Bilski v. Kappos: The Supreme Court Hears Oral Argument On Business Method Patents
In 1997, Bernard Bilski filed a patent application with claims directed to a method for hedging risk in commodities trading. These business method claims were rejected by the Patent Office, and this rejection was appealed to the Federal Circuit. In an en banc decision, the Federal Circuit upheld the rejection. In so doing, the Federal Circuit promulgated a new test for the patentability of method claims in general, requiring that a method either be tied to a machine or transform a particular article into a different state or thing (the "machine or transformation" test). As stated by the Federal Circuit:
Thus, the proper inquiry under section 101 is not whether the process claim recites sufficient "physical steps," but rather whether the claim meets the machine-or-transformation test. As a result, even a claim that recites "physical steps" but neither recites a particular machine or apparatus, nor transforms any article into a different state or thing, is not drawn to patent-eligible subject matter. Conversely, a claim that purportedly lacks any "physical steps" but is still tied to a machine or achieves an eligible transformation passes muster under section 101.
In its decision, the Federal Circuit explicitly stated that the more permissive "useful, concrete and tangible result" test from its opinion in State Street Bank & Trust Co. v. Signature Financial Group, Inc. (Fed. Cir. 1998) was no longer the proper standard for patentability. The Supreme Court granted certiorari to consider whether the new, narrower test was contrary to the Court's precedent. On Monday, November 9, the Supreme Court heard oral argument on the issue.
At Monday's hearing, advocates for both Petitioner and Respondent were extensively questioned by the Court, particularly by Justices Sotomayor and Kennedy, the latter of whom is frequently the Court's swing vote on 5-4 decisions. The hour-long question and answer session suggested that the Court did not believe that Bilski's business method should be patentable. However, the questions also suggested that the Court was aware of the consequences a broad ruling could have not just for claims for business methods, but also in other areas such as computer software and diagnostic methods. The problem which the Court seemed to be confronting was one of line drawing, and the unintended and undesired consequences if the line for patentability were drawn too narrowly.
The Federal Circuit's replacement of State Street's "useful, concrete and tangible result" test with the "machine-or-transformation" test has presented applicants with a higher hurdle to obtain claims over business methods. While it appears unlikely that the Supreme Court will completely reverse the Federal Circuit, it is less clear whether the Court will adopt the "machine-or-transformation" test as-is, or attempt to walk a middle path between that standard and the broader standard from State Street.
This IP Update was written by Eric Hutchins and Gary Ritchey of Townsend’s Palo Alto, CA office. Mr. Hutchins is an associate in Townsend’s Litigation Practice Group, specializing in patent litigation and related client counseling. Dr. Ritchey is a partner in Townsend's Litigation Practice Group, specializing in patent infringement and other intellectual property disputes.
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