Choi

By DANIEL CHOI

CINCINNATI -- The patent bar and the broader intellectual property community have been holding their breath since the Supreme Court granted certiorari on June 1, 2009, regarding the case of Bernard Bilski's patent application.

Bilski attempted to patent a business method directed at hedging risk in commodities trading. The Patent Office rejected Bilski's application under 35 U.S.C. § 101 by stating that it was not patentable subject matter. Bilski then appealed all the way to the Supreme Court.

Some opinions predicted that the Supreme Court would directly address the patent eligibility of business methods, while others predicted that software and medical diagnostic applications could be swept up in Bilski's ruling. In the end, the Supreme Court delivered a somewhat patentee-friendly decision that unfortunately provides little guidance on how to evaluate business methods. However, those that think business method patents are safe should step cautiously in formulating an IP strategy.

Overview

When the Federal Circuit rejected Bilski's patent, it established a "machine or transformation" test to determine whether a process meets the requirements of 35 U.S.C. § 101. The test asks whether the claimed process includes a transformation or is directed toward a particular machine. If not, it fails 35 U.S.C. § 101, which states: "Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." The Federal Circuit used the machine or transformation test to reject Bilski's application by stating that Bilski's invention involved neither a transformation nor a machine, thus it did not satisfy § 101.

The Supreme Court explored whether the claimed invention in Bilski met § 101 in addition to whether the Federal Circuit's machine or transformation test should be the sole test for patent eligibility of processes under § 101. The Court decided that rejecting Bilski's application was proper because it was directed to an abstract idea, but that the machine or transformation test was not the sole test for patent eligibility.

Bilski's Method is Still Rejected

While most people that support patent protection of business methods are pleased that the Supreme Court did not explicitly ban the patenting of business method patents, Bilski's business method stands rejected. As a result, we have at least one example of a business method that is unpatentable under 35 U.S.C. § 101.

More will follow Bilski's fate.

In fact, the Patent Office will likely continue to reject applications based on the same reasoning used against Bilski. The Patent Office issued a memorandum on June 28, 2010, essentially directing examiners to use the same machine or transformation test to decide whether a claim in an application meets 35 U.S.C. § 101. If no machine or transformation is involved, then examiners should reject the claims "unless there is a clear indication that the method is not directed to an abstract idea."

Thus, processes that include a machine or transformation will satisfy 35 U.S.C. § 101. For processes that do not, the examiner must take an extra step and determine whether an abstract idea is involved. However, given the lack of guidance on what constitutes an abstract idea, it seems possible that the more defined machine or transformation test could play a bigger role in deciding whether an application meets 35 U.S.C. § 101. As a result, an application's survival under § 101, at least in prosecution, may depend primarily on the machine or transformation test.

No Guidance on What Abstract Idea Means

The bigger issue with the Court's decision in Bilski is the lack of discussion to define an abstract idea. Patent applicants, examiners, judges, and juries will have to ask whether a claimed method is an abstract idea without any meaningful test to guide them. Rather than offering a specific reason that the method in Bilski is an abstract idea, the Court simply asserts that it is. Thus, the message that the Court sends is that not only is Bilski's method unpatentable under 35 U.S.C. § 101, but that it should be unequivocal that Bilski's method is an abstract idea.

Perhaps the Court thinks that Bilski's case is clear, but what about future cases?

Without further help from the Supreme Court or the Federal Circuit, it may be impossible for applicants to determine whether a method is an abstract idea. Hedging commodities, as claimed in Bilski's application seems to fall outside of scope of what might be conventionally considered "abstract" or merely an "idea." Bilski attempted to claim the following:

(a) initiating a series of transactions between said commodity provider and consumers of said commodity wherein said consumers purchase said commodity at a fixed rate based upon historical averages, said fixed rate corresponding to a risk position of said consumers; (b) identifying market participants for said commodity having a counter-risk position to said consumers; and "(c) initiating a series of transactions between said commodity provider and said market participants at a second fixed rate such that said series of market participant transactions balances the risk position of said series of consumer transactions."

Is Bilski's claim abstract? The claim may not be as detailed as it could be, but to consider it "abstract" is a stretch. Even the general idea of hedging is not abstract in the typical sense of the word.

Furthermore, could Bilski's claim be considered merely an "idea"?
In other words, without a test or standard to evaluate methods, we are left to speculate over what constitutes an abstract idea. Bilski's method is one example, but with no standard, we need at least a few examples to determine what courts view as an abstract idea.

What Would a Patentable Business Method Look Like?

Since the Supreme Court rejected the machine or transformation test as the sole test for patent eligibility under 35 U.S.C. § 101, we can assume that the Court thought the test to be inadequate for whether a claim satisfies § 101. The difficult question that Bilski leaves unanswered is: what sort of method would fail the machine or transformation test, yet still be patent-eligible under 35 U.S.C. § 101? Applicants and the public have no clear answers.

If any claimed invention is at risk for failing § 101, methods of hedging without any sort of physical recitations, like the claims in Bilski's application seem to be the most in jeopardy. However, without confirmation through further opinions, determining exactly which business methods satisfy § 101 may be difficult. As far as the Patent Office is concerned, it is possible that deliberation will end with the question of whether a machine or transformation is involved. If the applicant disagrees, then the only recourse may be through a costly appeals process.

As a result, it may be quite a long time before we can define a business method that fails the machine or transformation test yet constitutes patentable subject matter under § 101. And if the Supreme Court's dislike of bright lines in patent cases is any clue, we may never get a definitive answer.

Members of the Court

While the Court did not categorically remove business methods from patent eligibility, members of the current Court would have supported such a move. Justice Stevens's concurrence urges the Court to simply remove patent protection from business methods entirely by essentially asserting that business methods have existed historically without being considered for patent protection. Three other member of the Court, Justices Breyer, Sotomayor, and Ginsburg joined Stevens.

Thus, even though the decision regarding patentability of Bilski's claims was unanimous, the debate over whether business methods should be patentable at all remains contentious. Any future changes in the composition of the Court, particularly among Justices that oppose Stevens's position, should be carefully noted. The Court has been fairly active in the area of patent law, so to the extent that one cares about the patentability of business methods as well as potentially other technologies related to business methods, the makeup of the Court will play a key role in future decisions.

What This Means for Business

For patent applicants that wish to protect business methods, Bilski turned out to be a more pro-patent case than most would have thought. The Court did not address the patentability of software, nor did the Court touch medical diagnostic tests. The Court also refused to eliminate business method patents entirely, though it had no issue of disposing of Bilski's application.

For businesses and inventors that hold patents similar to Bilski's, it may be worth evaluating if they could withstand a review under the machine or transformation test along with whether the patented invention covers only abstract ideas, at least according to our vague understanding of what the courts find to be an abstract idea. Weaknesses under § 101 could arise in later litigation.

For businesses and inventors considering patent protection for business methods, the Patent Office may be more willing to reject claims on § 101 grounds than before. Therefore, one strategy might be to include claims that would likely pass the machine or transformation test. While applicants will have a variety of strategies or reasons of prosecuting an application, in light of Bilski and the Patent Office's policies regarding § 101, prosecution may be easier if the claimed invention passes the machine or transformation test as far as patentable subject matter is concerned.

Choi is an attorney for Frost Brown Todd in Cincinnati. The firm also has an office in Charleston.

More News