June 30, 2010

The Bilski Decision

Digital Technology & E-Commerce Blog
Joshua C. Krumholz | Benjamin D. Enerson

In the Supreme Court’s decision in Bilski v. Kappos decided on June 28, 2010, the Supreme Court rejected the Federal Circuit’s “machine-or-transformation” test as the sole test for determining whether a given “process” constitutes patentable subject matter. The Court held that, while the “machine-or-transformation test” is a “useful and important clue, an investigative tool,” it “is not the sole test for deciding whether an invention is a patent-eligible ‘process.’” (Slip Op. at 8.) In this respect, the Supreme Court’s opinion in Bilski echoes its decision in KSR, in which it held that the “motivation to combine” test was too rigid, and instead, “motivation to combine” should be one of many factors to be considered when assessing obviousness under section 103. The Court did, however, repeatedly emphasize the usefulness of the "machine-or-transformation" test.

In reaching its conclusion, the Supreme Court also rejected the argument that a business method patent could not constitute a "process" under Section 101 (although note that the 4-justice concurring opinion disagreed with this conclusion). In reaching this conclusion, the Court looked to the plain language of the statute, in particular section 100(b), and its use of the term “method” to help define what constitutes a patentable process. The Court noted that it “is unaware of any argument that the ‘ordinary, contemporary, common meaning . . . of ‘method’ excludes business methods.” (See id. at 10.) The Court found further support in section 273(b)(1) and 273(a)(3), which concern prior inventorship. Section 273(a)(3) in particular describes a “method” as being “a method of doing or conducting business.” (See id. at 11.)

Business method patent owners, however, should not draw much comfort. The Supreme Court expressed a healthy skepticism for business method patents, and suggested that many, if not most or all, could be found unpatentable as "abstract ideas." In particular, the Supreme Court affirmed that the specific claims at issue, which covered a method for hedging against the risk of price changes in the energy market, were unpatentable under section 101 of the patent laws. In doing so, the Supreme Court relied on its prior decisions in Flook, Benson, and Diehr, holding that the claims at issue covered “abstract ideas.” (See id. at 13–16.) To the extent certain claims limited the idea to a particular field of use, the Supreme Court found, relying on its decision in Flook, that such post-solution activity or field of use restrictions did not render the claims patentable. (See id. at 15.)

Like in some recent Supreme Court cases, this decision brings some uncertainty back into the process. However, because the Court essentially endorsed the utility of the "machine-or-transformation" test and offered no alternatives, that test likely will still be the main determiner under Section 101. In addition, while the Court did not explicitly say so, it appears that any risk to software patents as a class has now passed.

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