Final Decision in June 2010: Bilski Application – an Abstract Concept

(IPRinfo 4/2010)

Rosa Maria Ballardini
Researcher, HANKEN School of Economics & INNOCENT Graduate School, IPR University Center.

The long awaited US Supreme Court decision on the standard of business methods patents In Re Bilski was finally handed down on June 28, 2010. Even though this particular patent application was rejected, the Court confirmed that business methods are patentable subject matter in the US.

The majority opinion was drafted by Justice Kennedy. One could say that the decision was uniquely and strangely brief, 71 pages, for such an important case.

Firstly, it should be stressed that the Court clarified from the beginning that it was not ”commenting on the patentability of any particular invention”. The Court also recognizes that the Information Age raises new difficulties for the application of patent law and, thus, ”patent law faces new challenges in striking the balance between protecting inventors and not granting monopolies over procedures that others would discover by independent, creative application of general principles”.

After a brief introduction to the case, the Court goes on to address the interpretation of Section 101 of the Patent Act, which identifies four patent-eligible categories: process, machine, manufacture, and composition of matters.

The Bilski case clearly falls under the category of ”process”. Specifically, two categorical limitations of ”process” patents are then considered by the Court: a) the ”machine-or-transformation” test, and b) the exclusion of business methods patents.

Not solely the Machine or Transformation Test
On the ”machine-or-transformation” test, Justice Kennedy disagrees with the Court of Appeal on that such a test should be considered the sole parameter to be followed when assessing patentability. Specifically, courts ”should not read into the patent laws limitations and conditions which the legislature has not expressed”.

It is clear that some well-established limitations to patentability are present in the system. These include laws of nature, physical phenomena, and abstract ideas. The existence of these exclusions, however, does not empower courts to create limitations which are inconsistent with the statute’s purpose and design.

On Kennedy’s opinion, establishing that the ”machine-or-transformation” is the sole test for what constitute patentable process violates these statutory principles and thus constitutes an illegitimate limitation.

Additionally, Kennedy stresses how in patent law, as in any other kind of law, ”words should be interpreted as taking their ordinary, contemporary, common meaning”. On these bases, the Court considers the application of the ”machine-or-transformation” test as highly questionable for a contemporary interpretation of the word ”process”.

Following these key points, the Supreme Court ruled that, although the ”machine or transformation” test can be a ”useful and important clue, and investigative tool for determining whether some claimed inventions are processes under Section 101”, it would be wrong to hold it as the sole test for process patentability.

Even if in the past it might have been true that processes which did not satisfy this test were not patent eligible, this same rule might not be valid in the current environment, where instead, unforeseen innovations might not satisfy such a test, but still be patentable.

Categorical exclusion not acceptable
Referring to the statutory definition of the word ”method”, the Court makes it clear that a categorical exclusion of business methods from patent law is not acceptable.

Under section 100(b) the definition of ”method” includes ”a process”, and processes might clearly include also some methods of doing business. To stress this point, Justice Kennedy refers to Sections 273(a)3 and 273(b)1, which define methods as ”method of doing or conducting business”.

Even though the interpretation of these provisions might be highly unclear, it is evident that the statute does not categorically exclude business methods from patentability. In other words, the ”machine or transformation” test will still continue to be used for assessing patentability, even though it will not be considered as the sole parameter for decisions.

Conclusion: Bilski application was an abstract concept
After having stated those general principles, the Court went to the specific matter of the dispute: the Bilski application.
Did the Bilski application satisfy the requirement of patentable ”process”? Under the Supreme Court’s opinion it did not. Citing its precedents in Benson, Flook, and Dhier, the Court affirmed that the Bilski application was nothing more than a ”concept” for hedging risks reducing to a mathematical formula. In other words, it was but an abstract idea as such unpatentable subject matter.

The SC Decision was not fully unanonymous
Three of the SC judges joined the decision in full, two wrote concurring opinions, in which the four other judges partly joined. Justice Stevens’ lengthy concurring opinion was joined by three other judges. He agreed that the ”machine or transformation” test was ”not the exclusive test.”

However, he argued that the Court should ”restore patent law to its historical and constitutional moorings” by declaring that ”methods of doing business are not, in themselves, covered by the statute.”

Justice Bayer’s opinion agrees with Justice Stevens that ”business methods” are not patentable. Additionally, he highlights four points that he finds consistent with both the major opinion and Justice Steven’s concurring opinion:
1) Although Section 101 of the Patent Act is ”broad”, it clearly possesses certain exclusions: phenomena of nature, mental processes, and abstract intellectual concepts;
2) The ”machine or transformation” test has repeatedly been a useful tool to help the Court to determine what is a patentable ”process”;
3) The ”machine or transformation” test has never been the ”sole test”;
4) The State Street Bank ”useful, concrete, and tangible result” test is unsupported by the Supreme Court authority.

Finally, the repudiation of the State Street ”useful, concrete and tangible” test, reflected the views of at least five Justices.

Thus, this can be regarded as the holding of the Court.

The door to patent eligibility remains broad
In this important decision the Supreme Court re-affirmed that the door to patent eligibility should remain broad and open. Even though the application in question was rejected, in fact, the Court clearly declined to impose any specific limitation on the US Patent Act’s text.

In general, the opinion left many with empty hands as it did not bring the clarifications expected: the Supreme Court did not offer any additional help for determining whether a particular innovation should fall within Section 101 and it did not add any new interpretative line on the highly controversial issue of business methods patentability.

The Supreme Court of the United States, June 28, 2010, No. 08-964. Bilski et al. v. Kappos. The opinion is available on the SC web site:
http://www.supremecourt.gov/opinions/09pdf/08-964.pdf

In IPRinfo 2/2009 Rosa Maria Ballardini commented on the CAFC decision on Bilski case ”Business Method Patents in the US – In re Bilski”

The history of the Bilski application
In Re Bilski referred to a patent application (filed in 1997) on ”Capped bills systems, methods and products”. The USPTO and the Board of Patent Appeal and Interfaces (BPAI), as well as the Court of Appeal for the Federal Circuit (CAFC) all had agreed that the invention was not patentable on the grounds that it was not implemented into a machine or apparatus and was, thus, but a method for solving a mathematical formula.
Remarkably, in a decision en banc, the CAFC rejected the test that had been used till then to assess patentability of a ”process” under Section 101 of the Patent Act, namely the ”useful, concrete, and tangible result” test, and put forward a new and sole test: the ”machine or transformation” test.
According to the new test, to be patent eligible, a process must be tied to a particular machine or apparatus, or it must transform a particular article into a different state or thing. The court concluded that the Bilski application did not satisfy the test’s requirements and was thus unpatentable.
Finally, Bilski was granted a writ of certiorari by the Supreme Court. The oral arguments took place in October 2009 and the final decision came out in June 2010.