US Supreme Court refuses to outlaw business method patents

Jun 29 2010

In its long-awaited decision in Bilski v. Kappos, the US Supreme Court confirmed that it may be possible to obtain patent protection on at least some methods of doing business, even though they rejected Bilski’s appeal, holding that Bilski’s claims to a “method of managing the consumption risk costs of a commodity,” were not eligible for patent protection under the US Patent Act. The majority of the court rejected Bilski’s claims because they attempted to monopolize the abstract idea of hedging in commodity and energy markets.

The Court was split on whether business methods should be automatically excluded from patentability. The majority found there was no justification for creating such a rule. In fact, the Court stated that the term “method” in §100(b) of the US Patent Act, “may include at least some methods of doing business”. The majority noted that there is an existing exclusion from patentability for “abstract ideas”, and relied upon that exclusion in Bilski’s case. The Court pointed to prior decisions in Gottschalk v. Benson, Parker v. Flook and Diamond v. Diehr, as guideposts indicating when and how the prohibition against patenting abstract ideas may be applied.

In the decision under appeal, the en banc Court of Appeal for the Federal Circuit had stated that the sole test for determining whether a claimed process was proper subject matter for patent protection was the “machine-or-transformation” test. Under this test, to be patentable a claimed process must be tied to a particular machine or apparatus or must transform a particular article to into a different state or thing. The US Supreme Court rejected the notion that this was the sole test for determining whether a process was patent-eligible, but unanimously endorsed it as a useful and important tool in that analysis. They did not endorse any alternative tests.

A different majority of the judges (due to Justice Scalia concurring in only parts of the majority judgment, and joining with Justice Breyer in a concurring judgment on some points) expressly rejected the “concrete, useful and tangible result” test articulated by the Federal Circuit in State Street Bank v. Signature Financial Group. The remainder of the judges did not expressly reject this test, but were careful to note that their opinions did not necessarily mean they endorse other Federal Circuit tests, such as State Street Bank‘s “concrete, useful and tangible result” test.

The Court was also careful to note that their disapproval of the Federal Circuit using the machine-or-transformation test exclusively does not mean they wish to foreclose the Federal Circuit from developing other limiting criteria consistent with the purpose and text of the Patent Act.

The decision is a relief for patentees to the extent that the Court has rejected the exclusive use of the machine-or-transformation test, and leaves open the door to the possibility of patenting methods of doing business provided the patentee can steer around the “abstract ideas” exclusion.

Read the full text of the decision.

This article is for information purposes only and does not constitute legal or professional advice.

Back to blog overview

Tags: Business Methods, Patents