On June 28, the U.S. Supreme Court issued a highly anticipated opinion regarding the type of innovation that is eligible for patent protection.

In the case Bilski v. Kappos, the court held that a method for hedging, or minimizing, risk in commodities trading was not patent-eligible – meaning that the method could not be patented even if it were novel and unobvious.

While this particular method of conducting business was found to be ineligible for patent protection, the court did not rule that all business methods are unpatentable.

U.S. patent law defines patent-eligible subject matter as “any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof.”

It has long been accepted that Congress intended that these statutory categories be given wide scope; indeed, it has been said that statutory subject matter should “include anything under the sun that is made by man.”

Even so, there are limits on what is patent-eligible subject matter.

Supreme Court precedents going back more than 100 years clearly establish that laws of nature, physical phenomena and abstract ideas are not eligible to be patented. For example, Einstein could have not patented his celebrated law that E=mc², regardless of how revolutionary the concept was.

Business methods, as opposed to industrial processes, historically did not employ technology and were infrequently considered for patent protection.

Before the computer age, the rare patent application for a business method was typically looked upon unfavorably by the Patent Office.

However, with the development of computer technology — and particularly the Internet — many business methods are now implemented on computer systems, leading to an increase in the number of patent applications being filed for business methods.

These include methods relating to financial calculations, tax strategies and e-commerce, among others.

Many people argued that such business methods are not appropriate for patent protection. However, a federal appellate court held in 1998 that there was no business method exception, and business methods should be subject to the same legal requirements for patentability as applied to any other method.

Filings of business method patent applications increased dramatically after this ruling, but business method patents have remained controversial.

In the Bilski decision, the Supreme Court reaffirmed that business methods are not categorically excluded as patent-eligible subject matter. The method of hedging risk at issue in this case was ruled to be ineligible for patent protection because it was an abstract idea. Thus, a business method can comprise patent-eligible subject matter as long as it is more than a mere “abstract idea.”

The Bilski decision provides little guidance for determining if a patent claim is an abstract idea, but prior case law sheds some light on evaluating abstract ideas.

One useful tool for determining whether a business method is an abstract idea is the so-called “machine-or-transformation” test.

The court ruled in Bilski that the machine-or-transformation test was not the sole test for determining whether a process is patent-eligible but could be a useful and important clue for patentability. Under this test, a method would be patent-eligible if it is tied to a particular machine or apparatus or transforms a particular article into a different state or thing.

A business method implemented on a computer might be considered to be “tied to a particular machine” and thus patent-eligible. However, a general-purpose computer that merely performs a mathematical algorithm will usually be deemed unpatentable.

Business methods having one or more steps involving the transformation of a physical object will very likely constitute patent-eligible subject matter. Furthermore, the transformation of data that represents a physical object has also been found to create patent-eligible subject matter.

Determining whether a business method is an “abstract idea” will be a subjective, case-by-case decision. This undoubtedly will result in unpredictability in Patent Office decisions. The upshot is that some business methods will be patentable, but will require careful drafting of patent applications and claims to obtain patent protection.


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