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Software Patents And Business Method Patents Still Possible After Bilski Supreme Court Decision

Software Patents And Business Method Patents Still Possible After Bilski Supreme Court Decision

Software Patents And Business Method Patents Still Possible After Bilski Supreme Court Decision

Previously, the Federal Circuit reviewed a decision of the Board of Patent Appeals in which the Board had sustained a rejection of all eleven of Bilski’s claims under 35 U.S.C. 101 as not directed to patent-eligible subject matter. The Federal Circuit affirmed, holding that Bilski’s claims were not statutory under 35 U.S.C. 101.

Bilski’s patent application claimed a method of hedging risk in commodities trading.

The Supreme Court on June 28, 2010 affirmed the invalidity of Bilski’s claims. The Supreme Court declined to generally invalidate software patents and instead held that the Federal Circuit’s Machine-or-Transformation test is not the exclusive test to determining if a method is statutory.

The Supreme Court noted that Section 101 specifies four independent categories of inventions or discoveries that are patent eligible: “process[es],” “machine[es],” “manufactur[es],” and “composition[s] of matter.” The Supreme Court noted that they had stated in their earlier decision of Diamond v. Chakrabarty, 447 U.S. 303 that in choosing such expansive terms, Congress plainly contemplated that the patent laws would be given wide scope in order to ensure that ingenuity should receive a liberal encouragement. The Court’s precedents provide three specific exceptions to section 101’s broad principles: “laws of nature, physical phenomena, and abstract ideas.”

The Bilski case involved an invention that is claimed to be a “process” under section 101. Section 100(b) defines “process” as: “process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”

The Supreme Court considered two proposed categorical limitations on “process” patents under section 101 that would have, if adopted, barred Bilski’s application: the machine-or-transformation test and the categorical exclusion of business method patents.

The Supreme Court noted that it had more than once cautioned that courts should not read into the patent laws limitations and conditions which the legislature has not expressed. In patent law, as in all statutory construction, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning. Adopting the machine-or-transformation test as the sole test for what constitutes a “process” violates these statutory interpretation principles. The Court stated that it was unaware of any “ordinary, contemporary, common meaning” of the definitional terms “process, art or method” of section 100(b) that would require these terms to be tied to a machine or to transform an article.

According to the Supreme Court, the machine-or-transformation test is a useful and important clue for determining whether some claimed inventions are processes under section 101. But the machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.” It is true that patents for inventions that did not satisfy the machine-or-transformation test were rarely granted in earlier eras, especially in the Industrial Age, but times change. The machine-or-transformation test would create uncertainty as to the patentability of software, advanced diagnostic medicine techniques, and inventions based on linear programming, data compression, and manipulation of digital Supreme Court stated that it was not commenting on the patentability of any particular invention, let alone holding that any of the above-mentioned technologies from the Information Age should or should not receive patent protection.

Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. Federal law explicitly contemplates the existence of at least some business method patents. See 35 U.S.C. 273(b)(1).

Even though the Bilski application is not categorically outside of section 101, that does not mean that it is a process under section 101. Rather than adopting categorical rules, the Court resolved this case narrowly on the basis of its decisions in Benson, Flook, and Diehr, which show that Bilski’s claims are not patentable processes because they are attempts to patent abstract ideas. The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, like the algorithms at issue in Benson and Flook. Allowing Bilski to patent risk hedging would pre-empt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.

The Supreme Court concluded by stating that it once again declined to impose limitations on the Patent Act that were inconsistent with the Act’s text. Bilski’s patent application can be rejected under precedents on the unpatentability of abstract ideas. The Court, therefore, did not need to define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in section 100(b) and looking to the guideposts in Benson, Flook, and Diehr.

The Supreme Court also cautioned that nothing in the opinion should be read as endorsing interpretations of section 101 that the Court of Appeals for the Federal Circuit has used in the past, e.g. State Street, 149 F.3d at 1373; AT&T Corp. 172 F.3d, at 1357. The Supreme Court finished by stating that in disapproving an exclusive machine-or-transformation test, the Supreme Court by no means foreclosed the Federal Circuit’s development of other limiting criteria that further the purposes of the Patent Act and are not inconsistent with its text.

In summary, this decision did nothing much to harm software patents. It even stated that business method patents are sometimes acceptable, and are contemplated by the patent laws. However, no clear test was given as to what the test is for statutory subject matter. The machine or transformation test, though not the exclusive test, provides a useful and important clue as to whether a patent claim is statutory.

It is still possible to obtain allowance of software patents and business method patents with careful drafting.