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Business Method Patents and Patent-Eligible Subject Matter Update: U.S. Supreme Court to Hear Bilski v. Doll

Intellectual Property Update

June 1, 2009

The state of business method patents and what is considered patent-eligible subject matter will now be addressed by the U.S. Supreme Court. The Court surprised many by announcing today that it will hear Bilski v. Doll, No. 08-964, on appeal from the Court of Appeals for the Federal Circuit (see In re Bilski, No. 2007-1130 (Fed.Cir. Oct. 30, 2008) (en banc)). Indeed, the U.S. Solicitor General recommended that the U.S. Supreme Court not hear In re Bilski on appeal (see our Client Alert of November 7, 2008). It has been almost 30 years since the U.S. Supreme Court last addressed what constitutes patent-eligible subject matter (see Diamond v. Diehr, 450 U.S. 175 (1981)), and technology has changed significantly since then. 

The Federal Circuit in In re Bilski held that business method claims, and indeed all process claims, are subject to the same legal requirements for patentability as applied to any other process or method, and expressly reaffirmed the validity of business method and software patents. The Federal Circuit ruled that business method claims related to a method of hedging risk in commodities trading were not patent-eligible subject matter under 35 U.S.C. §101. It followed the "machine-or-transformation" test for patentability, which it said was first articulated by the U.S. Supreme Court in Gottschalk v. Benson, 409 U.S. 63 (1972) and later reaffirmed in Diamond v. Diehr, 450 U.S. 175 (1981).  Under this test, the Federal Circuit concluded that the business method claims in In re Bilski were not patent-eligible subject matter because they were not tied to a machine and nothing was transformed. This decision by the Federal Circuit, in turn, has since been followed by several lower courts to invalidate claims of several business method related patents and has increased scrutiny of business method claims in patent applications pending before the United States Patent and Trademark Office. These lower court cases, however, may have new life, or at least a postponement of finality, in wake of the U.S. Supreme Court's decision to hear Bilski v. Doll

The questions presented to the U.S. Supreme Court on appeal are:

  1. Whether the Federal Circuit erred by holding that a “process” must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (“machine-or-transformation” test), to be eligible for patenting under 35 U.S.C. § 101, despite this Court’s precedent declining to limit the broad statutory grant of patent eligibility for “any” new and useful process beyond excluding patents for “laws of nature, physical phenomena, and abstract ideas.”
  2. Whether the Federal Circuit’s “machine-or-transformation” test for patent eligibility, which effectively forecloses meaningful patent protection to many business methods, contradicts the clear Congressional intent that patents protect “method[s] of doing or conducting business.” 35 U.S.C. § 273.

The case is expected to be briefed over the next few months and argued this fall, meaning a decision is not likely from the Court until the winter of 2009-2010. As the majority opinion in In re Bilski unquestionably was written in an attempt to square what the Federal Circuit understood to be the law for patent-eligible subject matter with U.S. Supreme Court precedent, the U.S. Supreme Court's decision to grant certiorari gives some preliminary indication that at least some Justices believe the Federal Circuit still may not have interpreted the previous decisions correctly. Many entities throughout the high technology, financial and medical industries particularly await a more definitive outcome in this case.

Absent extensions, which are likely, amicus briefs in support of petitioners, who seek broader patent protection for business methods, will be due on July 23, and amicus briefs in support of respondent will be due on August 24.