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In re Bilski: Supreme Court Clips Wings of Business Method Patents, but Still Lets Them Fly

While it is not surprising that the Supreme Court affirmed the result in Bilski, it is somewhat surprising (at least to this commentator) that it held that business methods were candidates for patent protection so long as they did not fall within the well established existing judicially created exceptions to patent eligibility “for laws of nature, physical phenomena, and abstract ideas.”  Moreover, the Court held that Section 101 was a “dynamic provision” and not limiting the scope of subject matter that may be patented other than the well established exceptions.

All in all, this is an expansive decision for patentable subject matter and casts doubt on a few of the Federal Circuit’s more recent decisions, In re Nuijten being one of them.

Key holdings of the Court include:

1) The method of hedging risk claimed in Bilski is not a “process” under §101.  The concept of hedging risk and the application of that concept to energy markets are not patentable processes but attempts to patent abstract ideas. 

2) However, business methods are not categorically outside the scope of Section 101.

3) The machine-or-transformation test is not the sole test for patent eligibility under §101.  Section 101 is a dynamic provision and should be read broadly.  As such, although the machine-or-transformation test may be a useful and important clue or investigative tool, it is not the sole test for deciding whether an invention is a patent-eligible “process” under §101.  In holding to the contrary, the Federal Circuit violated two principles of statutory interpretation: 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, and, “[u]nless otherwise defined, ‘words will be interpreted as taking their ordinary, contemporary, common meaning,’ ” ibid. The Court is unaware of any ordinary, contemporary, common meaning of “process” that would require it to be tied to a machine or the transformation of an article.  U. S. 124, 130, and nothing about the section’s inclusion of those other categories suggests that a “process” must be tied to one of them.

4) Nothing in the opinion should be read as endorsing the Federal Circuit’s past interpretations of §101  (e.g., State Street, 49 F. 3d, at 1373), leaving past precedent with little weight going forward.

Interesting Excerpts from the opinion:

“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. Section 100(b) provides that “[t]he term ‘process’ means process, art or method, and includes a new use of a known process, machine, manufacture, composition of matter, or material.”  The Court is unaware of any “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of the definitional terms “process, art or method” that would require these terms to be tied to a machine or to transform an article. ”

“This Court’s precedents establish 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. The machine-or-transformation test is not the sole test for deciding whether an invention is a patent-eligible “process.” F. 3d, at 966–976 (concurring opinion). But times change. Technology and other innovations progress in unexpected ways. For example, it was once forcefully argued that until recent times, “well-established principles of patent law probably would have prevented the issuance of a valid patent on almost any conceivable computer program.” Diehr, 450 U. S., at 195 (STEVENS, J., dissenting). But this fact does not mean that unforeseen innovations such as computer programs are always unpatentable.  See id., at 192–193 (majority opinion) (holding a procedure for molding rubber that included a computer program iswithin patentable subject matter).  Section 101 is a “dynamic provision designed to encompass new and unforeseen inventions.” J. E. M. Ag Supply, Inc. v. Pioneer Hi-Bred Int’l, Inc., 534 U. S. 124, 135 (2001).  A categorical rule denying patent protection for “inventions in areas not contemplated by Congress . . . would frustrate the purposes of the patent law.”  Chakrabarty, 447 U. S., at 315.” (emphasis added)

“Section 101 similarly precludes the broad contention that the term “process” categorically excludes business methods. The term “method,” which is within §100(b)’sdefinition of “process,” at least as a textual matter and before consulting other limitations in the Patent Act and this Court’s precedents, may include at least some methods of doing business. See, e.g., Webster’s New International Dictionary 1548 (2d ed. 1954) (defining “method” as“[a]n orderly procedure or process . . . regular way or manner of doing anything; hence, a set form of procedure adopted in investigation or instruction”).  The Court is unaware of any argument that the “‘ordinary, contemporary, common meaning,’” Diehr, supra, at 182, of “method” excludes business methods. Nor is it clear how far a prohibition on business method patents would reach, and whether it would exclude technologies for conducting a business more efficiently.  See, e.g.,Hall, Business and Financial Method Patents, Innovation, and Policy, 56 Scottish J. Pol. Econ. 443, 445 (2009)  (“There is no precise definition of . . .  business method patents”).  . . .  The argument that business methods are categorically outside of §101’s scope is further undermined by the fact that federal law explicitly contemplates the existence of at least some business method patents.  Under 35 U. S. C. §273(b)(1), if a patent-holder claims infringement based on“a method in [a] patent,” the alleged infringer can assert adefense of prior use.  For purposes of this defense alone, “method” is defined as “a method of doing or conductingbusiness.” §273(a)(3). In other words, by allowing this defense the statute itself acknowledges that there may bebusiness method patents.  Section 273’s definition of “method,” to be sure, cannot change the meaning of a prior-enacted statute.  But what §273 does is clarify the understanding that a business method is simply one kindof “method” that is, at least in some circumstances, eligible for patenting under §101.”

“In searching for a limiting principle, this Court’s precedents on the unpatentability of abstract ideas provide useful tools. See infra, at 12–15. Indeed, if the Court of Appeals were to succeed in defining a narrower category or class of patent applications that claim to instruct how business should be conducted, and then rule that the category is unpatentable because, for instance, it represents an attempt to patent abstract ideas, this conclusion might well be in accord with controlling precedent. See ibid.  But beyond this or some other limitation consistentwith the statutory text, the Patent Act leaves open thepossibility that there are at least some processes that can be fairly described as business methods that are withinpatentable subject matter under §101.”

“In light of these precedents, it is clear that petitioners’ application is not a patentable “process.”  Claims 1 and 4 in petitioners’ application explain the basic concept of hedging, or protecting against risk: “Hedging is a fundamental economic practice long prevalent in our system of commerce and taught in any introductory finance class.” . . . 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. 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.”

“Today, the Court once again declines to impose limitations on the Patent Act that are inconsistent with the Act’s text. The patent application here can be rejected under our precedents on the unpatentability of abstract ideas.The Court, therefore, need not define further what constitutes a patentable “process,” beyond pointing to the definition of that term provided in §100(b) and looking to the guideposts in Benson, Flook, and Diehr. And 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, 149 F. 3d, at 1373; AT&T Corp., 172 F. 3d, at 1357. It may be that the Court of Appeals thought it needed tomake the machine-or-transformation test exclusive precisely because its case law had not adequately identifiedless extreme means of restricting business method patents, including (but not limited to) application of our opinions in Benson, Flook, and Diehr. 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 purposes of the Patent Actand are not inconsistent with its text. The judgment of the Court of Appeals is affirmed.”

Bilski Decision

Principal & Chief Innovation Officer

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