Supreme Court Leaves Patent Eligibility Questions Unanswered in Bilski Decision

June 30, 2010

Ending a lengthy period of deliberation, the U.S. Supreme Court on June 28, 2010, issued its long-awaited decision in Bilski v. Kappos, an appeal from a U.S. Patent and Trademark Office decision to deny a patent to applicants Bilski et al. on a “business method” invention.

The Supreme Court appeared to have little difficulty deciding the case as it pertained to the particular facts surrounding Bilski et al.’s patent application (relating to commodities trading and hedging), agreeing unanimously (9-0) that the particular invention at issue was not patent eligible under §101 of the patent statute. However, the Court was more fractured, and more cautious, about further defining the criteria for deciding whether an invention was patent-eligible under the patent statute.

In an opinion written by Justice Kennedy, five justices agreed that the Federal Circuit’s “machine-or-transformation” test was an important test for evaluating whether process inventions are patent eligible, but refused to hold that it was the exclusive test.

Under the [Federal Circuit] Court of Appeals’ formulation, an invention is a “process” only if: “(1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing.” 545 F. 3d, at 954. This Court has “more than once cautioned that courts ‘should not read into the patent laws limitations and conditions which the legislature has not expressed.’” Diamond v. Diehr, 450 U. S. 175, 182 (1981) (quoting Chakrabarty, supra, at 308; some internal quotation marks omitted). … Adopting the machine-or-transformation test as the sole test for what constitutes a “process” (as opposed to just an important and useful clue) violates these statutory interpretation principles.”

Referring to the portion of the statute that specifies that processes are patent eligible subject matter, Justice Kennedy’s opinion states, “Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods.” However, Justice Kennedy’s opinion also carefully avoided announcing any particular criteria, other than the machine-or-transformation test, by which a process patent, including a so-called “business method,” would be adjudged patent eligible. “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, which show that petitioners’ claims are not patentable processes because they are attempts to patent abstract ideas.” Relying on these and other precedents, including Diamond v. Chakrabarty, 447 U.S. 303 (1980), the Court confirmed that laws of nature, physical phenomena, and abstract ideas are “three specific exceptions to §101’s broad patent-eligibility principles, but its Bilski opinion did not shed much additional light on the scope and breadth of these exceptions. “The concept of hedging, described in claim 1 and reduced to a mathematical formula in claim 4, is an unpatentable abstract idea, just like the algorithms at issue in Benson and Flook.”

In a much more lengthy concurring opinion written by retiring Justice Stevens, four justices agreed that Bilski et al.’s invention was not patent eligible, and opined that business methods as a class were not entitled to patent protection. Justice Stevens’ opinion reiterated that the machine-or-transformation test” should not be considered the exclusive test of what constitutes a patent-eligible process, but differed from the majority opinion as to how to analyze business method claims:

I agree with the Court that, in light of the uncertainty that currently pervades this field, it is prudent to provide further guidance. But I would take a different approach. Rather than making any broad statements about how to define the term “process” in §101 or tinkering with the bounds of the category of unpatentable, abstract ideas, I would restore patent law to its historical and constitutional moorings.

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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. More precisely, although a process is not patent-ineligible simply because it is useful for conducting business, a claim that merely describes a method of doing business does not qualify as a “process” under §101.

Thus, while there is disagreement amongst the nine justices whether business methods as a class are per se patent-ineligible under §101, the justices were unanimous that Bilski’s invention, claimed in a manner which failed the machine-or-transformation test, was not patent eligible. And while there was agreement amongst the justices that the machine-or-transformation test should not be viewed as an exclusive test for evaluating patent-eligibility of process claims, there was no clear statement of what processes that fail this test would, nonetheless, be patent eligible under §101.

On June 29, one day after issuing its Bilski opinion, the Supreme Court granted two petitions for writ of certiorari in two biotechnology cases that raise questions of patent eligibility under §101, Classen Immunotherapies, Inc. v. Biogen IDEC, 304 Fed. Appx. 866 (Fed. Cir. 2008); and Mayo Collaborative Servs. v. Prometheus Labs., Inc., 581 F.3d 1336 (Fed. Cir. 2009)). However, rather than agreeing to review these cases, the Supreme Court vacated the Federal Circuit’s judgments in these cases and remanded both cases back to the Federal Circuit for further consideration in light of the Supreme Court’s Bilski opinion. The Supreme Court also denied cert. in the case of Ferguson et al. v. U.S. Patent and Trademark Office, another appeal from a PTO decision to deny patent protection for a business method invention on §101 grounds. The PTO’s basis for rejecting Ferguson’s application was that it failed the machine or transformation test and was directed to an abstract idea that would preempt any application of that idea by others. In view of these developments, it may be some time before the Supreme Court provides greater clarity on the issue of patent eligible processes.

In the meantime, patent practitioners will study the decision to determine its effects on innovation, the procurement of new patents and the enforcement of existing patents.

For more information, please contact Mr. Gass or your attorney at 312.474.6300.

This alert is intended to be informative and should not be construed as legal advice for any specific fact situation. Readers should not act upon the information presented without consulting professional legal counsel.©2010 Marshall, Gerstein & Borun LLP. All rights reserved.