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Business Methods in the Wake of Bilski

On June 28, 2010 the Supreme Court of the United States rendered its much anticipated opinion in Bilski v. Kappos affirming the Federal Circuit after an unusually long delay. More precisely, the Supreme Court concludes that the machine-or-transformation test is "a useful and important clue, an investigatory tool, for determining whether some claimed inventions are [patentable]," but that it "is not the sole test for determining whether an invention is a patent-eligible process."[1]

In keeping with legal tradition, the Supreme Court's opinion is very narrow in scope, addressing only the facts and law absolutely necessary to dispose of the case at hand. Particularly, the Court held that the machine-or-transformation test is not the sole means for assessing the patentability of a process, and that Bilski's process is not patentable because it is merely an abstract idea.[2] One of the few things that this opinion makes clear is that it does little to clarify any of the questions raised by business methods. In fact, it is not entirely clear just how much support the court really has for their status as patent-eligible subject matter.

Patentability of Business Methods

Although the majority ultimately upholds business methods in general as patent-eligible subject matter, it is worth considering just how close the vote tally was. At first blush, the 9-0 majority opinion, written by Justice Kennedy, appears to squarely conclude that business methods are indeed patent-eligible, save for Mr. Bilski's. However, four Justices joined in a concurring opinion (Justices Breyer, Stevens, Ginsburg, and Sotomayor), which emphatically states that while they agree with the result at which the majority arrives, they believe that business methods are not patent-eligible subject matter.[3] Taken by itself this concurring opinion is not enough to establish a majority against patent eligibility. However, a second concurring opinion written by Justice Breyer and joined by a fifth Justice, Justice Scalia, requires close scrutiny. If Justice Scalia is against the patent eligibility of business methods then he would tip the scales.

The picture becomes less clear when we observe that Justice Scalia does not join with the majority in Parts II-B-2 and II-C-2, and that while he joins in Breyer's concurring opinion, he does so only with regard to Part II. Attempting to discern Scalia's opinion by dissecting the sections where he declines to join could be a maddening and, likely, fruitless task. We can only know that he did not agree with something written in those sections, even though many similar sentiments can be found in sections where he joins with the majority.

A better approach is to closely read the sections where Justice Scalia joins. In doing so, we find that in Section II-C-1 of the slip opinion the majority says that "the term 'method,' which is within §100(b)'s definition of 'process,' at least as a textual matter and before consulting other limitations of the Patent Act and this Court's precedents, may include at least some methods of doing business." The majority then points to §273 of the Patent Act, which implicitly acknowledges that business methods can be within the scope of the Statute.[4] Particularly, the Court states that "a business method is simply one kind of 'method' that is, at least in some circumstances, eligible for patenting under §101."[5] However, the Court points out that "while §273 appears to leave open the possibility of some business method patents, it does not suggest broad patentability of such claimed inventions."[6] Taken as a whole, these passages indicate that Justice Scalia is indeed in favor of recognizing business methods as patentable subject matter.

However, in Justice Breyer's concurring opinion to which Justice Scalia joins, we glean a hint of Scalia's hostility toward business method patents and an apparent inclination to specially restrict their allowability. Particularly, the concurring opinion states that the "useful concrete and tangible result" test introduced in the seminal business method case, State Street Bank, "preceded the granting of patents that 'ranged from somewhat ridiculous to truly absurd.'"[7] Notably, while the examples Justice Breyer cites comprise unusual subject matter, these examples are no less inventive than the myriad of variations on automotive cup holders that one finds allowed routinely. However, the examples make perfect sense if Justice Breyer is referring specifically to the subject matter rather than their inventiveness. Thus, the Supreme Court in Bilski upholds business method patents in a general sense; however, I believe that practitioners must navigate ever more treacherous waters in drafting allowable business method patents. This brings us to the next issue. How does the Bilski case affect patent drafting in business method cases?

Practice Strategy

Following the Supreme Court's Bilski decision, the United States Patent and Trademark Office circulated a memo to the examining corps, which states that examiners are to continue using the machine-or-transformation test. But although it is not to be regarded as the sole test, the memo directs examiners to reject any process claim that does not meet the test unless there is a "clear indication" to the contrary.

