Federal Court Rules in Bilski Business-Method Patent Case

Posted by: Diane Brady on October 30

Here’s an entry from our legal affairs senior writer Michael Orey:

A federal appeals court issued a decision today that appears likely to scale back the granting of controversial “business-method” patents. For the past decade, patents have been granted for such things as methods for ordering on e-commerce Web sites, systems for conducting Internet auctions, various financial products, and other techniques companies and entrepreneurs have claimed to be “processes” eligible for protection under the U.S. patent statute. The long awaited ruling in what is known as the Bilski case rejected an attempt to patent a method of hedging risk in commodities transactions. In doing so, the U.S. Court of Appeals for the Federal Circuit said that its 1998 ruling that opened the door to such patents must be applied more narrowly.

The business strategy at issue in Bilski was developed by two individual inventors, Bernard Bilski and Rand Warsaw. But the case drew interest and court filings from dozens of large corporations. Some, like IBM Corp., argued for tightened standards that would sharply limit what IBM in-house patent counsel David Kappos described as “runaway issuance of nontechnological process patents.” Others, such as technology services and consulting giant Accenture, defended patents stemming from such areas as financial services and organizational behavior as central to innovation in a 21st century economy. Kappos said IBM was “very pleased” with the court’s decision. “It doesn’t spell the complete demise of business-method patents,” he says, “But without question it points to a major downsizing.” In a conference call to discuss the ruling, Accenture representatives acknowledged that the court had not embraced the broad view of patentability that Accenture had pushed for, but emphasized that there was still room to protect business strategies.

While rulings over the years have used various tests to determine if a process qualifies for patenting, the Federal Circuit said the sole analysis should be the “machine-or-transformation” test – which requires showing that the claimed invention is either tied to a particular machine or that it transforms an “article” (such as a substance or data). At the same time, the majority opinion, joined by 9 of the 12 justices ruling in the case – acknowledged that “the widespread use of computers and the advent of the Internet” had begun to challenge the usefulness of such a test. The justices invited the U.S. Supreme Court to develop a new test for determining the kinds of inventions that should be eligible for patent protection, one that might better “accommodate emerging technologies.”

But the court dodged what for many is a crucial question: Whether simply employing a computer itself is enough to earn patent eligibility . The justification for granting many business-method patents to date has been, in part, that they made use of a computer to perform calculations or the Internet to complete a transaction. The court said it was choosing not to address that issue, because the patent sought in the Bilski case did not require use of any machine. Nor, the court concluded, did the claimed patent “transform any article to a different state or thing.” Said the court: “Purported transformations or manipulations of public or private legal obligations or relationships, business risks, or other such abstractions cannot meet the test because they are not physical objects or substances.”