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Supreme Court Hits Reset Button

June 28, 2010

The Supreme Court Bilski decision finally came down today.  It threw out the rigid machine or transformation test, but did not really provide much guidance for what analysis should take its place.  Basically the Supreme Court hit the reset button to before 1998 and told the Federal Circuit to start over with its Section 101 analysis paying more attention to the three 1970s Supreme Court cases of Benson, Flook, and Diehr (“Rather than adopting categorical rules that might have wide-ranging and unforeseen impacts, the Court resolves this case narrowly on the basis of this Court’s decisions in Benson, Flook, and Diehr. . . . Nothing in today’s opinion should be read as endorsing interpretations of § 101 that the Court of Appeals for the Federal Circuit has used in the past.  See, e.g., State Street. . . . In disapproving an exclusive machine-or-transformation test, we by no means foreclose the Federal Circuit’s development of other limiting criteria that further the purpose of the Patent Act and are not inconsistent with its text.”).

Business Methods Still Eligible for Patent Protection

The Supreme Court ruled that methods of doing business may be patented, if they meet the appropriate standards of the Patent Act.  The Court struck down the rigid “machine or transformation” test as the exclusive test for patent eligible subject matter.  Instead, the Supreme Court relied on its own earlier rulings that found processes to be eligible for patent consideration as long as they are not directed to a law of nature, mathematical formula, or an abstract idea.  The Court noted that the machine or transformation test can be helpful in determining whether subject matter is eligible for patent protection, but it should not be relied upon as the exclusive test.

The Supreme Court did not provide significant guidance in how to determine whether a claimed process is a law of nature, mathematical formula, or abstract idea.  Therefore, the case is likely to create some short-term uncertainty about the scope of patentable subject matter.  However, it is a more patent-friendly standard than the rigid machine or transformation test it overturned.

Supreme Court Analysis

In its opinion, the Court first determined that the machine or transformation test should not be the exclusive test for whether claims are directed to a “process” within the meaning of Section 101, which limits patents to “any new and useful process, machine, manufacture, or composition of matter.”  In particular, the Court found such a limited test to be inconsistent with Section 100(b) of the Patent Act that defines “process” to mean “process, art or method.”  The Court did note that the machine or transformation test is a “useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under Section 101.”

The Court next determined that business method patents are permitted under the Patent Act.  The plain language of the Patent Act does not include any limitations that would exclude methods of doing business as appropriate subject matter for patenting.  The Court further found that not permitting any business method patents would render section 273 of the Patent Act (which limits damages in certain cases where the claimed invention is a method of doing or conducting business)  superfluous.

Finally, the Court applied the holdings of its earlier cases and determined that the claims at issue in this particular patent application are directed to an abstract idea, stating “allowing petitioners to patent risk hedging would preempt use of this approach in all fields, and would effectively grant a monopoly over an abstract idea.”  Therefore, all of the claims in question were found to be not eligible for patent protection.

Justice Stevens’s Concurrence

Justice Stevens, joined by three other justices, wrote a concurrence in the result that disagreed with the analysis.  Most importantly, Justice Stevens would have adopted a rule that business methods are not appropriate subject matter based on the history of the Patent Act.  Justice Stevens was also critical of the lack of guidance provided by the Court’s opinion stating:  “The Court never provides a satisfying account of what constitutes an unpatentable abstract idea. . . . The Court essentially asserts its conclusion that petitioners’ application claims an abstract idea.  This mode of analysis (or lack thereof) may have led to the correct outcome in this case, but it also means that the Court’s musing on this issue stand for very little.”

What Now?

It is clear that the machine or transformation test is not the exclusive test for patent eligible subject matter.  The touchstone for patent eligible subject matter appears to be whether the claims are directed to an abstract idea, law of nature, or mathematical formula.  However, all of the Justices acknowledged that the machine or transformation test is still a valuable tool for making this determination.  A key factor for determining that an invention is directed to an abstract idea appears to be whether the claims would preempt use of an approach in all fields.  The lower courts and the Patent Office will be left to figure out what other tests might be appropriate.

Therefore, for issued patents that fail the machine or transformation test, all is not necessarily lost.  The patent owners still have a chance to show that the claimed invention is not directed to an abstract idea, law of nature, or mathematical formula.  How that can be accomplished is a little unclear at this point.  It will bear watching the courts and the Patent Office to see what other tests might be used to establish appropriate patent eligible subject matter.  For new applications, it would be best to try to include claims that satisfy the machine or transformation test, if possible.

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