Examiners should continue to examine patent applications for compliance 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. If a claimed method meets the machine-or-transformation test, the method is likely patent eligible under section 101 unless there is a clear indication that the method is directed to an abstract idea. 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. (emphasis added).[8]

Certainly, the best strategy is to satisfy the machine-or-transformation test because, in view of this directive, to do otherwise is to venture into uncharted territory.

However, this leaves open the question of what to do in cases that we believe are patentable, but do not satisfy the machine-or-transformation test, i.e. cases that push the limits of patentable subject matter. I think that a good strategy for solving all difficult problems is to start by taking stock of what we know and then synthesizing the known to define the metes and bounds of a creative solution. For instance, we know that the underlying purpose driving the limitation of patent-eligible subject matter is to preserve for all the tools that enable scientific and technological work, and thereby "promote the progress of science and useful arts."[9], [10] Thus, the case law makes exceptions for abstract ideas, laws of nature, and physical phenomena; as a matter of law, these things are not patent-eligible subject matter.[11] We also know that a number of rules and tests have developed in the case law that provide certain guide posts. I think the best strategy we can hope for at this time is to treat the rules and tests that we currently have at our disposal as a laundry list of factors to make patent eligibility determinations based on the totality of the circumstances. To this end, I have assembled such a list here comprised of the following eight factors:

1) Does the claim satisfy the machine-or-transformation test?[12] (Bilski)
2) Would the claim wholly preempt the use of a fundamental principle, mathematical formula or algorithm?[13] (Benson)
3) Is the claim directed to an abstract idea with insignificant post-solution activity?[14] (Flook)
4) Is the claim directed to an abstract idea arbitrarily limited to a particular technological environment?[15] (Flook)
5) Does the claim satisfy the Freeman-Walter-Abele test:
i) Step 1: does the claim recite an algorithm?
ii) Step 2: if so is the algorithm "applied in any manner to physical elements or process steps?"[16]
6) Does the claimed process produce a "useful concrete and tangible result"?[17] (State Street Bank)
7) Would the claim stifle progress in science and the useful arts?[18] (Benson)
8) Is there "a clear indication that the claimed method is not directed to an abstract idea?"[19] (USPTO)

As we have seen in the case law, none of these rules and tests is dispositive by itself, but taken collectively as list of factors, they may provide a convenient tool for assessing the cases that push the bounds of patentable subject matter.

By Dominic A. Frisina JD, MA
Direct: (330)777-0063 x100

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[1] Bilski et al., v. Kappos, 561 US ___ (2010); Slip Op. at 8.
[2] Slip Op. Part III at 13.
[3] Concurring Opinion, pp. 2 ("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.").
[4] Slip. Op. at 11 citing 35 U.S.C. §273(a)(3).
[5] Id.
[6] Id.
[7] State Street Bank & Trust Co. v Signature Financial Group, Inc., 149 F.3d 1368, 1373 (Fed. Cir. 1998) citing In re Bilski, 545 F.3d 943, 1004 (Fed. Cir. 2008).
[8] USPTO internal memorandum (June 2010).
[9] Gottschalk v. Benson, 409 U. S. 63, 67 (1972).
[10] United States Constitution, Art. I, §8.
[11] Id.
[12] Bilski v. Kappos, 561 US __ (2010).
[13] Benson, 409 U. S. 63, 70.
[14] Parker v. Flook, 437 U. S. 584, 588-589 (1978). See also Bilski v. Kappos, Slip Op. at 14 citing Diamond v. Diehr, 450 US 175 at 191-192 ("the prohibition against patenting abstract ideas 'cannot be circumvented by attempting to limit the use of the formula to a particular technological environment' or adding 'insignificant post-solution activity.'")(summarizing Flook, 437 US 584, at 594).
[15] Id.
[16] In re Abele, 684 F.2d 902 (CCPA 1982).
[17] State Street, 149 F. 3d 1368, 1373.
[18] Benson, 409 U. S. 63, 67.
[19] USPTO internal memorandum (June 2010).

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