy markets. Under Benson, Flook, and Diehr, however, these are not patentable processes but attempts to patent abstract ideas. Claims 1 and 4 explain the basic concept of hedging and reduce that concept to a mathematical formula. This is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook. Petitioners’ remaining claims, broad examples of how hedging can be used in commodities and energy markets, attempt to patent the use of the abstract hedging idea, then instruct the use of well known random analysis techniques to help establish some of the inputs into the equation. They add even less to the underlying abstract principle than the invention held patent ineligible in Flook.”

But Justice Kennedy, with whom three other members of the Court agreed, would not have categorically ruled out business methods as being potentially patentable. According to Justice Kennedy:

“Section 101 similarly precludes a reading of the term “process” that would categorically exclude business methods. The term “method” within §100(b)’s “process” definition, at least as a textual matter and before other consulting other Patent Act limitations and this Court’s precedents, may include at least some methods of doing business. The Court is unaware of any argument that the “ordinary, contemporary, common meaning,” Diehr, supra, at 182, of “method” excludes business methods. Nor is it clear what a business method exception would sweep in and whether it would exclude technologies for conducting a business more efficiently. The categorical exclusion argument is further undermined by the fact that federal law explicitly contemplates the existence of at least some business method patents: Under §273(b)(1), if a patent-holder claims infringement based on “a method in [a] patent,” the alleged infringer can assert a defense of prior use. By allowing this defense, the statute itself acknowledges that there may be business method patents.”

“Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. The term “method,” which is within §100(b)’s definition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. See, e.g., Webster’s New International Dictionary 1548 (2d ed. 1954) (defining “method” as“[a]n orderly procedure or process . . . regular way or manner of doing anything; hence, a set form of procedure adopted in investigation or instruction”). The Court is unaware of any argument that the “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of “method” excludes business methods. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently. See, e.g., Hall, Business and Financial Method Patents, Innovation, and Policy, 56 Scottish J. Pol. Econ. 443, 445 (2009) (“There is no precise definition of . . . business method patents”)…

In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools. See infra, at 12–15. 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. See ibid. 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.”

Justice Stevens, J., with whom Justices Ginsburg, Breyer, and Sotomayer, JJ., joined, concurred in the judgment. These members of the Court would have rejected Bilski’s patent on the broader ground that a general method of conducting business cannot be patented. According to these Justices:

“The Court correctly holds that the machine-or transformation test is not the sole test for what constitutes a patentable process; rather, it is a critical clue. But the Court is quite wrong, in my view, to suggest that any series of steps that is not itself an abstract idea or law of nature may constitute a “process” within the meaning of§101. The language in the Court’s opinion to this effect can only cause mischief. The wiser course would have been to hold that petitioners’ method is not a “process” because it describes only a general method of engaging in business transactions—and business methods are not patentable. More precisely, although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a “process” under §101.”

After surveying the legislative history and policy reasons related to the patentability of business inventions, Justice Stevens summarized his reasons for why these inventions cannot be patented:

“The Constitution grants to Congress an important power to promote innovation. In its exercise of that power, Congress has established an intricate system of intellectual property. The scope of patentable subject matter under that system is broad. But it is not endless. In the absence of any clear guidance from Congress, we have only limited textual, historical, and functional clues on which to rely. Those clues all point toward the same conclusion: that petitioners’ claim is not a “process” within the meaning of §101 because methods of doing business are not, inthemselves, covered by the statute. In my view, acknowledging as much would be a far more sensible and restrained way to resolve this case. Accordingly, while I concur in the judgment, I strongly disagree with the Court’s disposition of this case.”

Justice Breyer, who had joined with Justice Stevens, wrote a separate concurring opinion with whom Justice Scalia joined. In this opinion, Justice Breyer expressly agreed with the opinion in full of Justice Stevens that business methods are not patentable and would have decided the appeal on that ground alone.

“I agree with JUSTICE STEVENS that a “general method of engaging in business transactions” is not a patentable “process” within the meaning of 35 U. S. C. §101. Ante, at 2 (STEVENS, J., concurring in judgment). This Court has never before held that so-called “business methods” are patentable, and, in my view, the text, history, and purposes of the Patent Act make clear that they are not. Ante, at 10–47. I would therefore decide this case on that ground, and I join JUSTICE STEVENS’ opinion in full…

although the machine-or-transformation test is not the only test for patentability, this by no means indicates that anything which produces a “‘useful, concrete, and tangible result,’” State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F. 3d 1368, 1373 (CA Fed. 1998), is patentable. “[T]his Court has never made such a statement and, if taken literally, the statement would cover instances where this Court has held the contrary.” Laboratory Corp. of America Holdings v. Metabolite Laboratories, Inc., 548 U. S. 124, 136 (2006) (BREYER, J., dissenting from dismissal of certiorari as improvidently granted); see also, e.g., O’Reilly v. Morse, 15 How. 62, 117 (1854); Flook, supra, at 590. Indeed, the introduction of the “useful, concrete, and tangible result” approach to patentability, associated with the Federal Circuit’s State Street decision, preceded the granting of patents that “ranged from the somewhat ridiculous to the truly absurd.” In re Bilski, 545 F. 3d 943, 1004 (CA Fed. 2008)(Mayer, J., dissenting) (citing patents on, inter alia, a “method of training janitors to dust and vacuum using video displays,” a “system for toilet reservations,” and a “method of using color-coded bracelets to designate datingstatus in order to limit ‘the embarrassment of rejection’”); see also Brief for Respondent 40–41, and n. 20 (listing dubious patents). To the extent that the Federal Circuit’s decision in this case rejected that approach, nothing in today’s decision should be taken as disapproving of that determination. See ante, at 16; ante, at 2, n. 1 (STEVENS, J., concurring in judgment).

In sum, it is my view that, in reemphasizing that the “machine-or-transformation” test is not necessarily the sole test of patentability, the Court intends neither to deemphasize the test’s usefulness nor to suggest that many patentable processes lie beyond its reach.”

When you count them up, four members of the Court were of the opinion that at least some business methods were patentable. However, the majority of the Court consisting of Justices Scalia, Stevens, Ginsburg, Breyer, and Sotomayer disagreed and were of the opinion that business methods are not patentable. These opinions were expressed in the two separate concurring judgments delivered by Justices Stevens and Breyer. US Supreme Court experts may argue as to whether the opinion of Justice Stevens on the patentability of business methods was obiter.  However, the two concurring opinions certainly suggest that the then majority of the Court would not find a pure business method patentable in a future case.

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