COJK’s Take on Bilski

Here’s the client alert that my firm is sending out for Bilski, hot off the presses!

Today the U.S. Supreme Court released its long-awaited decision in Bilski v. Kappos, a case that was expected to have wide-reaching impact in deciding the bounds of patentable subject matter, especially with regard to patents relating to business methods and software.  The Court affirmed that business methods and software are eligible for patent protection unless they are written to cover “laws of nature, physical phenomena, and abstract ideas.”  The Court held that the ‘machine-or-transformation’ test used by the Court of Appeals for the Federal Circuit is not the only test for determining patent eligibility. The decision appears to preserve the status quo and leaves the door open for patents directed to software and business methods.

The claims of the Bilski patent application are directed to a business method relating to hedging risk in the energy market.  Previously, the Federal Circuit held that the claims of the Bilski application were not eligible for patent protection, stating that a claim to a process must either (1) be tied to a particular machine or apparatus, or (2) transform a particular article into a different state or thing.  The Federal Circuit held that this “machine-or-transformation test” was the sole test for determining patent eligibility of a process.

In an opinion written by Justice Kennedy, the Supreme Court agreed, as expected, that the claims of the Bilski application are not patent-eligible subject matter.  In interpreting Section 101 of the U.S. patent laws, the Court held that “the machine-or-transformation test is a useful and important clue, an investigative tool, for determining whether some claimed inventions are processes under § 101,” but that the test is “not the sole test for deciding whether an invention is a patent-eligible ‘process.'”  The Court also held that “Section 101 similarly precludes the broad contention that the term ‘process’ categorically excludes business methods.”

While the Supreme Court left open the door to patent eligibility, it did little to clarify how to pass through that door.  Today’s opinion referred to legal principles given by the Court in its previous decisions in Benson, Flook, and Diehr.  Claims to software or business methods that do not pass the machine-or-transformation test may nevertheless be eligible for patent protection if an argument for patent eligibility can be made under those principles.  Nevertheless, it remains unclear exactly where the line is drawn.

In sum, it appears that the Supreme Court passed on the opportunity to make any large change in the patentability of software or business methods.  For software companies and other entities involved with patents in this area, this opinion appears to preserve the status quo.

A lot of the internal debate centered around whether the machine-or-transformation test is actually valid anymore. The Court never explicitly came out and said that it shouldn’t be used any more, but they did obliquely state that it is “atextual” and “not the sole test.”

It seems to me that, going forward, you can only rely on it to a point. An Examiner can reject a claim that passes the test, or allow a claim that doesn’t pass the test, so long as there is a compelling reason against or for the claim covering more than an abstract idea. If you’re fighting a rejection based on a failure to pass the test, arguing that it is or is not an abstract idea might be the way to go, even though crafting such an argument seems to be more than a little abstract in itself.