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[Posted on July 27, 2010]

Bilski v. Kappos

Introduction

In December, 2009, I posted a blog discussing a highly visible patent law case concerning business method patents. (see In re Bilski: Altering the Landscape of Subject Matter Eligibility for Process Patents). This case was appealed to the U.S. Supreme Court where oral arguments were heard last year.1 After an unusually lengthy period of time following oral arguments, possibly precipitated by a multitude of amicus briefs2 that were filed by various interest groups, the Court recently released its opinion, upholding the verdict – but rejecting the reasoning – of the Court of Appeals for the Federal Circuit (CAFC).

The case concerned the first requirement for patentability, that is, that the scope of the invention must cover patentable subject matter. The CAFC rejected a number of tests that had been used in previous cases to determine subject matter eligibility for process (a.k.a. method) patents (most notably the State Street "useful, concrete, and tangible results" test3). Rather, the court selected the "machine-or-transformation" test4 as the sole criterion to apply. The Supreme Court noted that this test may be a useful or important clue or an investigative tool to determine subject matter eligibility; however, it is not the sole test to be used to evaluate whether an invention is a patent-eligible process.5 The Court rejected the claims at issue under the reasoning that they covered an unpatentable abstract idea of risk hedging.

Essentially, the Supreme Court decision nullifies the change that the CAFC made to the subject matter eligibility doctrine. Also, in my opinion, the Court provided a bit of clarification in this area by adopting the approach that I suggested in my previous blog. There, I noted that the CAFC based most of its reasoning on preventing the preemption of a fundamental principle (or abstract idea), and should have rejected the claims based on that reasoning rather than singling out one particular test, the application of which may be unclear in future cases.

Discussion

The Supreme Court addressed two primary issues in the case: whether to preclude all business methods as ineligible for patent protection, and whether the machine-or-transformation test should be the exclusive test to apply for method patents.

First, the Court rejected the proposition that all business methods should be precluded from patent protection, noting that "ingenuity should receive liberal encouragement,"6 and identifying a statutory provision that indirectly recognized the existence of business method patents. There is nothing in the law that calls for an outright denial of patenting of business methods as long as they are not claiming "laws of nature, physical phenomena, and abstract ideas."

Next, the Court considered the potential exclusivity of the machine-or-transformation test. The trilogy7 of subject matter cases were discussed: Benson, which stands for the proposition that an abstract idea cannot be patented; Flook, holding that insignificant post-solution activity cannot transform an abstract idea into a patentable one; and Diehr, stating that the invention needs to be considered as a whole and, therefore, a specific application of an abstract idea may be patentable even though the idea itself is not. The Court noted that Benson and Flook both contemplated valid method patents that did not necessarily meet the machine-or-transformation test. Therefore, the CAFC’s reading of Supreme Court precedent, supposedly requiring the use of this test, was incorrect.

Moreover, an exclusive use of the machine-or-transformation test is misguided. The Court recognized that, historically, inventions not meeting this test were rarely granted. "But times change." Computer programs, for instance, commonly the subject of contemporary patent protection, would almost all be ineligible under this construct. Uncertainty would also occur in the fields of advanced diagnostic medical techniques, and inventions based on linear programming, data compression, and the manipulation of digital signals.

The Court found that a more appropriate response is to maintain flexibility in subject matter analysis that could be applied to emerging technologies as necessary. At the same time, a high bar must be set for this type of patent protection in order to avoid the preclusion of technological development in new fields of endeavor.

Ultimately, the Court chose the Benson/Flook/Diehr doctrines of non-patentable abstract ideas as the limiting principle for subject matter patentability. The immediate case was resolved on that principle. Hedging risk was found to be a "fundamental economic practice," and other claims dependent on the risk-hedging claim were found to do no more than add insignificant post-solution activity. Therefore, all of the claims at issue were knocked out as attempts to patent an abstract idea.

Again, in my opinion, the Supreme Court came to a sensible resolution of this case. Whatever the test employed, the primary consideration of whether a particular subject matter is eligible for patent protection seems to be based upon whether the claim is directed to an abstract idea. Patenting of abstract ideas is problematic because it could remove basic building blocks from the public domain, effectively precluding their use by others and quelling future technological development. This is contrary to the goal of the patent system, which is to promote and incentivize technological development. While some degree of protection is necessary to create the requisite incentives, courts must be careful not to push so far in that direction that they stifle further progress. The development of a single, specific test based on this principle is insufficient to handle a wide variety of patentable technologies, so each needs to be evaluated on its own merits.

In conclusion, we can still expect the machine-or-transformation test to play an important role in many subject matter patent eligibility determinations. However, State Street lives on, as does a flexible abstract idea based analysis for determining patentability. Superficially, this flexible approach may seem to introduce a high degree of ambiguity; however in reality, the ill-defined boundaries of the machine-or-transformation test, as applied to certain technologies, would likely be even less clear for reasons that are identified in my earlier article. At the end of the day however, even given the Supreme Court's decision, we may not be quite back to business as usual. The lower court Bilski decision will still wield influence in the subject matter patentability arena. The extent of that influence will be determined through future courtroom decisions.

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1 Formerly known as in re Bilski, the director of the U.S. Patent & Trademark Office, David Kappos, was listed as a party to the suit upon appeal to the U.S. Supreme Court.

2 Amicus (or "friend of the court") briefs are often issued in notable cases by third parties who are interested in the outcome of a case and the potential precedent that it may set but have no direct interest in the immediate proceedings.

3 State St. Bank & Trust Co. v. Signature Fin. Group, 149 F.3d 1368 (1998).

4 This states that a process has the proper subject matter for patent eligibility if (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. The CAFC specifically rejected the State Street test, among others.

5 The Court recognized that new rules for determining patentability may be developed in future cases, but explicitly declined to endorse any of them, including State Street.

6 quoting Thomas Jefferson, first director of the U.S. Patent Office.

7 Gottschalk v. Benson, 409 U.S. 63 (1972); Parker v. Flook, 437 U.S. 584 (1978); Diamond v. Diehr, 450 U.S. 175 (1981).

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